Acquisitions Anonymous - #1 for business buying, selling and operating - Mills Wants to Buy a $5M Tourist Trap Business in Florida

Episode Date: August 23, 2024

In this episode, we look at a retail apparel business in the middle of Florida’s tourist hotspot, WaterSound. They’ve made the most of the busy Highway 30A traffic with three stores and an online shop. But is the $5 million asking price worth, especially with so few fixed assets? We talk about the pros and cons and whether this deal is a hidden gem or another tourist trap.Thanks to this episode's sponsor:Acquisition Lab and their team have been longtime supporters of the pod.Acquisition Lab exists to help people buy a business and navigate all the complexities of the process, as well as provide a trusted framework, tools, and resources to support you from search to close.If you are serious about buying a business, check out acquisitionlab.com or email the Lab's director Chelsea Wood, [e-mail] and mention us ;)Subscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

There's pros and cons with this. The issue is I don't think it's really that differentiated. But if you go on vacation to 38 with your family, you can bet your last dollar that you were walking away with some branded merch. I bet this is a great business. I mean, it's seasonal. Today's episode will take you to the beach and you may not want to come back. So it is the sale of a very interesting business located in southern Florida.

And we resisted the urge to Google and out the name of the company, but it was pretty easy to figure it out. But a pretty interesting situation and one that I think if you wanted to change your whole life and go live by the beach and have, I think, a nice business there, this retailer for sale is definitely a candidate for that. So Mills and I had a ton of fun doing the deal. This is Michael Girdley, one of the co-hosts. And I hope you enjoy the episode as much as we enjoyed making it for you. All right, here it is. This episode of Acquisitions Anonymous is sponsored by Acquisition Lab.

Acquisition Lab and their team, they've been longtime supporters of the pod and they provide a really great service for people who are looking to acquire a business. So it's created by Walker Dival, who's become a friend, the author of Buy, Then Build, how to outsmart the startup game. So Acquisition Labs is an accelerator with a highly vetted, cohort-based, educational, and support community for people who are serious about buying a business. So a lot of our listeners like you, you tune in every week to our deal reviews, you want to get in on buying a business. You know, you're on this podcast because you're trying to learn how to buy a business.

But if you're not quite sure where to start, Acquisition Lab is a great place to start. So they exist to help people. people buy a business and to navigate all those complexities of the process, everything you hear us talk about on the show, they provide a proven framework, tools and resources that support you all the way from search to close. They do it. There's a whole bunch of educational material and support. So if you're serious about buying a business, check out AcquisitionLab.com or you can actually email the program director Chelsea Wood directly. Her email is Chelsea at buy then build.com. All right. I'm giddy. This is we pay.

I picked this six seconds before the recording went live, but this is a juicy listing. I'm going to screen share. Yeah, yeah. All right. Man, you woke up and chose violence with this one. I mean, there's so much to this, okay? So this is Bizby Sell, soon to be, hopefully we're aspiring sponsorsies of Bizby Cell at some point. This is a branded retail, apparel, and accessory store.

It's multiple stores. in Water Sound, Florida, in Walton County. Cellar financing available. The picture looks amazing. Crowded, very expensive houses by white sandy beaches and blue water. It's that weird, it's that weird kind of development that people do where it's like, we're going to create this version of like Key West, where it has the illusion of being walkable, but you can't really walk anywhere because they don't actually have a grid and the houses are too big and

they're not close enough together. And the realest, the retail is all tucked in a corner way far away from everybody else. So it looks like golf cars, you know, it looks like you're going to Savannah, Georgia. And it's the walkable lifestyle that's integrated that everybody wants to have.

But it's not. It's just a bunch of stupid townhomes next to the beach. Well, and none of these houses, based on this picture, none of these houses are beach front, right? Like more traditional beach development.

