Choosing a new location to expand your business is one of the biggest and most important decisions you can make for your company. Whether you are a real estate professional at a large chain, or the CEO of a small business this decision will have serious long-term effects on the health of your brand.
Getting this decision right is difficult. There are so many factors at play that it can make one’s head spin. In an effort to assist in this process, we have built out a framework of key considerations and questions that need to be answered prior to pulling the trigger on a multi-year lease.
Who is Your Target Customer?
The primary consideration is one that encompasses many departments of a company. From marketing to product development, real estate to sales, the entire company is always trying to understand who exactly their product is best suited for.
This plays heavily into site selection as well, your site needs to not only be located in an area that generates business, but is also reflective of your brand as well. For example, many upscale fashion retailers will locate in boutique neighborhoods where they may not be able to secure the same level of foot traffic or square footage as a mall location, but are more representative of their ideal customer.
What Demographics Define them?
Demographics are the best way to help identify and locate your target market. By combining ideal demographics such as median income, education level or population in a set age range, it is possible to get a better idea of what a suitable area might look like.
By mapping these demographics, areas can be compared against one another to find the most ideal locations for growth, based on where your target audience is living and working.
What Factors Will Drive Traffic to the Site?
The second major consideration in the site selection process is to identify what things will cause this site to be successful. Extraneous factors to the location itself that help create demand for the product or service being sold there. In the previous example, the upscale fashion retailer would heavily consider a mall location, because simply being located in a shopping center will drive traffic to their site.
What Anchors and Complementary Brands Exist in the Area?
The primary way to understand how well this location will be able to attract customers is through an understanding of the anchors and complementary brands that are nearby.
Anchors can be any high-traffic location that serves as a focal point within a neighborhood. Perhaps it’s a shopping center, landmark or even a sports facility.
Complementary brands work in the same way, if there is a particular type of business or a specific brand that is either, used in conjunction with your product or service, or improves its experience, it is imperative that you know where they are prior to selecting a site.
Restaurants that offer cheap food often locate nearby to universities because they are major community anchors and the expenditure demographics of a university student match their product offering well.
What Are the Vehicle and Pedestrian Traffic Counts in an Area?
Another often overlooked consideration when expanding are the vehicle and pedestrian traffic counts in your prospective location. This data will tell you how well-travelled your potential storefront will be, and potentially even how much organic traffic it might be able to generate.
If you are a drive-thru restaurant, higher vehicular traffic counts are beneficial to your business, but if you are an upscale fashion retailer, the pedestrian level traffic counts will be a better indicator of organic traffic stopping to browse your store.
There is another consideration that falls into this greater question of traffic counts and that is accessibility. High traffic counts are great but being accessible by only a left-hand turn, or having a road median blocking traffic in and out of the parking lot are key factors to know before seriously considering a location. Make sure you have access to photos from the street level of a potential location to determine how accessible it is for your customers.
What Risks and Opportunities Are there Around the Site?
The final overarching consideration when selecting a new site are the threats and potential opportunities of the location under discussion. This requires some research into the history of the location, as well as the future of the area around it. For example, as a quick-service restaurant, knowing who the previous tenants were will provide insight into the renovation level and the kitchen’s amenities and appliances.
What New Developments are Being Built?
A great indicator of future opportunity is the status of developments in the area. What this indicates is an up-and-coming neighborhood where modern buildings and increased population will soon be. Investing in locations early will allow your brand the ability to establish itself as a key player in the neighborhood before competition becomes fierce.
There is another side of this coin however, construction. Where new developments are going up there is sure to be interference from construction. Be aware of what projects will be going on around your new location. If the road in front of your location goes under construction for three months you will see that quarter’s sales decline steeply.
What is Competition Like in the Area?
Speaking of competition, what does the competitive map look like around this new location? Do you know who your competitors will be? Know who the national brands are in the area, they carry a reputation with them wherever they go, but also be aware of your mom & pop competitors. The mom & pops often have a deep connection with the community that will be difficult to replicate as a newcomer.
Don’t just know who and where they are, but also know what makes them successful. What are their various competitive advantages? Do they hold unique hours or offer premium services? These factors will affect your decision about how successful your brand can be at this new location.
Is There Any Kind of Cannibalization of Existing Locations Present?
Another risk is the cannibalization of sales from any nearby locations. This consideration may be aimed more at larger chains, but it is still of vital importance. If you have many locations, especially in a single metropolitan area, it is incredibly important that you know exactly what the trade areas are of these locations.
Cannibalized territory sales should almost be counted as negative sales. Not only did the initial location not receive that sale but the new location is receiving sales from a territory that is already covered. This means there is territory that they could be serving instead! The opportunity cost of territory cannibalization is an inefficiency that a retailer simply cannot justify, which is why it is such an important consideration in site selection.
These three major factors, your target customer, factors driving traffic to your site, and threats and opportunities provide an excellent framework for CEOs and real estate professionals to choose their next location for expansion. There are however, many other factors that require a great deal of thought when choosing a new location. Things like available real estate can make or break expansion plans. We go into great detail about all of these factors in our easy-to-read site selection checklist, available for free by clicking below.