Retail Site Selection Variables, Part 2

Posted by Rickey Hayes on March 18, 2013 in Blog | 1 Comment

Written by
Rickey Hayes
Retail Attractions, LLC

In Part 1 of this discussion we talked about basic demographic data and other information that retailers and restaurants utilize in their endeavors to enter new markets. It is certainly prudent at this point to talk about how the growth patterns of national retailers have changed just in the past few years. There was a time, just a few short years ago, that both retailers and restaurants were extremely aggressive in terms of growth and expansion. Big box stores were doing new deals in hundreds of markets. In the present economy, retailers may open one or two new stores per year, if that. Sites now are scrutinized on multiple levels by internal site selectors and third party consultants. Financial institutions, investors, and the retailers and restaurants are evaluating sites in much more detail than ever before. A few years ago retailers were attempting to build as many units as possible, and now retailers spend a great deal of time discerning, examining and evaluating every deal in the light of a guaranteed return on investment.

THE DEEPER DATA:
The first part of this article focused on the basic demographic data that is used in retail site selection. We see lots of cities in our work around the country that attempt to market themselves with basic data purchased from various subscription data providers. Some of these providers have good and solid foundational demographic data. What cities need to know, however, is that retail site seekers dial down to level of data that is sometimes far more sophisticated than what the communities have provided. Many times site particulars like traffic patterns and flow, ingress and egress issues, municipal sign codes and development restrictions are far more important than city limit population. In this current economic environment cities should make the development process streamlined and simple and most of all business-friendly. Something else that should be considered in Oklahoma and in other states is current alcohol statutes that affect several retailers, especially grocers and most restaurants. This data should be provided and avenues for relief articulated to site selection professionals should they not be familiar.

Retail site selection involves more advanced and erudite methods than most cities can provide on their own. Critical data like household size, defining average and per capita income, and population density come into play. Recently our firm was called upon by a national retailer to provide some specialized data focused on the age and ethnicity of a certain group of consumers in a tertiary market where they desperately wanted to open a new store. Who purchases goods and services in a market is of utmost importance to retailers. Unfortunately for some communities, they get passed over because they do not determine and validate their trade area and rely on city or county population data. Trade area population density is always a foundational component of a retail site. There are many different ways of determining the size of a city’s trade area. Concentric rings and drive time studies, used by the large majority of municipalities are not always good measurements. The trade area needs to be proven by several indicators, such as traffic flow into the market, the location of existing retail, local retail sales volumes, and the local market’s ability to pull out of area consumers into the local market. By the way, this market validation is received more efficiently when it comes from an independent source.
We have spoken already about the factor of a highly competitive marketplace. Retailers and restaurant site selectors will sometimes cull a market with very little investigation because they simply have so many opportunities elsewhere. Life style data and more sophisticated income and employment information along with educational attainment are crucial as well. For example when Starbucks began its aggressive growth cycle a few years ago, upper income demographics and educational attainment were key indicators and many solid markets weren’t even on the radar.

Growing a community and building an ever increasing quality of life is what all cities should be about. It makes no difference really if the population of a community is large or small. Every community should be striving to improve services, improve blighted and decaying areas, and working diligently to improve quality of life. New retail boosts quality of life instantly. City leaders can save money and time by contracting with a third party firm to recruit retail and other private sector investment as well as developing the materials needed to present their community’s strengths to the watching world.

In the next post, I will discuss the information that retail site selectors need, but do not always find when they are doing the due diligence required for new market retail and restaurant growth.

Retail Site Selection Variables, Part 1

Posted by Rickey Hayes on March 4, 2013 in Blog | 2 Comments

Written by
Rickey Hayes
Retail Attractions, LLC

Our company spends our waking hours helping communities, developers, and retail and restaurant clients find and develop the right retail sites. Site selection is an extremely specialized field. Cities across the country are competing for new retail sites and the sales tax revenue that comes with them. It is obvious if you consider discussions with city administrators and elected officials that most city leaders don’t really comprehend the myriad layers of site selection criteria. It is even more remarkable that many real estate professionals, including investors, brokers, and sales associates know very little about what drives the retail community to “pull the trigger” on a particular site. Picking a retail site is completely different from site selection for manufacturing and industrial uses. With the current instability in the national, state, and local economy, finding the right site is more crucial than ever to corporate and franchised retailers and restaurant outlets.

Since our core business is assisting cities in defining, validating, and marketing their trade area to national retailers, we see many trends in local economic development that are disturbing, and some that are even comical. Retail is not rocket science. So what do retailers and those that represent them look for when they need to grow? The obvious thing is that they are looking for a good, solid return on their investment. This is the foundational bedrock of every dollar that is invested. They are looking to make a profit. Retail is changing, and the way people purchase goods and services is changing. City leaders should retain the services of a qualified, independent, third party to keep them on the cutting edge of the retail world.

THE BASE DATA:
Obviously retailers and retail real estate and site selectors use various forms of demographic data to confirm and validate market strength. Retailers use data manufacturing and industrial site selection professionals do not use. Very sophisticated data and various types of financial modeling are utilized. Cities that put together marketing materials to attract retailers many times don’t know that the retail world already has access to the data their community is attempting to provide. Cities also need to know that the data the retail world uses is several layers deeper and more technical than the census data. I am not saying the basic demographic data available to communities is not useful. What I am saying is that restaurant and retail tenants sometimes key on demographic information that cities wouldn’t even have at their disposal, such as sales volumes of other owned brands and intelligence about their competitors.

National retailers and restaurants usually have some fairly precise pro-formas and new store sales projections and many times already know what sales volumes their competitors are doing in a market. They also analyze all existing and planned retail shopping areas, especially high traffic corridors. Total annual retail sales in a market are assessed as well as they provide a clear view of the depth of a market and add credibility to a market. The spendable income in a community and more importantly in the potential trade area is always an important piece of information in the new market growth of retailers.

Data on the latest traffic counts is crucial and has to be up to date and very precise. Defining the traffic patterns in a community and the planned improvements to that transportation infrastructure is something that retailers don’t always know. Communities that desire retail growth in their markets should always be looking to make ingress and egress into retail corridors easier, safer, and more efficient. Another key piece of data that forward thinking communities will (or should) be able to provide is planned commercial or residential development in an area of the market.

Maybe the most key piece of data to retailers is the trade area data, especially the population density and growth projections. Most leases are done on a ten year scope. Retailers and restaurants need to feel fairly comfortable that growth trends that are exciting now continue or grow even more over the ten year window. Sharing data that substantiates population growth, economic stability, and retail growth in a market over the ten year window is always beneficial to private sector investors.

In the next post, I will discuss the more intricate information retail site selection professionals are looking for in a market.