You've finally decided, and you're probably excited: It's time for your retail operation to grow—to move to a larger site or open another branch. But before you do, you need to understand the single aspect of your new spot that can make it or break it. This feature affects how many cars go by your store in a day. It influences how many new shoppers come inside. How much money you have each month to pay staff and invest in new products. How you can advertise your store. How comfortable your shoppers will feel in your aisles.
This single critical issue that affects every new store? Location. Finding the right piece of retail space and getting it for the best possible deal can mean the difference between the road to making bank and the road to bankruptcy. Though emotions often run high during the "shop shopping" process, it's important to take time to analyze your store's needs, observe the real estate market, and get outside advice before you sign a lease that can affect your store's performance for years to come.
Bennett Bertoli, vice president of Boulder, Colo.-based Sunflower Farmers Markets, has overseen the opening of several new stores. He suggests that, before anything else, a store owner should do a thorough break-even analysis, plugging in labor and all other costs in comparison to expected sales to see at what point a store will break even. "And be realistic," Bertoli says. "Don't say you'll do $40,000 [in business] a week when you'll do $15,000."
Once you've determined your break-even point, you can decide on a price range for your new property and create a "shopping list" of qualities your new location must have, including size. Because each property is unique, prioritizing your needs and desires will help you soberly evaluate a site. Knowing your customers' demographics and shopping needs is imperative for deciding priorities. At this point, Bertoli says, a commercial real estate agent can help you find properties that fit your needs, even properties that aren't yet on the market. He or she can also help by filling you in on important demographic details about the area you're considering.
Jay Jacobowitz, president of Retail Insights, a Brattleboro, Vt.-based consulting firm for the naturals industry, says to look for favorable adjacent retail partners and lots of windows to bring in natural light. He also recommends driving by the site to test whether the store will be easy to see from the street, convenient to go in and out of, and located in a part of town customers will feel comfortable visiting. Make sure you are really getting a "vanilla box," he says, meaning a bare, blank, empty, ready-for-fit-up space that will not cost you money to deconstruct. Likewise, Bertoli advises retailers to investigate zoning rules to make sure they know what kind of exterior signage will be allowed.
Parking space, a seemingly trivial factor, plays a strong role in determining store-traffic volume. Jeff Hills opened a supplements store called Healthy Appetites in downtown Plymouth, Mass., in 1996, but soon realized the lack of available parking downtown was stunting his store's growth. Customers would circle the block a few times looking for parking, then get frustrated and drive to another store farther away. Hills moved his store to a spot with more parking in 1999 and soon saw a significant jump in business. "We learned that you can't take care of your customers until you've taken care of their cars," Hills says.
Once you've found a possible site, a market analysis of the surrounding area will help determine the possibility of the new store's success—and possibly save you from investing in a flop. "People really like to shoot from the hip here," Jocobowitz says. He insists it's key to analyze the market and real estate opportunities closely to see if the cost of occupancy in that particular location will fall within a tolerable range of percentage of your sales, which he suggests is 4 percent to 6 percent for new projects. For an evolutionary expansion of an existing store (moving to a new location up to twice the size of the old one), Jacobowitz says retailers can usually count on about an 18 percent to 20 percent sales increase, which should be added into the calculation.
If the numbers work and it's finally nego?tiation time, a real estate broker or attorney with real estate experience can be helpful in combing through the lease agreement. In addition, here are a few factors, according to Jacobowitz, to watch out for in a lease before you add your John Hancock:
- Ask for the right of first refusal on adjacent spaces.
- Check that there are covenants against overlapping product lines from adjacent retailers.
- Verify that there are set rates for any option periods so the landlord cannot surprise you with a rent hike.
Another crucial step: Make sure to review the termination rights and default sections of the lease before you sign, Bertoli says.
If you are relocating a store, the status of store fixtures becomes an issue, too. Jacobowitz suggests creating a timeline for moving, and calculating whether it's more expensive for you to close down the old store early so you can move the fixtures, or to fit the new location with all-new fixtures. Planning for these details ahead of time can help avoid headaches later.
Also, at this point in the game, being a "no-wanter" is crucial, Jacobowitz says. "People fall in love with a location or facility, and then they wind up overpaying," he says, "or just not striking as favorable of a deal as they could. And that can be really expensive." Keeping a poker face during the negotiation phase, no matter how excited you are about the new location, can sometimes help you get more for your money. "If you don't stay focused on your checklist and get carried away with emotion, landlords always take advantage of that," Jacobowitz says. But doing your homework and keeping a clear head during the shopping process can result in a smooth transition into a facility that will fit your needs and meet your expectations.
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Natural Foods Merchandiser volume XXVIII/number 6/p.26-28