Beach adjacent. Yes. So asking price $5 million. We have nothing. no information on cash flow, no information on revenue, no information on EBITDA. There's $500,000 worth of inventory and the business has been around since 2017. So we have a few descriptive things here. Located within the top entertainment venue on Highway 30A, Florida, three retail and apparel

and accessory stores, one of which is a branded apparel store located within 40 yards of each other in the top beach venue on Highway 30A in one of the most heavily visited tourist destinations in the United States. And there's also a related online stores in quotes. The branded apparel store was established in 2017, growing steadily since inception. The second, third stores were opened in 2021 and 2023, respectively. The branded apparel store is being offered with a royalty-free right of use to be able to use the brand within a 20-mile radius of the current store location. So I don't know what this is.

Like, is it something specific to 30A? Is it something specific to Florida? But they only want you to use it within 20 miles. You don't get it like an unlimited license. The brand is held in a legal entity separate from the stores controlled by the store's owners and could be considered in a transaction, dependent on buyer, in addition to the three physical stores and online stores. So it's in Watertown, Florida.

The inventory is included. We don't have any revenue data. they say fixed assets are minimal. The leases with extensions run through December 31st of 2032. They say they have, there's other 500,000 visitors there annually, not to the stores, but just to this area. Primary local competition for branded apparel store is the Seaside Style and the 30A apparel brand.

So like, I'm thinking this is something like, salt life, you know, or like beach life or like one of those, but it's specific to this area. Growth opportunities include product line expansion within the current stores, adding additional physical locations, 30A targeting, online store officially relaunched in 2023 with a new focus, so maybe it wasn't doing that well. Financing is negotiable. Owner would consider seller financing less than 50% of the transaction, management team in place owner not heavenly involved in daily operations oversight financial oversight only currently

eight full-time employees and six part-time employees and dennis hobbs is the broker with the fountain head firm oh my goodness michael what do you think uh man i don't hate this um okay so if let's make sure we understand what the business is before i passed judgment which i already did um okay so they have three retail apparel stores and one of the them is a branded store and it competes with this seaside brand whatever so i look that up and it's kind of like um yeah i'll pull it up here on the screen yeah you're you're trying your screen it's kind of like that stuff that if you want to oh you're currently sharing i'm i'm i'm like shook this is so this is basically just cotton t-shirts that say seaside yeah and they're 35 dollars um top sellers are just like it's all

just cotton t-shirts and some some uh like sweatshirt blankets and stuff like that so there's something else like this but is it is a different one that's not this exactly that's not the 30 a florida apparel or whatever okay yeah i mean they appear to be selling just kind of beach couture is basically the way i would describe it like there's a a fancy script hat for 30a that is you know got stuff on it so you're not selling a truly unique thing but you are selling something unique for what whatever brand you're part of, resisting the urge to open up Google Maps for Seaside and be like, okay, what's right here? But yeah, this is like kind of like designery beach apparel as you're talking about.

Yeah. And so then the other two t-shirt shops are apparel shops, which I'm guessing are beach t-shirt shops are probably just kind of your typical random generic beach t-shirt, beach crap. Is that how you're reading this? Yeah, it's amazing how I mean, I googled and found it right away, but we don't have to pull it up because sometimes people get mad at us for doing that, but it's very findable. And it seems like, so the issue, there's pros and cons with this. The issue is, I don't think it's really that differentiated. But if you go on vacation to 30A with your family, you can bet your last dollar that you were walking away with some branded merch.

And you got to get it while you're there, you know? like you're not going home and buying like the little 30A shot glass you buy it when you go to the trinket store and you get a t-shirt and a towel and you know you take those things home and it's like a nice memory and yeah it's overpriced relative to just other cotton t-shirts and you know blankets but you're there you got to do it it's the touristy thing to do yeah uh there is an interesting economic principle called the um called the tourist trap principle of economics and it basically the The TLDR of it is everybody, if everybody's selling kind of a commodity, they all price it pretty close to the monopoly price. Monopoly price is what you would price something at if you had 100% of the market, right, where you think that it's so expensive that any more that your demand starts to decrease.

So that's monopoly price. Whereas if there's competitors, you have to price competitively, right? So the idea of thinking about it is if you're a cruise ship, right, and a cruise ship rolls up to a dock and everybody comes off, which, which t-shirt shop as they walk down the dock do you want to own Mills? Is it the first one? Is the first one? What's the second one you would want to own? The second one? Yeah.

