By Lori Karpman on behalf of Canadian Franchise Magazine.
If you ask anyone in the retail industry what the 3 most important elements of success are they will tell you: (1) location, (2) location and (3) location! Where you choose to locate your business will have a substantial impact on customer count, top lines sales and bottom-line profits. It needs to be able to support your business now and in the future as most franchise agreements have an Initial Term of 10 years, (and often have renewals).
Before a location can be selected you must understand certain elements of the business and what you require in your local area. This list is not exhaustive nor in any particular order of importance, they are all important.
- Who is your ideal/target customer? Who exactly are your customers- be as specific as possible?
- How long will people need to travel to reach you? Do they walk, drive or take public transport? If the latter then easy access to local transportation is vital.
- Will customers drive to your location or does it have to be within walking distance? Customers will drive longer and further for a speciality item than for a convenience item.
- What is the “Customer Traffic” in the area, that is, the number of customers visiting the location, number of vehicles passing by, and the number of pedestrians who can walk to the location.
- What is it that you are selling- is it a product or service? Often services are best placed in local strip malls off the main thoroughfare.
- What size location is required? How many square feet do you need and how do you divide that space between retail and back office or storage?
- What are the demographics of the area you are looking at and are they your target market? By demographics we mean, the age, income, education, family size, how many cars a family owns and more information about the people who live in the area.
- Do you need parking, storage space or room for a terrace? What additional location needs do you have? Special ventilation, plumbing or frontage required for example.
- Will you be doing online sales and if so, do you need to carry inventory- as this will require additional dedicated space.
- Does your business cater only to certain day parts, like a breakfast only place that closes at 3pm, or do you customers come at all times of the day? This is important as you want to be on the correct side of the street to make it easy for your customers to access you. What side of the road do you need to be on, is called access and egress? You want to make sure you are on the “right side of the street”. If you are a breakfast place it is ideal to be on the side of the street people take in the morning to get to work. If you are dinner, then be on the evening traffic side of the street. While it sounds silly, truth is customers do not like to have to cross medians, or droves of oncoming traffic.
- How important is visibility from the street? Or is it not important because you have a unique product that customers will seek out?
- How much you can afford for total occupancy cost, that is the rent, plus any common area expenses or are there other financial tenant obligations.
- Who goes on the Head Lease, is it the franchisee or the franchisor?
- Who will negotiate the head lease, is it the franchisor or the franchisee?
It is important to get a handle on the answers to the above questions before beginning the search for the perfect location. Remember the selection of space is long term and requires a high capital investment.
Certain types of products dictate location by their very definition. For a convenience purchase, you need quick and easy access to let customers come and go quickly. For a specialty store, people are willing to drive a little longer because they may not be able to find the product or service locally. If you sell larger items an indoor mall location may not be the best choice, rather find one with parking and or a loading dock that is easily accessible. Strip malls work well for these concepts. An enclosed mall, however, is a fabulous location for personal services such as hair and nail shops, and retail items such as clothing and homewares.
There are a variety of ‘trade areas” or “zones” to consider depending on your product or service.
A trade area is the geographical area from which the store attracts customers. It is also sometimes referred to as the “catchment area”.
There are three basic types of trade areas:
- Solitary Sites or Free-Standing Locations:
These are single, free standing shops, which are isolated from other retailers, even though they may be on a concrete pad space in a local shopping center. These are often used in the restaurant industry as well as destination businesses such as grocery stores, mass retailers like Costco and others of the same ilk.
Occupancy costs for free standing space is often less than elsewhere and there are generally fewer operating restrictions such as use clauses. Use clauses are put into leases to grant a tenant exclusivity for the sale or one or a series of items. So, a local shopping centre with a pizzeria will not likely allow another pizza shop on the property. The disadvantage generally is that there is much less pedestrian traffic, the store must be a “destination” place that people are willing to drive to. This is why these spaces are ideal for restaurants as they generally also have ample parking.
2. Unplanned Shopping Areas:
These are areas where retail has evolved over time. Generally, we see multiple retailers sharing space. They can be “downtown” locations and retail “strips” along a highway, or your local Main Street for example. There is high traffic but only during business hours. Secondary business districts are in larger cities, on the town’s main thoroughfare. If business owners are your demographic then these types of sites may fit well as your customers can come before or after work.
- Planned Shopping Areas:
These are areas that were expressly built to hold multiple tenants. Those large outdoor centers with a gaggle of tenants are called “Power Centres” or “Lifestyle Centers” and they are always designed to be strictly retail. There may be one road, or it may even look like a small city with a large pad and a variety of tenants. These have the significant advantage of having ample parking, though occupancy costs can be higher in these centers as there are large spots of land and parking to light, clean and maintain or higher property taxes. There is always great visibility for these centers, always with easy access and egress.
Before you sign any lease be sure you have read it and passed it along to an attorney to review for you. There are often sets of rules and procedures related to your retail store location, such as a non-competition clause for example. You may also want to contact the local city hall and/or zoning commission to make sure the franchisor’s signage package is acceptable or subject to restrictions. There may be limits on the size and/or imagery you can use to advertise your business. It would also be nice to know what if any construction projects are planned for the area as this may affect your customer’s ability to reach you or can signal higher sales volumes in future years where there is a highway or new residential area on the horizon.
As you can easily see there are a lot of considerations in choosing the right location for your business. Fortunately for you, franchisors often have a lot of experience in this area and will be an invaluable source of assistance. In almost all cases, the franchisor has to approve the final lease so you can be sure they will conduct an ample investigation. Remember though that a franchisor’s consent of the location does not mean it is guaranteeing results or making any financial representations. They are just confirming that the right criteria for their concept are in place.
Lori Karpman is president of Lori Karpman & Company A full-service firm providing a full range of consulting and legal services. (514) 481-2722 or via e-mail at [email protected] www.lorikarpman.com