Original article published - May 12, 2017
Choosing a new location for your retail or restaurant business is one of the 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 long-term effects on the health of your brand.
In an effort to assist in this process, we have compiled our knowledge from talking to real estate professionals to build out a framework of key considerations and questions that need to be answered prior to pulling the trigger on a multi-year lease.
Site Selection Checklist
Site selection has a particular workflow. Best practices would suggest that you need to begin by identifying the right market and trade area, and then select the right site within that market.
We have pulled together a set of key questions to answer when considering a new location for expansion. Answer the following key questions and you’ll be well on your way to determining your factors for success for a new location:
Choose the right market:
- What demographics, preferences, and behaviours define your target customer?
- What anchors and complementary brands exist in the trade area?
- What are the vehicle and pedestrian traffic counts in an area?
- Is this area growing or declining?
- What is competition like in the area?
- Is there potential for cannibalization of my existing locations?
Choose the right site:
- Where are the available sites/listings in the target area?
- How do I determine if a particular site will be successful?
- How do I prioritize listings to increase the potential performance of the new site?
Choose the Right Market
What demographics, preferences and behaviours define your target customer?
From marketing to product development, real estate to sales, the entire company needs to understand who exactly their product is best suited for. The ideal location should reflect when, where, and how your customers shop.
Your site needs to be located in an area that generates revenue while also being located in an area that is reflective of your brand. For example, many upscale fashion retailers will locate in boutique neighborhoods which may not be able to secure the same level of foot traffic or square footage as a mall location, but are located in areas that are more representative of their ideal customer.
Demographics and customer segmentations systems are the best way to identify and locate your target market. By combining ideal demographics such as median income, education level and population in a set age range, as well as preferences and behaviours through commercial or home-grown segmentation systems, real estate decision makers are equipped with important demand signals that can make or break the launch of a new location. Customer segmentation data contains rich variation in customer preferences, spending behaviour, and potential loyalty to your brand to get a better idea of what a suitable area might look like.
By mapping this data to potential trade areas that can be compared against one another, you can find ideal markets for growth based on where your target customers are living and working.
What anchors and complementary brands exist in the trade area?
If there is a particular type of business or a specific complementary brand that is used in conjunction with your product or service, or improves the experience of your product or service, it is imperative that you know where those brands are prior to selecting a market.
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. For instance, universities are often a major community anchor for restaurants that offer cheap food because the expenditure demographics of a university student match their product offering.
What are the vehicle and pedestrian traffic counts in the trade area?
Traffic data will tell you how well-travelled your potential storefront will be, and 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. You’ll want to know if a potential location is accessible only by a left-hand turn or if there is a road median blocking traffic in and out of the parking lot. Make sure you have access to photos from the street view of a potential location to determine how accessible it is for your customers.
Is this area growing or declining?
Identifying risks and opportunities requires some research into the history of the location, as well as the future of the area around it. An indicator of future opportunity is the status of new developments in the area which indicate up-and-coming neighborhoods for modern buildings and an increased population. Investing in locations early will establish your brand as a key player in the neighborhood before competition becomes fierce.
Where new developments are going up there is sure to be interference from construction. Be aware of what projects will be going on around a potential new location. If the road in front of your location goes under construction for three months, for instance, you will see that quarter’s sales decline steeply.
What is competition like in the area?
You need to understand the competitive map around a new location. Know who the national brands are in the area. They carry a reputation with them wherever they go, but don’t underestimate your mom and pop shop competitors. They often have a deep connection with the community that will be difficult to replicate as a newcomer.
Determine what makes your competitors 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 a new location or what products and services are successful in a given market.
Is there potential for cannibalization of existing locations?
A risk to consider is the potential cannibalization of sales from any nearby locations. This consideration may be aimed 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 the exact trade areas 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.
Choose the Right Site
How do I determine if a particular site will be successful?
Now that you know the market you want to be in and that there is significant demand for your product or service, you can ask questions about the physical site that will drive the most traffic with your desired customer base within the target market. Factors relating to the location itself are critical as they can help or hinder your ability to realize the potential demand for the product or service being sold there.
For instance, certain retailers would strongly consider a mall location simply because being located in a shopping center will drive traffic to their site. Restaurateurs may consider locations that can accommodate drive-thrus or pick-up only areas. You may also know that having an outside entrance rather than an in-mall entrance is important to your customer base. Perhaps being beside or near an anchor, like Walmart or another big box format, is key to realizing the traffic you need.
Understanding the physical attributes that are key to your success can be derived from your experience with other sites and help you guide your real estate brokers to offer up the right listings.
Where are the available sites/listings in the target area?
One question we constantly hear from our customers after having done some market planning and research is, “Now what?” What real estate is available and how can I make sure it meets the criteria I know I need to be successful?
Growing retailers can receive dozens of property opportunities from brokers every day, making it tough to stay aware of opportunities. Highly-rated properties also don’t sit vacant for long, making a timely evaluation system critical to securing the best opportunities.
Real estate departments need to guide their broker network to identify the properties based on the physical attributes you know are successful. Simple scorecards or templates provided to agents well ahead of time goes a long way in reducing the time spent on an analysis after they are submitted. Make sure your broker network sticks to your profile so your team is not wasting time chasing bad sites!
How do I prioritize listings to maximize the performance of the new site?
Efficiency is everything and having a consistent “scoring” mechanism for listing submissions by brokers or agents is important to reduce time to leasing negotiations. Traditionally, too many listings are being shared by email blasts from brokers and then sit in an inbox somewhere and don’t integrate with site selection work, leading to missed opportunities.
As site location intelligence technology evolves, real estate departments are moving to a more automated scoring system to prioritize listing as they come in. Submission portals are now available and they are integrated with an analytics engine that can score and automate the prioritization of listings. Imagine that you have ten new listings to evaluate when you come in every morning and they are already scored for you based on your predetermined criteria. You now have your day or week planned out to dig further into the priority locations and begin cost-benefit analysis based on leasing costs and your capital budget.