But so you're selling an undifferentiated product to a buyer who is making a joyous purchase on a vacation. They don't, they're not, they're not going to price shop you very much. much. And at most, they're going to look at one, maybe two vendors and just drop 30 bucks and leave, right? So what you see in those situations is everybody fights over how do I get the first or second spot? And the people in the third and four spot, they don't make it because their customers don't really care about having. So there's reasons they can make it. Maybe you need more capacity of a thousand people come off the cruise ship at once and stuff like that. But by and large, by and large, that's how this economics starts to work. And, you know, one thing I like about this

is because of that dynamic and you have people on vacation or making a once in a year seaside t-shirt purchase, they're going to pay up for it, right? They're not going to worry about the fact you're charging $49 for an $8 sweatshirt. They'll pay up for it. So you tend to see that happen where in vacation markets like this, especially around the beaches, there will be a million of these little stores that sell the same crap. And you're like, how do these all survive? Well, I just explained to you how they all survive.

They're selling high margin crap. and and they're all like fighting over the same the same people who just tells you elaborating on your point it tells you they have two stores 40 yards apart their next door neighbor or across the street neighbors so and they've got at least what seems like an asset it is a liability on their balance sheet but they have a lease that can go for you know eight more years if they want to yeah yeah all right so is the brand is the like their they're branding right like if it's seaside or whatever the other was and whatever this is, it's not that.

Is that worth anything? Do you think there's actually any value? Or could you just have a shirt, 30A is not a proprietary thing. You could just print a shirt that says 30A. Do you think there's any value in the brand? They don't mention any IP. They don't mention any, like, you know, actually protected intellectual property. Yeah.

I think the license that they have to sell that brand is definitely worth something. Have we talked about the C-Bags business? Are you familiar with that? Okay, so sea bags is really interesting. You'll find them in like all the kind of, I guess, sailing adjacent towns around the country. So if there's like a lake and people are going to sail on it, you'll find sea bags. So sea bags, it's basically these very chic bags that are made from recycled old sailboat shells. So they become very popular because they will go buy these sales from people that are done with them on their boats.

and then they have like domestic folks or like people coming out of rehab or whatever. I think they're in Maine is exactly where they are. Like it's like a community service where they hire these folks to like make bags out of them. And each one is very unique. And so they sell them for like $400 at these stores. It's called C bags. You can check it out. And so basically like what you see is like those C bags have exploded into being this

business that is like in every single one of these places. And there's some value to the brand there. because like you have something that's unique. You have a brand that people know. So there's people like, yeah, collect them like Birkenbags, right? We've talked about Birkenbags. So you have a situation here where those economies of scale and the experience and the learning that those big brands get, there's some value in owning like exclusive distribution

for one of those brands in a specific market. Like I would love to own a Seabag store in one of these places. And this may be an equivalent. So yeah, I would place some value to that. If it's like if there is something differentiated. about it. But like what I'm wondering is can you actually can you extract some additional value for the price of the intellectual property for the price of the license or are all the t-shirts $35 whether they say this proprietary thing or just 30A or something or like you know yeah.

Yeah. Yeah. So I would here's what I guess is going on here. There's three stores. The one store is the branded one, which they talk about a lot. So I bet that's at least 50 to 60 percent of their profits because You know, that's going to have, because of the scale of the brand, like better merchandise, it's going to be targeting a higher end of the market. It's just going to be good looking stuff, right? The stuff that people are going to pay $80 for a sweatshirt for, right? And you're going to make $50 gross on it. And the brands tend to understand that when they're in this market.

They need to make sure that their retailers can do really well. So they support you in those type of high-end pricing. And I think that totally works. Where I think is a red, red ocean that they're in the middle of is what I'm guessing the other two stores do, which is just. random chotchky crap that is the same stuff you see in every tourist trap t-shirt shop. And I bet those exist to some extent because they don't want other people to be opening branded apparel stores to compete with their main profit driver. That's what I suspect is going on here.

