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July 9, 2009

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Business Forecasting 2012

Our special feature on forecasting sheds light on how to choose the right model, offers advice from Jack Stack and more.

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Irwin Cohen is a property developer who believes that small businesses, not Madison Avenue and Wall Street, define the character of his hometown, New York City.   
So in 1994 he bought a 19th century cookie factory in the dilapidated Chelsea section and turned it into Chelsea Market, a successful indoor market featuring specialty shops such as Amy’s Bread and Frank’s Butcher Shop. Those mom and pop businesses, in turn, attracted glitzy media properties such as the Food Network and Oxygen Media, which now occupy the second floor.

One of Cohen’s first tenants was the Lobster Place, a wholesale and retail operation that today supplies Manhattan’s most elite restaurants and has nearly doubled its revenue since 2002. That’s when Ian MacGregor, 31, took over operations from his parents. “If we hadn’t come here, the Lobster Place would have definitely gone out of business” says MacGregor.

Recently Chelsea Market founder Irwin and Ian sat down in the seafood emporium to discuss their relationship and the secrets to transcending the tensions between landlord and tenant.

Irwin: I don’t know if you know this, Ian, but I met your father about 12 years ago. How old were you then?

Ian: Let’s see, I was 19.

Irwin: Right, you were in college, at the Coast Guard academy, and I walked up to your father’s store, right across the street here, and asked him, “What do you do?” I never knew lobsters were sold in New York City!

I used to have to go up to Ogunquit, Maine, and load up the car. Later, I came up with the idea of creating a wholesale/retail market in this building. It used to be a very dangerous neighborhood — remember it?

Ian: The Canadian truck drivers who were delivering lobsters thought it was a no man’s land.

Irwin: If a driver got out to unload the back of the truck, someone would jump in and drive away. Steal the truck! Anyway, when I got the idea for the Chelsea

Market, I asked your father to join us, “Open a retail store?” he said, “you’re crazy. It’s not going to work.” I told your father, “I know you’re a wholesaler, but I also want you to be a retailer, too.” That was my plan. To be a tenant here, you had to be both.

Ian: Well, he used to be a retailer. And it worked out great. The truth is that for both our wholesale or retail businesses, as a stand-alone, neither is that great a business model. Because you’re dealing with perishables. But what’s great about Chelsea Market is that by marrying the two, you make each division much stronger.

Irwin: You seem to be taking the business from strength to strength. What’s your secret?

Ian: Wish I knew — I’d write a book and make a lot of money. Well, in 2004, we automated the entire operation, so that really increased our capacity to do business. Our rent has stayed stable — that’s been key. We signed a 20-year lease, so we have 10 years to go. We vastly increased our fish business because, with lobsters, you have to keep them alive, which cuts into your margin each time one dies. And the amount of traffic here has grown a great deal with the arrival of the Food Network in 2004.

Irwin: Well, what’s good for the tenants is also good for the landlords. The building is still full and there’s a waiting list of people who want to move in.

Ian: From day one, you had a vision and have taken a real genuine interest in our success. You walked into my father’s old place across the street, and my father said, “I don’t have money to build out or move my operation.” And you said, “I’ll lend you the money, don’t worry about it.” That’s a dream landlord-tenant relationship.

Irwin: First of all, this was a social experiment for me. No one has ever done this. I’m not a retailer, I’m a lawyer. But I had this dream. I didn’t meet the tenants through real estate brokers. I went out and personally found each one, and I sat in on all the negotiations, and made sure the lawyers did not behave inappropriately. I said these people are human beings and they have to be treated as such. My office was in the middle of this market and I had a table and sat right in the front window. Every tenant who walked by I spoke to every day. All the tenants had my home phone number. And I said if something is not taken care of within five minutes, call me. I never got a phone call at home.

Ian: And the customers are so important.

Irwin: You learn so much from them. This is a real neighborhood, and that’s what we need more of in New York. You hear about the big businesses that do so well but it’s actually the small businesses who buy from them. New York survives because it’s a small business environment. And as we keep these small businesses in Manhattan, we keep the character. I’ve lived in New York my whole life and the small businesses are what keep neighborhoods alive. That’s what we’ve done here. Created a neighborhood. It really charges up my juices to see customers happy and to see people like you, and your mom and dad when they were here, running their businesses.

Ian: So what’s your encore?

Irwin: The Bronx does not have very good food available for the population — there are no supermarkets up there — so I’m working on a plan now to take unused apartment buildings there and build family business enterprises, like you see here. What about you — what’s next?

Ian: We’ll be developing our online business to reach other customers. With the exposure we get on the Food Network, there’s an entire market in the West and Midwest that doesn’t have any access to the products we sell, and we’d like to start reaching out to them.

Irwin: Well, you have matured this business to a point where I would put you up against any company in the fish business, anywhere. And I remember the day your father told me you were coming in to take over the business — at the time, you were in the Coast Guard, serving on an interdiction ship in Florida, chasing drug dealers!

Ian: That’s right. But so much of our success has to do with where we are — here in the Chelsea Market. That’s certainly why our business model works so well.

Irwin: You mean this is more fun than chasing drug dealers?

Ian: [laughing] Certainly less dangerous.