Retail Site Selection Basics

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"Location, Location, Location" is the oft-repeated mantra meant to emphasize the importance of the right site to the success of any retail business.

But what are the key factors for you to understand with regards to your location choice?

The three most important real estate-related drivers for any type of retail business are:

(1) the size and quality of the trade area served;

(2) number and quality of your competition and;

(3) the type of shopping center and other site-related qualities.

A common mistake is to ignore the distinction between a trade area and a site within that trade area. A trade area is the market area that will be served by your business. The trade area has geographic boundaries and consists of a mix of uses (home, work, shopping, entertainment and public facilities).

Tip: a good mix of uses tends to provide higher sales potential mainly because there's activity in the trade area for most of the day and 7 days a week. The demographic profile of the residents of the trade area is critical, too.

The demographic profile should match your customer profile (if you're a franchisee, your franchisor should tell you the target customer profile in detail). A large population base is good only if there are a lot of your customers.

The precise size of a trade area is determined by community affiliation, travel and shopping patterns, and natural and man-made barriers.

Think of the difference between the trade area and your site in this way: the trade area is the market area you hope to tap, and your site is the location in that trade area that will determine how much of that trade area you'll reasonably be able to serve.

Your type of business and the location of competitors are key elements that determine your reach into the trade area.

For example, a dry cleaner is largely a convenience business, and there tends to be a lot of competitors. Unless you offer particularly unique services or your competitors are poor operators, you'll be cut off by other similar businesses that are more convenient to customers in the trade area. You should seek to "out-position" your competition, so pick a site that's defensible, both now and in the future.

Your trade area reach is also determined by the type and location of the shopping center your chose (neighborhood, community, power center) as well as the center's site characteristics (such as sufficient parking, ease of access and signage).

A traditional grocery store in a suburban area tends to pull 2-3 miles, and the other tenants in those centers tend to be convenience tenants that also have limited reach.

If there are tenants that have a larger draw, such as specialty grocers or other "big box" tenants, you'll have the opportunity to draw from 5 miles or more into the trade area. That's why it's important to locate with co-tenants that will serve as generators for your business.

All things equal, you'll want to be in a strong shopping center with co-tenants that provide generators for your business. But remember that no matter how strong the shopping center and your space within that center may be, you will always have an uphill battle if you're "fighting the market".

I've seen stores with even poor site characteristics do strong sales, and this was largely attributable to the strength of the trade area for that tenant.

Make sure you'll be serving the right trade area before focusing on any specific site. A strong location in the right trade area makes a winning combination.