Hi, Heather here. When I'm not breaking down deals with these guys, I'm helping people get the right SBA loans for their business acquisitions. Because when you're buying a business, the best financing isn't one size fits all. There's the best rate, fastest to close, the specific loan structure that you need or a little of all of those things. That's why my company, Vizzo Business Capital, works with over 30 different lenders to find you the best funding in less time and with less friction so you can focus on the deal. Sign up for a free live Q&A session on SBA loans at Vizocamp.net. Then click Zoom sign up in the top right corner. That's V-I-S-O-C-A-P.net and click Zoom sign up. All right. What do you make of the fact that they don't tell us anything about the financials?

Is that a good omen? Like it's so good they don't want people to know the underlying economics or is it a bad omen because it's so bad that, you know, he's like, I don't want to scare you away. I don't know. Let's look over me in Dennis Hobbs here. He's wearing a hat touching his face. I'll change everything. It's interesting. Dennis is a, he's a broker in Houston.

Ooh, interesting. Yeah. He serves Harris County, Midland County, Lee County, New Mexico and Eddie County, New Mexico. So Harris County is Houston. Midland is obviously Midland. Lee and Eddie County, New Mexico are in New Mexico, nowhere near Houston, the other end of the state. Yeah, super interested. It makes me wonder if Dennis Hobbs, especially because he doesn't have a photo here, is an older broker who spends a lot of time in the area and somebody's asked him to list the business for him.

Yeah, I think you're definitely right. If you go to his website, it pops up as not being secure. And the website is under construction. And if you click any of the links, it just opens up your email browser and it sends them an email, which is awesome. We love you, Dennis. So, yeah. I kind of am suspicious that they're not sharing financials because they don't want anybody to know how good it is. I bet this is a great business.

I love how excited you just got like deep down in your soul. I saw it. I bet this is a great business. I mean, it's seasonal. Let's be real about that, right? you're you ain't selling squat in October. But, you know, you have people there. Florida's great, you know, being in the tourist business there because you have everything

from, you know, Thanksgiving, things start through the winter. And then you, you have people there for spring break. And then you see it again over the summer. Like, yeah, I bet these guys do pretty well. This is interesting, man. I mean, like, so let's talk about who buys this business? And what, what are you signing up for when you buy this business? you need to live there, you know, at least for the busy season, and you need to have a team in place who can run it when you're not there.

But you're like, this is beach life. And you're dealing with probably a transient workforce, like very seasonal workforce. And you're working retail. So you got physical inventory, which they mention. You're managing that physical inventory, which is, which can be very tough. Like, you know, you could have a bad season and you end up with, you know, a bunch of, a bunch of inventory. that you're having to hold for a year, but it doesn't spoil. It's not like, you know, it becomes obsolete. It's not dated. It's not like, you know, 30A, 2024, and all of a sudden

you got to throw all that stuff away in 2025. Yeah. Well, the, you know, I think they potentially have a benefit here that there's a bunch of folks that are retirees in the area. So you may have some delightful employees. They just all happen to be 75. So that may be an option here of how you, what you're dealing with here. Look, here's the big worry about this business. I'll just tell you straight up. So Chris Powers has a great line that all economic benefit eventually flows to the landlords, right? So when you're in retail, you have two options as a retail or you can own your land to control your destiny or you sign leases with landlords.

And those leases tend to be one of two things. You either sign up for a very long lease, 30, 20 years and you can control your destiny for at least that period of time. Or like these folks, their lease is up in 2032. So we've determined, we think most of their benefit is coming from this one branded store. And that lease is up in eight years. So, okay, let's imagine what happens eight years from now. You don't own this land. You have to negotiate a renewal.

The landlord owns you, right? They get to figure out how to do this. So any underwriting you're doing here has to drastically assume that things are going to go badly for you in terms of profit margin. in eight years, right? And you either need to have a plan B or figure it how to own your business, own the building or any of that kind of stuff. But I think that's the big mess here is, you know, this is a competitive red ocean in terms of being tenants and fighting over, fighting over the good spots. Like the good times will not last forever in terms of whatever you're buying. And to your point, like if this is the store that's right by the pier,

you know, or whatever the equivalent is, then you got to have this location. And if you have to move three blocks, the people who are coming back, you know, the next season are not going to go walk down the road. They're going to hit the convenience store, you know, they're not going to remember you. Yeah. Well, and the equivalent here is, you know, Florida is mostly a drive-in market for, for Seaside and stuff like that, you know, people that I know that go to these, I think that's panhandle, is seaside? People, that's a, it's a very typical drive-in market from Atlanta and different places like that. So, yeah, there you want to be on the main drag, ideally in the road that everybody uses to drive to their, drive to their stuff.

