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Location strategies for your retail business — the higher your sales, the lower your occupancy costs

A key component of every retail business plan is determining who your customer is, where they live, and what their shopping and spending habits are. Then you need to find the greatest concentration of them and determine if it’s enough to generate the sales you need to do a great business. 

Determining who your customer is and where they shop

Demographic and psychographic data and mapping can help you do so. Once you know where your customers live, the roads they travel, and where they usually shop, you can determine from where you can most conveniently, and hence successfully, serve them.

Are they in the central business district area of the city or a neighboring town? Are they clustered within a three- to five-mile radius of a neighborhood or five-to-seven miles from a community shopping center? Do they frequent the market’s enclosed regional mall serving a population of up to 250,000 people within a 15-25 mile radius, and/or often even shop farther from home in major metropolitan areas?

Do you serve the general population, like a convenience store with fuel, or specialized groups such as households with children or baby boomers? Are you providing necessity consumer goods or services such that your place of business is best situated on a daily commuter route, or in a grocery-anchored neighborhood shopping center? Or is your business selling basic categories of goods found in community shopping centers or more discretionary fashion apparel merchandise sold in enclosed regional malls?

Do you generate your own traffic to drive business or do you depend on and benefit from major retailers who spend millions of dollars advertising and attract thousands of shoppers to the neighborhood or community shopping centers and enclosed regional malls they anchor?

Evaluating your competitive environment

Is yours a product or service that is in demand in the morning (such as a cup of coffee) or the afternoon (picking up and dropping off dry cleaning)? Have you ever observed that Starbucks, for example, tends to position its free-standing shops with a drive-through on the major in-bound traffic routes to concentrations of work places.

Are you so unique and a destination without competition so that location isn’t as critical, or do you (or will you) have competitors? If so, are you differentiated in price or service and can you be successful doing business in the same trade area sharing its market potential and, in fact, benefit from the clustering of similar businesses? Or, are you better off finding a location in a niche trade area without competition and splitting the market?

If in a shopping center, what best serves your business model? Is a free-standing out-parcel your best choice or is it better to seek in–line shop space next to a category-dominant retailer like a grocery, home improvement, sporting goods, electronics, or department store?

Measuring your true occupancy cost

Generally speaking, the occupancy cost (rent, common area maintenance, insurance and real estate taxes) of retail space for lease is higher in locations that offer the highest potential sales opportunity. And, of course, it is always critical to have good visibility, access, and parking. The true measurement of occupancy cost is its relationship to sales. You will pay more for the strongest location that has the potential to generate the highest sales for your business.

What might seem like high rent may very well be a location where you could do twice the sales that you could do in the lower rent location. You should always select a location where you will do a great business. The higher your sales, the lower your occupancy cost as a percentage of sales, which leads to enhanced profitability.

H. Stephen Evans, Senior Vice President and Managing Director – Retail Division, High Associates Ltd.