Retail Development: Tips for the Public Sector from a Retailer's Perspective

TIPS FOR THE PUBLIC SECTOR

FROM A RETAILER’S PERSPECTIVE

RETAIL SITE SELECTION

DECISIONS

A COMMONSTORY

“City A” wants to recruit new retail, but doesn’t seem to be getting anywhere with the retail real estate decision makers. The retailers aren’t returning the city’s calls, and the ones who do listen to the city’s pitch give a quick “don’t call us, we’ll call you” response. Residents are going to nearby communities to shop, which means critical tax revenues are leaving town too.

Sound familiar?

IT’S TIME TOTHINK LIKE A RETAILER

Recruiting retail is asking a company to make a long-term investment in your community. It’s a big step, and there’s a lot of thinking that goes into that step.

If you want to convince a retailer that your community is worth the investment, you have to understand how that retailer thinks. You need to know what factors are most critical so you can present the information the retailer needs and wants to see before making a decision.

You need to think like a retailer. Here’s how.

DEFINE WHO YOUR BEST

CUSTOMERS ARE

IDENTIFY WHERE MORE BEST

CUSTOMERS ARE FOUND

UNDERSTAND THE VALUE OF

YOUR BEST CUSTOMERS

WHO WHERE VALUE

At the heart of “Thinking Like a Retailer” is a concept Buxton likes to call “Who, Where, Value.”

Let’s illustrate how this works with a simple example.

GET BEYOND DEMOGRAPHICS

DEMOGRAPHICS ONLY TELL RETAILERS A PIECE OF THE STORY

CUSTOMER

DEMOGRAPHICSAGE: 35-50INCOME: $75 – 100KMARRIED

CUSTOMER

DEMOGRAPHICSAGE: 35-50INCOME: $75 – 100KMARRIED

Do Customer 1 and Customer 2 have the same shopping habits?Hard to tell, isn’t it?

GET BEYOND DEMOGRAPHICS − TALK ABOUT CUSTOMERS- UNDERSTAND CONSUMER

BEHAVIOR- AT THE HOUSEHOLD LEVEL

CUSTOMERBEN SHAW1010 IMPERIAL WAY

CONSUMER TRAITSSHOPS AT SAM’SDRIVES GMCEATS AT CHILI’SONE CHILDNETFLIX SUBSCRIBER

CUSTOMERTOM KING1308 BRYN MAWR CT

CONSUMER TRAITSSHOPS AT COSTCODRIVES VOLVOEATS AT P.F. CHANG’STHREE CHILDRENPREFERS MOVIE THEATERS

Now try again: do these customers have the same shopping habits? No! True customer insights are what retailers need. They need to know that

THEIR customers live in your community.

Retailers know that people shop for convenience – not based on geographic boundaries. It’s the heart of their day-in, day-out customer base. So show them how many of their customers live within their preferred drive-time radius (e.g. 15 minutes).

UNDERSTAND WHERE THE CUSTOMERS COME FROM

DRIVE-TIME TRADE AREA = WHAT REALLY COUNTS

FACTORS INCLUDE:• DRIVE-TIME CORE CUSTOMER GRAVITY METHODOLOGY• CANNIBALIZATION• COTENANCY / COMPETITION

• STORE SIZE / FORMAT

• MARKET TYPE / REGION

• 1,000’s OF VARIABLES TESTED

$$

$

PERFORMANCE & OPPORTUNITY POTENTIAL FACTORSWhen evaluating a potential new retail site, retailers consider several

performance and opportunity factors, beginning with how many core customers live within a specified drive-time.

FACTORS INCLUDE:• DRIVE-TIME CORE CUSTOMER

GRAVITY METHODOLOGY

• CANNIBALIZATION

• COTENANCY / COMPETITION

• STORE SIZE / FORMAT

• MARKET TYPE / REGION

• 1,000’s OF VARIABLES TESTED

PERFORMANCE & OPPORTUNITY POTENTIAL FACTORSRetailers also consider cannibalization, which is simply the sales the

brand loses at existing store locations when shoppers switch to the new store location. Retailers look for new sites that minimize cannibalization.

FACTORS INCLUDE:• DRIVE-TIME CORE CUSTOMER

GRAVITY METHODOLOGY

• CANNIBALIZATION

• COTENANCY / COMPETITION

• STORE SIZE / FORMAT

• MARKET TYPE / REGION

• 1,000’s OF VARIABLES TESTED

PERFORMANCE & OPPORTUNITY POTENTIAL FACTORSCo-tenancy and competition are important to retailers as well. Some

retail concepts are complementary and together draw more customers than they would if they were separated. But other concepts can hurt each other’s sales if they are located too close together. Retailers want to be near good co-tenants and away from those that hurt sales.

