This year could set a record for retail
store closures. Even Starbucks, the
growth-oriented coffee chain, will reportedly close as many as 100 stores.
By all accounts, it’s a buyer’s market. But
that factor alone doesn’t make selection of
a retail site any easier. As a matter of fact,
the state of the economy makes it even
more crucial to select the right retail site to
fit into expansion plans.
“Selecting such a new retail store site is
entirely different from choosing a comparable site or property that will be used for
office or industrial purposes,” says
Michael Dee, Senior Vice President and
National Director of Retail in Grubb &
Ellis’s Dallas Office.
Smart Business talked to Dee about all
the factors that make retail site selection
more science than art.
What criteria go into choosing a retail site?
Retailers use a lot of criteria that other
commercial users wouldn’t even consider.
Factors like traffic counts, ingress, egress,
store signage and demographics are critical to a retailer.
Sophisticated market research is necessary to assist in market planning and new-store site selection. There are varying
degrees of sophistication, but the larger
national retailers have virtually all the
tools. They even have precise and accurate new-store sales projections, plus store
sales volumes for local competitors and
for complementary surrounding retailers.
When retailers assess a particular area
for expansion, existing and proposed
shopping centers and high-traffic retail
corridors are absolutely critical because
they provide instant validation and credibility to a market. That’s why you see a
Burger King next to a McDonald’s or a
Home Depot across from a Lowe’s Home
Improvement.
Traffic counts have become more precise, and many large retailers have that
information on their computers. Some
retailers will have some, but often limited,
information on projected highway and
road improvements and on new commercial and residential developments.
The most important factor is trade-area
population density. Most retailers are
looking at a 10-year time frame when it
comes to new stores. That’s the lease term
they are willing to commit to. They feel
confident that the location is probably
going to be solid for 10 years, given the
population, growth, income levels and
surrounding retail. After the 10th year, it’s
re-evaluation time.
What other demographic criteria are valuable?
Critical demographics include household
size, trade-area population, average or
median household income, and employment base — factors that most retailers
will look at first. In some cases, a simple
lack of adequate population density will
prevent the retailer from considering opening new stores.
Lifestyle characteristics are more sophisticated criteria, particularly income levels
and type of employment base. For instance,
when Starbucks first started expanding
throughout the U.S., its first choice of new
store locations was the upper- to middle-income demographic. Blue-collar areas
were not even considered.
With all that technical help available, what
can a real estate adviser add?
What a lot of the retailers don’t have is
local market knowledge obtained on a
daily basis. In other words, they might not
know that the Kroger store across the
street is planning to relocate two miles
west. They are not privy to that kind of
information. They might not be up to date
on where the new residential housing is
going up or whether the main highway is
being widened and when. That is the kind
of information that you can’t get unless
you work the market, day in and day out.
A good real estate adviser also plays a
vital role in negotiating with communities,
developers and landlords. A prime example is Wal-Mart, which has found that cooperation and good will with local communities is absolutely essential to its new store
expansion plans. In some areas, communities have prevented a Wal-Mart from being
built, so proving the value of the store
beyond sales tax is vitally important.
Cooperation from the community is also
important to fast food and bank drive-throughs because so many see a drive-through as being nothing but a traffic
nightmare — and, in many cases, they are
correct. Some of the fast-food companies
have to hire traffic engineers or outside
consultants to do traffic studies and determine the impact of the proposed drive-through.
Where does a company seeking to expand
by leasing or purchasing additional property begin?
Real estate is not the core business of
most retailers. Therefore, they need to consider outsourcing the real estate function
to a firm whose expertise is real estate. In
that manner, the two firms become partners, and that’s truly the way the industry
has evolved.
MICHAEL DEE is Senior Vice President and National Director of Retail in Grubb & Ellis’s Dallas Office. Reach him at (972) 450-3245
or [email protected].
