How do we select great locations?

Site selection is like a tug of war. On one side are all the good things you are looking for, and on the other side is the rent (or purchase price) being asked. We can all secure fantastic sites if we pay outrageous prices, and we can all get poor (and cheap) sites, if we are prepared to compromise on the basic necessities we know we should have. Retail site selection is all about being able to achieve the positives, without paying an exorbitant cost.

How often does a business fail, not because the product is poor, but because the retail location planning has put the site in the wrong area? It is very difficult (almost impossible) to make every retail site perfect, but you can use some processes to improve the probability of success for your new stores.

 

Areas to consider

By defining the areas you need to look at, you create a more structured approach to evaluating a location. What we are retailing will have a huge influence on our retail decisions, including that type of retail venue(s) are we seeking. If we are an oil company, then we are looking for free standing locations with great traffic and access. If we want to go into a shopping mall then we need to look at the Mall’s statistics, and if we want an Inline shop, then the power of the strip, and the passing pedestrian traffic is very relevant. Each type of site is different and has its pros and cons accordingly.

 

Demographics

The USA has very good demographic information to allow you to make some assessment of the area you are trying to open a store in. Using the United States Census Bureau, and the 2020 Census, you can find relevant information on any area by simply googling “census.data” and following the links.

Ideally we like to have information so we can match up the potential customers with the resident population. What I mean by this is if we know who the potential customers are, we can look to where they live, and look to that area for locating our business.

Using United States Census data, we can see or make an assessment on things like population, age profile, average household income and ethnicity to name a few. It also provides a simple map of the area, and you can see what access to an area looks like. For example, if you are opening in a beach side area, just remember fish do NOT buy your products, and if the ocean is on one side of you, then you only have 50% of customers to work with, compared to an area with no barriers or population in a 360 degree radius.

For example if I was going to open a Mercedes dealership, I would be seeking a high income area. If I was selling very cheap children’s clothes, I would be looking for a lower socio economic area, with a high % of children, or a lower than normal average age cohort.

 

Physical location

Once we have at least drawn conclusions on what areas best suit what we are retailing, how do we look for the retail site?  Try and think in terms of whether your product is Impulse or Destination, and that will give you some ideas on where to look. 

Impulse products are those things people buy at a whim, and need them on a regular basis. Think cigarettes, milk and other items from a convenience store. 

Destination is much larger purchases, where you will make a conscious decision to seek out that product, and go to the destination where it is at. Think in terms of a new car, a high priced restaurant for your birthday or anniversary, or renovating your house.

The more you are at the impulse end of the line, the more you need to pay high rent for a top site with lots of passing traffic. The more you are destination, the more you can be off the main course / road, and pay less for a quality place that suits your needs.

It is pointless paying for more space than you need. Be focused on the footprint of the store you want to have and be clear on this when talking to an agent. It is setting up for disaster if you need 1,000 square feet and you are being asked to pay for 2,000 or 3,000 square feet

What we are normally weighing up (along with the rent) are the following factors:

• Traffic – road, pedestrian and bicycles
• Visibility
• Access and parking
• Space (square feet)
• Suitability of the physical facility
• Who are our neighbours

 

Building a process to make better decisions

If we are only opening one store (as per a normal franchisee), then this decision is normally a one off, or not something being done on a regular basis. If we are a Franchisor or a large company with many retail outlets, then this is a regular event, and we should have a process to make the best possible decisions. Whilst a Franchisor cannot tell you what their internal modelling is telling them, you hope they do have a process to understand the potential for your new store to succeed.

If you are only opening 1 or 2 stores, you have to make the best call you can. If we are a multi store franchisee, and opening your 20th or 30th store, you should have learnt off the previous stores, and have some idea which stores work best for you, and which stores perform poorly (from a demographic view). 

I am always amazed at how much effort goes into screwing down the rental, or cutting the staffing levels to a bare minimal, because a store is not performing well, but look at how little effort has gone into the sales prediction modelling and logic to predict what the store should or could be selling!

My recommendation for Franchisees and Franchisors is to think of site selection and retail site analytics and the development of a proper process as an investment in your business. Stop thinking of this as an expense, because these are often the most important investment decisions in your business for your long term survival.

Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, a Geodemographic and statistical consultancy. Peter is both a Certified Management Consultant (CMC) and a Certified Franchise Executive (CFE). Peter’s company works in Australia and now in the USA. To contact Peter email [email protected] or visit www.spectrumanalysis.com.au