Selecting the correct site for your next retail location is an extremely complex decision and costly if you get it wrong.
Whether you are starting out or expanding your business, once you choose a location you have little flexibility to change it and the site will have a major influence on your retail success going forward.
Therefore, this week, the LeaseInfo Team is breaking down site selection as part of our new three-part blog series; 3 Things All Retail Business Owners Must Know.
Site selection can be broken down into three key concepts:
- Macro Considerations
- Centre/Location Specific Considerations
- Site Specific Considerations
Macro considerations are the underpinning factors of a trade area, such as the demographics, physical barriers, and centre configuration/competition. When looking at the demographics of an area you must consider your target market before defining who your local customers will be.
For example, if your business caters towards a specific age group (like the optical industry which caters to a broad 35+ year old market) then comparing the average age of your trade area to the average age of the city will be an important starting point.
Conversely, if you were to open a store which sells luxury goods, monitoring upper echelons of the average household income would be vital to the placement of your store.
Other Marco Considerations Include:
- State of the economy/market fit for your product or service
- Degree to which your product/service is price elastic/inelastic
- Is your product discretionary or non-discretionary?
- In unstable economic markets, consumers will favour discretionary retail over non-discretionary
- Degree of existing competition in your trade area
- Online penetration/competition
- Supply chain considerations
Determining the size of your target market area is often difficult to measure. The concept is known as a “Trade Area” and can be split into three key categories: Primary Trade Area, Secondary Trade Area and Tertiary Trade Area.
Primary Trade Area
Your primary trade area consists of the most regular customers to visit the area and its range can vary dramatically based on many variables.
If a store is located in a shopping centre, the centre’s size and specialty offerings will influence its attractiveness to potential customers. When calculating your primary trade area, the centre’s proximity to competing centres and size as well as point of difference are usually the key factors.
For more information on how to calculate the potential attractiveness of a centre you may wish to read about the Huff Gravitational Model.
Barriers such as toll roads, rivers, bridges and major highways can limit/undermine the trade area of a location as people may not want to cross them in order to get to your centre/store.
See the table below for how primary trade catchment area is determined for differing centre sizes:
Secondary Trade Area
Secondary trade area catchment consists of customers that may come to a centre because they cannot attain certain products from their closest shopping precinct.
It is important when selecting a site, especially in a shopping centre, that the centre has relevant specialty stores. These specialties will increase the secondary trade catchment area and boost the foot traffic to your location.
Tertiary Trade Area
The Tertiary trade area are customers who visit the centre very occasionally, usually consisting of the parts of the city that are not covered by your Primary and Secondary Trade areas. They also include international and interstate visitors (pre-COVID-19).
Below is a graph comparing the average breakdown of potential customers in a store’s trade area:
Evaluating a Shopping Centre
Understanding your target market and trade area should only be the beginning of your research when looking for a site. The next step is to understand the qualities of the target shopping centres which will ensure the success of your business.
These factors are known as “Defensive Shopping Centre Qualities”. The more mature and well-established the centre, the better the defensive quality – as long as capital expenditure has been maintained. Evaluating a shopping centre consists of understanding:
- How long has the centre been there?
- Does it dominate the catchment area?
- When was it last refurbished?
- What is its point of difference?
- How accessible is the centre?
When comparing larger shopping centres, determining the quality of the anchors in the centre is key. Anchors are larger tenants that attract a significant proportion of the public due to their broad appeal and or supply of essential goods and services.
For example, a Woolworths may anchor a shopping centre because of its large floor plan and supply of non-discretionary goods, while a cinema may anchor a centre because it appeals to a wide audience due to its sought-after provision of entertainment. When comparing two anchors look at the:
- Number of Checkouts/ Screens
- Pedestrian Count
- Tenant History
- Level of Refurbishment
- Expiry Profile
To determine whether one anchor will outperform another is difficult because anchor turnover is not usually published. Discussions with other retailers in the centre is often helpful.
