John Strojny, who owns a string of New Balance athletic-shoe stores in the region, was explaining why he sells stakes in his stores to the retail managers, when I thought to myself:
“I could do this.”
Dan Guzman thought the same thing.
For most folks, the only practical way to accumulate wealth in our society is to invest in businesses, either buying stock in big or small companies or owning your own business. You have to take ownership of assets that grow and increase in value.
Guzman, a high school sprinter who has a degree in business management from Old Dominion University, gets this.
Now 29, he spent six years in the trenches at Strojny’s Tysons Corner store, where he did everything from selling shoes to scheduling staff. Strojny noticed that Guzman was super-reliable and mature and asked him to become a partner in his newly opened store in the Mosaic town center in Merrifield.
The Fairfax County store opened May 10.
Strojny said having owner-managers is a way to be on the premises without actually being there. As any business owner will tell you, “owner on premises” is a key to ensuring a smooth-running enterprise and a gateway to profits.
You can often tell whether an owner is on the premises by noticing whether the staff is solicitous, moving fast and, frankly, seems to care.
Strojny, 60, gets that part of the equation.
He got the idea for selling ownership stakes to employees around 20 years ago, when he managed and owned five Athlete’s Foot stores in Pennsylvania and Delaware.
“I asked a guy in New York City, who had 28 stores, ‘How do you micromanage stores without being there?’ He said he had owner-managers on site. He said an owner cares a lot more about the business no matter how you slice it. They care a lot more than a manager who is just on the payroll.”
It’s called aligning interests.
“They stand to gain more if the store does well,” Strojny said. “They also stand to lose their investment if the store does not do well.”
Strojny closed the Tysons Corner Center store on April 28 after his lease expired. He thought about staying, but the lease rose by more than 50 percent, mostly because of a new Metro stop going in nearby. The Metro is expected to increase foot traffic to the mall.
So Strojny walked. Then he hired Guzman, who was the Tysons store manager, to run the new store at Mosaic.
“I put up my own money and now have my own skin in the game,” Guzman said.
He wouldn’t say exactly how much he had to invest, but based on the cost of opening a New Balance store and the 20 percent Strojny sells to his owner-employees, Guzman put up somewhere between $20,000 and $40,000.
That buys equity, annual distributions, a job managing the store — and, most important, a feeling that you are a part of something.
“I’m more excited than scared,” Guzman said. “The sky is the limit.”
Strojny lives in Delaware, but he loves the Washington market. He sold some of the Athlete’s Foot stores a few years ago and converted the rest to New Balance stores. He now has two Washington area New Balance stores and is looking for more locations. He has another store in Richmond and a couple in Delaware.
They are all separate companies and are profitable, he said.
The average New Balance store sells $1.1 million worth of athletic merchandise annually, which on average produces a net profit that can range from 5 to 15 percent. Strojny said all his stores are above average in revenue.
I estimate that the five stores together bring him $500,000 or more in profit in a good year. Out of that, he takes a share. Store owner-managers can also earn a share of the profits, in addition to their salaries and bonuses. A good owner-manager of a successful store could earn around $100,000.
The rest is rolled back into the stores to create a cushion.
Labor is the biggest expense, followed by rent.
The average New Balance store costs about $250,000 to launch; there are 160 in the United States.
“I want my manager-owners to own 20 percent,” Strojny said. “If they don’t have the money, we will loan it to them, and they can pay it back on a monthly basis for three to five years.”
I asked Strojny how he competes with the Internet. If you have been buying the same brand and model of running shoes for the past 20 or 30 years, as I have, why would someone take the trouble to go to the store when they can just have the shoes sent with a few mouse clicks?
Strojny said the big “value add” for his stores is a New Balance machine that scans the customer’s foot, gauges the size and width, and maps the pressure points. The salesperson can more easily recommend the right shoe and insert.
“The inserts are a big draw and a substantial part of our business,” Strojny said, adding that customers asking for inserts are often sent by doctors. He pays $200 a month to rent the scanner but makes several times that on the inserts, which cost between $35 and $70 a pair.
Guzman was on the premises at the Merrifield store on Friday.
“It’s a lifestyle now,” Guzman said. “It’s not a 9-to-5 type of thing. As an owner, you feel like you should be there 24-7. There are going to be sleepless nights. My wife [who works elsewhere] is going to see less of me. If she wants to spend time with me, it’s probably going to be in the office at the store.”
Welcome to the world of the small-business owner.