Any site selection consultant who tells a retailer that their expertise is 100 percent science is not being honest. Art still does, and always will, play a major roll. The trick to accurately forecasting sales is the consulting firm’s ability to marry the art and the science. In an era consumed by technological advances, many retailers have become dependent solely on statistically sophisticated, turnkey sales forecasting systems to choose new locations. While these models are firmly grounded in science, they lack a critical component necessary for the success of a retailer’s site selection process – the art of understanding the qualitative aspects of site selection, those factors of a site or market beyond what can be charted with numbers.
Clearly, developing a sales forecasting model is an important step in successfully selecting new retail locations. How large a role these models play, however, depends upon the retailer. For larger chains (roughly 50-plus stores) these models often provide an accurate assessment of where the next store should be located. A larger chain has the benefit of an established customer base and numerous stores to use as analogues for estimating the performance of the next new store. Also, a larger chain has extracted a tremendous amount of customer driven data as their own internal POS systems have become more robust.
Smaller chains, however, inherently have greater difficulty as they have less history and much less first-hand customer data. These chains cannot rely solely on quantitative sales forecasting models as these models tend to be much less predictive. Therefore, smaller chains must increase the role of qualitative market analysis to make accurate sales predictions on new store locations. It is critical the next store the smaller retailer opens be a home run. There is little room for error when you are a small retail chain, whereas a larger chain can more easily absorb a mistake.
Market analysis takes into account a host of factors that extends well beyond quantifiable census data. The subjective nature of this analysis makes its accuracy highly dependent on the knowledge of the site selection consultant. In order to provide in-depth insight into a market, the consultant should understand not only the population, demographics and lifestyles of that market, but knowledge of dynamics of each retail market as well. These include the type, strength and location of the competition, psychological barriers to shopping, overall shopping patterns and how they have changed over time and other peculiarities that are unique to each major market in the United States.
For example, in metropolitan Detroit, a specialty women’s apparel retailer opened two locations. Each location was in a regional center that had nearly identical trade area population and income levels. The retailer soon learned that while income levels were the same, the lifestyles in these two communities were quite different. The customer was much less sophisticated in one of these markets. More sophisticated consumers in that market were more likely to shop other, more tony sections of the Detroit market. As a result, one location was highly successful while the other location struggled. Could the more sophisticated sales forecasting models have identified this nuance?
When providing market analysis for site selection, experienced consultants consider the following key points:
- The psychographic and demographic profile of the customer, understanding their lifestyle and lifestage;
- Where a retailer’s customers are located, both regionally and nationally. While consumers are accustomed to traveling for regional centers, accessibility and convenience are key for lifestyle centers;
- The shopping patterns and shopping behaviors unique to the market and submarket;
- An evaluation of other methods of the retailer’s distribution, including catalogs and e-commerce. The consultant must understand the similarities and differences between these customers and traditional brick-and-mortar customers;
- How many new stores can be supported in a new market? In what priority should these stores be opened?
- Should a retailer roll out to the primary location in each market before fully saturating a market?
While cutting edge sales forecasting models are consistently being developed and improved by the nation’s largest site selection consultants, they are more applicable to the larger chain operations than to smaller retailers seeking to expand their reach. These models, grounded in existing customer and sales data, cannot begin to address the needs of smaller retailers who must choose a site based on comprehensive market analysis that includes both quantifiable and qualifiable aspects. Determining whether your company needs a larger scale site consultant firm or a more boutique agency is only the first step in locating a site expert who can truly become a partner in the growth of your enterprise. The consultant’s relevant experience must be considered as well. If your company is considering national expansion, then a consultant who understands the dynamics of the major markets across the U.S. is necessary. A consultant of this caliber should be well-traveled with experience in each major market. In addition, a consultant who has been in this business niche for some time will better understand and be able to anticipate the constantly changing retail cycles, formats and centers that make the retail industry so dynamic.
One should also consider the other retailers with whom the consultant has worked. If the consultant has clients with similar locations, retail types or those who are considering similar markets, he or she will have an existing reference point and may be able to recommend mutually beneficial tenant relationships.
Most importantly, chose a consultant who views the relationship with your company as a partnership not just a project. A true partner will be working toward a long-term relationship and will be more willing to encourage your company to take calculated risks, understanding that there is inherent risk in every new location. A partner will encourage your company to realistically access who your customer is and then locate in their community. The value of partnership in these endeavors cannot be overstated.
Venturing into new markets offers retailers great opportunities, with great risks. Marrying the art and science of site location can help ensure that the location chosen is in the heart of your customer base and skews the odds of a successful venture significantly in your favor. Jeff Green is president of Jeff Green Partners, a retail real estate feasibility firm based in Mill Valley, California. The firm’s Web site is www.JeffGreenPartners.com.