And ideally within walking distance of wherever your little market, you know, the core market of downtown seaside is like you want to be, you want to be right there and anything not there or slightly away from it is bad real estate. You don't own that. I think there's an interesting play here. I don't think you were there when we talked about this deal, but we looked at, I think it was like a weird B2B services business. And the guy was selling it.

I remember Bill and I talking about it and did an episode on it. a couple years ago, but it was in downtown Savannah. And the guy had basically built over 40 years, a couple of like small B2B services, like insurance brokerage and stuff like that. But, and he was selling him for like a million bucks, like three times earnings, whatever. But what was interesting is along the way, he had picked up three buildings in downtown Savannah that together were probably worth $15 million. And his whole life's work had resulted in an insurance brokerage worth a million dollars,

let's say. And then, but he'd used that to buy three buildings that were now worth $15 million, which is a typical boomer. It's like prototypical boomers. Like, hey, we got here first.

We bought everything. Like, but you can't build anymore. Thank you very much. So, but I think that's an interesting opportunity here. Like, could you figure out how to use this as a way to try to own some real estate and

control your destiny? I don't know if that's a possibility these days, but given the, the potential time bomb here with this business, and that's a place I would look at. Like, how can I get in the real estate business using this as a vehicle to get me there? I mean, this is just very interesting.

I don't, I'm going to zip my mouth because. Are you going to buy this? No, no, no, no, no. Look, bro. I'm telling you what I'm getting for Christmas. I'm pulling up right here. Look at this. Here's 60A 30A gear.

And this is a gray sweatshirt that says beach happy on the front. And when I think of you, Mills. you think of beach happy well on the front it would say beach happy but on the back it would say beard happy that's awesome and it's how much how much is this uh for a it's for a piece of crap sweatshirt it's 66 dollars so probably cost for that is 10 bucks 12 bucks maybe so i'm i'm I'm thumbs down on this, but I am very curious. I mean, there's there's something going on with this business, something probably either very good or very bad.

And that, that makes me curious. It makes me want to reach out to Dennis and find out what the story behind the story is. Look, yeah, there's something about the way this is marketed that there's an opportunity here. So I know your thumbs down on it because you're a pessimist. You need to think, you need to think positive, Mills,

about how I make stuff about it. But I think you should do this deal just because you will end up on a Zoom call with Dennis. Dennis will have his iPad out. And on Zoom, it will say Dennis's iPad. And the whole time you will get to look up Dennis's nose as he talks to you. It sounds like you've done this once or 10 times. Boomers love to do Zoom calls on their iPads. Just from this angle.

Yeah. And it's always straight up, you know, straight up and down that way. Yeah, this 38 brand is. not as cool as the seaside brand it looks like i think if you if you want to live in panama city beach like if you want to live on you know in this area and you you want that life this is probably like a decent you can make a decent living this way i just it's not i don't know it's not for me yeah well i think you'd have to want to work on this man these stores are beautiful i'm pulling up the 30a stores their website photos make everything look like they're selling super cheap junk but

the actual store here in Santa Rosa Beach looks kind of beautiful. Good looking store. Yeah, like this is a very specific lifestyle. You want to live. So, yeah. But anyway, you're totally wrong. There's something here. I want you to go.

I want you to do the site visit and then we'll talk. I'm not interested in being this business. This sounds horrible. All right. You want to wrap us up? I think we did a great job with this one. I give us a 11 out of 10. That was very fun.

And I mean, I'm telling you, I was just so excited when I started reading that listing. And it was, you were like, go, go, hit record. Come on, Gustavo. I hope everybody enjoyed it. Tune in next time.