Understanding the strength of a centre’s anchors is extremely important as it can have a profound impact on the foot traffic to a centre and therefore, will have great influence on your site.
Public Transport Access and Car Parking
Shopping centre quality can also be impacted by its ability to facilitate transportation and parking within the area. The centre’s proximity to public transport and major highways/arterial roads (a high capacity urban road) must be evaluated when looking at a centre.
Undercover parking is also preferable to open and exposed parking, especially in hotter climates. Moreover, over allocation of parking is preferable to having too little parking.
Centre Theme/Point of Difference
We have already touched on the importance of specialty tenants/services when looking at Secondary Catchment Area. This uniqueness can be emphasised by points of difference within a shopping centre.
Points of difference can expand a centres catchment area and draw customers away from competing centres. Examples of points of difference can be:
- Unique centres – e.g. lifestyle, entertainment precincts
- Unique tenants – e.g. Apple, ZARA, TopShop, IKEA
- Unique ambience and style – e.g. QVB
Site Specifics – A/B/C Grade Locations
Within a centre, some sites may be better than others. Factors to consider within a centre may be:
- Consistent foot traffic
- Co-location near anchors or draw cards e.g. Apple
- Shorter distances to car park
- Close or next to escalators
- Strength of a precinct or run of shops
In strip locations, one side of the street may dominate the other or get more sun than another. For example, in shopping strips with cafes on either side, customers gravitate to café’s who have sun in the morning and shade in the afternoon. Moreover, if there is a specialty location near the strip such as a park, beach or carpark, customers will be attracted to that section of the strip.
Frontage, Frontage-to-Depth, Size & Shape
When looking at your store it is imperative to understand which parts are most valuable and if you should be paying full rental value based on your site’s position in the centre.
The first thing your customers will see is the outward facing store front of your site, known as your “frontage”. The more frontage your site has the more valuable the location as larger frontages allow better visibility of visual merchandising.
Moreover, corner positions within centres are coveted as they maximise the frontage of a site from multiple directions. The depth of your site is also important as the first third of your store is usually the most valuable.
The levels of a store are also key to determining its value for multi-level shops. Basement and level 1 or higher positions are not considered as valuable as ground level sites. This is because shoppers gravitate to the ground floor and maybe reluctant to walk up or down stairs.
Other factors to consider are the potential accessibility of your shop. Is it far from parking? Are there not enough entrances and exits? Is the space uneven or does it have an irregular shape? E.g. a dogleg?
A narrow frontage with a deep shop creates “dead zones” or space where merchandise cannot be seen from the front of the store. Equally, a wide frontage with a very narrow depth can also be problematic. The ideal frontage to depth ratio is usually 1:10 – 1:15. iI.e. for every 1 metre of frontage there should be 10-15 metres of depth.
Sight Lines & Signage
Lastly, making sure your store is visible is critical. Walk around the site to see if sight lines are impeded in any way and consider how you can maximise the signage of your store. Inquire as to what signage is available as part of your lease e.g. hanging signs or awning signs
Ways to maximise signage:
- Use large clear fonts and lettering and neon signs and illumination at night for strip shops.
- Evaluate whether or not your frontage allows for promotional signage such as discounts or special offers to be displayed at eye level.
- Consider whether your space allows for directional signage to be displayed with the store. Directional signage helps time poor customers navigate the space and find what they need easily.
- What “way finding” has been provided by the centre so that customers can easily find you?
This blog highlights the importance of site selection to your overall retail success. As a guide, it usually takes 500 plus hours of work to select a site from scratch, however it is absolutely worth the effort!
This post was authored by Simon Fonteyn. Simon is one of Australia’s leading experts in retail, childcare and medical leasing and rental valuations. He holds a Degree in Accounting & Finance, a Diploma of Valuation, a Masters of Management and is an Associate of the Australian Property Institute. With over 25 years experience in the commercial property industry, Simon founded LeaseInfo® as a way to provide more transparency to the industry.