FACTORS INCLUDE:• DRIVE-TIME CORE CUSTOMER

GRAVITY METHODOLOGY

• CANNIBALIZATION

• COTENANCY / COMPETITION

• STORE SIZE / FORMAT

• MARKET TYPE / REGION

• 1,000’s OF VARIABLES TESTED

PERFORMANCE & OPPORTUNITY POTENTIAL FACTORSStore size and format play an important role in retail site selection

decisions as well. Simply put, the size of the store needs to fit the available space. Furthermore, some retail concepts do best in special locations, like an “end cap” (end of a row of stores).

FACTORS INCLUDE:• DRIVE-TIME CORE CUSTOMER

GRAVITY METHODOLOGY

• CANNIBALIZATION

• COTENANCY / COMPETITION

• STORE SIZE / FORMAT

• MARKET TYPE / REGION

• 1,000’s OF VARIABLES TESTED

PERFORMANCE & OPPORTUNITY POTENTIAL FACTORSAnother important factor that retailers consider is market type and

region. Think about it: is an agricultural supply store likely to thrive in an urban area? Additionally, there are distinct regional differences in shopping and dining preferences (e.g. Tex-Mex in the south) that impact retailers’ success.

FACTORS INCLUDE:• DRIVE-TIME CORE CUSTOMER

GRAVITY METHODOLOGY

• CANNIBALIZATION

• COTENANCY / COMPETITION

• STORE SIZE / FORMAT

• MARKET TYPE / REGION

• 1,000’s OF VARIABLES TESTED

PERFORMANCE & OPPORTUNITY POTENTIAL FACTORSFinally, many retailers use custom predictive real estate models that

consider 1,000s of variables and determine the ones that are most important factors in predicting future success. These factors vary for individual retailers.

PEAK INTO ARETAILER’S CHECKLIST

Now that we’ve gone through the basics of what retailers consider when making site selection decisions, let’s see how a specific retailer applies those principals.

The following are site selection guidelines from an actual Buxton restaurant client, and provide helpful insights for communities hoping to better prepare for the retail recruitment process.

• Flex-Casual and Delivery service models

• 45%/55% Lunch to Dinner

• Lease 2,600 – 3,000 SF

• Highly visible end cap, leased

• Start up cost $550K-$600K

• Average unit volume $1.2MM

RESTAURANT BRAND: BACKGROUND INFO

RESTAURANT

CUSTOMER PROFILE

0

2

4

6

8

10

12

14

16

A01

A02

A03

A04

A05

A06

A07

B01

B02

B03

B04

B05

B06

C01

C02

C03

C04

C05

D01

D02

D03

D04

E01

E02

E03

E04

E05

E06 F01

F02

F03

F04

F05

G01

G02

G03

G04

H01

H02

H03

H04 I01

I02

I03

I04

I05

J01

J02

J03

J04

J05

K01

K02

K03

K04

K05

K06

L01

L02

L03

Segment

Percent

Customers Trade Area The restaurant’s core customers skew highly toward the upper end of the lifestyle segments – meaning that they tend to have more disposable income and live in more affluent areas. The restaurant will seek locations that put them close to these types of customers.

DEVELOPMENT PROCESS

1. Identify potential markets for development

2. Secure qualified franchise partner for market (or larger area)

3. Work together with franchise partner on Site Selection process

4. Confirm qualitative and quantitative inputs for site

5. Approve site and sign lease

6. Construction and design process

7. Train and open to public

MARKET SELECTION: EARLY DEVELOPMENT PHASES

• Qualified franchise partner interest

• Quantitative – Buxton market analysis

• Economic growth in retail, residential, commercial areas

• Multiple retail submarkets (3 legs)

• Demand for product (not over saturated in segment)

• City easy to do business with

• Established and active Chamber of Commerce and other related organizations

SITE SELECTION: LATER DEVELOPMENT STAGES

• Site economic model and timing of delivery

• Qualitative – access, visibility, parking, co-tenants

• Quantitative – Buxton site analysis and scoring variables

• Complementary uses and competitor analysis

• Trade area analysis – 12+ min drive-time, day time and residential traffic

• Delivery analysis – 8 min drive time

OBSTACLES TO DEVELOPMENT

• Availability of quality property/space

• Access to capital

• Availability of adequate workforce

• Permitting complexities

– Timing, inspections, signage, etc.

• Licensing complexities

– Alcohol, business, etc.

• Other costs and complexities

– Taxes, utilities, insurance

– Minimum wage levels (state v. federal)

TIP: When possible, streamline development approval processes to help retailers shave time off the development process, which increases the project’s ROI.

WANT TO LEARNMORE?

Buxton is the retail development expert. We’ve been trusted advisors to over 2,000 retailers and 650 communities, and can provide the data-backed analytics on your community that retailers know and trust.

CONTACT US

TODAY

Call us at 888-2BUXTON or email us at [email protected] to learn how our proven customer analytics can give your community the insights it needs to successfully recruit new retailers and retain existing businesses.

www.buxtonco.comTwitter: @Buxtonco