Due diligence can really pay off for companies entering a new market

Companies looking to expand into a new market typically have conducted an initial thorough round of internal research and due diligence into what a particular market has to offer, says George J. Pofok, CCIM, SIOR, senior vice president at Cushman & Wakefield/CRESCO Real Estate. The next step is finding the right location within the market to open up for business.

“The ability to identify the right location often comes down to timing, which can be unpredictable,” Pofok says. “Each business must work within the existing opportunities. If the timing doesn’t work out, the company may not get the top destination on its wish list.”

While bad timing can preclude a company from landing its destination of choice, there are steps that can be taken to identify a location that still fits with the existing growth strategy.

Smart Business spoke with Pofok about best practices when looking to expand a business into a new market.

What considerations are key when studying a new market?
When a company is examining the potential entry into a new market, the likelihood is that it already has an existing customer base within that market. The next step is to perform an analytical survey to determine where customers are located and where the competition is set up.

Company leaders can lay these points out on a map and study where their business model would be the best fit. More often than not, businesses like to be in close proximity to their competition or to other companies that are in a similar type of industry.

The home improvement sector is a good example. In Bedford Heights, the intersection of Miles and Richmond has been identified as Contractors’ Row. It includes window, siding and roofing suppliers, bathroom and kitchen stores and tile companies, among others.

It’s a one-stop shop for consumers, whether they are homeowners or businesses, to get materials for home improvement work. If a designer has a customer in the car to talk about a project, he or she can travel from one store to the next to put together an overall fit plan.

This type of setup is particularly attractive to a national company that is looking to open up in a new market. These types of businesses aren’t as interested in taking risks and would rather come into an established market where their name brand will enable them to rise above the crowd and generate plenty of traffic.

How important are demographics when in the market assessment?
Market household income and demographics can play a role, as well as geography in certain cities. In Cleveland, there are eastsiders and westsiders, and there seems to be an imaginary line between the two that people don’t like to cross.

This will often lead companies to open up two operations, one on the eastside and the other on the westside. Others will try to locate in and around the intersection of Interstates 480 and 77 to get the best of both worlds. When businesses are prospecting for a new location, this type of knowledge about a market can be important factor in their ultimate decision.

Do long distances make this process more difficult, despite the available tools and resources?
Identifying the right market to enter into should be the main component driving the decision. The real estate is the easy part. Still, there are considerations that need to be made. Companies coming to a new region are often more cautious since they don’t know where sales will end up.

They may lease a smaller space and then all of a sudden, business is booming and they need to expand and/or relocate. Reliable forecasting can provide a better sense of a company’s performance and instill confidence to pursue a larger location, if the projections indicate success is likely.

Timing, once again, is also important. Right now, the market is extremely tight and the number of quality options is limited. Landlords are now looking to ink deals between five to 10 years. Taking the time to work with a professional real estate expert that has knowledge of the market and its attributes can pay big dividends and give companies a better chance to succeed in their new location.

Insights Real Estate is brought to you by Cushman & Wakefield/CRESCO Real Estate