Most entrepreneurs want to see their small businesses grow, but expanding too quickly or in the wrong direction can be the death knell of an otherwise promising business. Glenda Barnhart and Clay Wagers (pictured), owners of Bay Area Bikes in Oakland, California, have found an upside by gambling on the futures of distressed neighborhoods.
In retail, as in real estate, the three most important factors for success are often location, location, and location. A year after Barnhart and Wagers bought Bay Area Bikes in 2008, they noticed that no one in the East Bay was offering bicycle rentals. “We approached Jack London Square, which was still pretty dead at that point,” says Barnhart. A retail development near Oakland’s waterfront and ferry terminal, Jack London Square had only one open retail business at the time.
“They love us as a tenant,” says Barnhart. The bike rentals drew people to the area and the bike shop (offering rentals along with a limited selection of bicycles and gear) became an anchor tenant.
Surviving a Slow Start
“There were… days that nobody came in the door, ” Barnhart says. The partners were able to survive the slow start of the new location because they negotiated a deal with the landlord to peg rent to a percentage of sales. “If we didn’t make any money, we weren’t deep into the red,” says Barnhart, whose MBA and accounting background help inform their business decisions. “[The landlord] saw the value of having somebody with their door open.”
They also took advantage of a county program for hiring the long-term unemployed that paid 80 percent of wages. “Having the ability to have the subsidized salaries allowed us to keep the doors open and got us through another year,” Barnhart notes.
By the second year, business started to pick up as more people came to the waterfront. Now, the couple is contemplating expanding their Jack London Square location. “We turn business away,” says Wagers. “We could probably do more if we had more space down there and more of a proper (bike) shop.”
Wagers, whose career in the bicycle industry gives him business instincts that also help guide the pair’s business strategy, notes that adding locations also offers competitive advantage. “We do it partially because there’s the opportunity, but it’s also a defensive strategy,” he says. “We protect ourselves from a big corporate shop coming in and taking food off all of our plates. Hopefully the byproduct of that is we’re protecting all the small shops.”
Expansion Ups and Downs
Banking on potential can be a risky bet. In 2011, officials from Pittsburg, California, 30 miles east of Oakland, approached Bay Area Bikes to open a shop in that city’s downtown. Barnhart and Wagers saw that the city had 47 miles of bike lanes and that the nearest bicycle shop was 20 miles away and took the plunge once more. “For us, it was a no-brainer,” Barnhart says.
However, the promise of a redeveloped urban core has not become a reality in Pittsburg and their store remains almost the only retail establishment in the city’s downtown. “It hasn’t been as good as we had hoped it would be,” Barnhart admits. “You look at the profitability of it and we’ll make a decision when our lease is up.”
“It’s going to make some sort of impact on the community, so we want to see it work,” Wagers adds.
The partners also recently expanded their original Oakland store. When the landlord refused to renew their lease because he wanted the space for his own business, Barnhart and Wagers found not one but two new storefronts just a block from their old location. This allowed them to create separate spaces for two different parts of their business and display more bikes on the sales floor.
“If we only looked purely at the margins and the bottom line and treated our business like a robot, it would affect the bottom line in a bad way,” Wagers says. “Profitability should be a byproduct of doing things right.”