A critical part of opening a new retail store is deciding where to put it. Most likely you will be renting, but a select few new owners will be able to buy. Either way, if you pick the wrong location, you’ll regret it for as long as you’re in this business. You could always move, but that means you’d have to pay for the build-out again and hope that your customers follow you. Also, consider the cost of moving and installing all your equipment. Obviously, if you do your homework first, you’ll have less remorse later.
Allow yourself enough time so that you’re not rushed into taking a location that isn’t exactly what you want. You’ll want to be where your target customers can find you easily—not in an obscure location where they’ll get lost and head for a competitor.
We’ve all heard the phrase “location, location, location,” but can you really afford the very best location available? You need to decide what type of location you need and can afford to find a happy medium. Overextending your budget on rent is just as bad as choosing the wrong location. Your business may have its sales ups and downs due to seasons, economic factors, or other unexpected situations, and you must be able to pay your rent every month. So evaluate your best and worst sales periods when making your site selection, and make sure your budget can handle the rent.
Does your type of business need to be in a high-traffic area, or will customers look for you in the phonebook or on the Internet and drive to wherever you are? If you’re planning a good-size store, you may be able to be the anchor in a strip mall a little off the high-traffic area. If you’re the biggest store in a strip mall, you may be able to negotiate a few extra perks from the landlord and get the biggest spot on the monument sign. Or, is there a large national store near a location you’re considering that will bring your type of customers into the area?
A good commercial realtor should be able to show you all the currently available spaces plus any that may be coming on the market in the next three months. Don’t look at just one or two spaces and make a decision; look at all that are available. This will be your business home for several years, and you’ll be spending a lot of time there. Take the time to investigate seriously.
Just because a space isn’t empty today, there’s no reason why you shouldn’t consider it when it does become available. If it’s a great location and a reasonable price, wait for it—you’ll be happy you did. You’ll only get one chance to make your decision on your new location, and once you sign the lease, the decision is made. After signing, though, forget about it. Don’t second-guess yourself; just start building your business.
If you’re opening a franchise, the franchisor should have someone assist you in finding a store location. If they don’t, you may want to consider this when deciding which franchise to sign up with. The franchisor should physically visit any space you’re considering before you sign the lease. They can draw on their experience with other units in their organization. The franchisor should have as much interest in your success as you do and will be your best advisor on site selection.
You’ll also want to check the demographics within a five-mile radius of your proposed location. This will tell you not only how many people are in the area, but also the type of people. It will show income level, education, age, and several other factors. You can then decide whether these are the customers you’re looking for. A good commercial realtor should be able to provide these demographics at no charge and explain them in layman’s terms. If your target customer isn’t nearby, why would you want to locate your business there?
And then there’s the mall: the one-stop shopping center where you can visit 150 or more stores in a single location. A place where you can shop and eat and shop and eat and go to the bathroom all in one trip. They even have benches where you can sit down and count how much money you have left. Most people who visit a mall stop at more than one store; it’s too much of a hassle to go for just one thing.
However, space rental in a mall comes at a price. When considering a mall for your new store, realize that the rent will be 20 to 50 percent higher than that of your typical street location. See whether there any available spaces close to a large anchor store that will generate a lot of traffic past your store entrance. Other good positions are in the center where wings of the mall converge, on a corner, or near the food court.
Find out how many stores have recently left the mall, and if it’s more than 10 percent in a year, this should raise a red flag. Find out why they left. If you can, find out who the stores are and call the person who was in charge of that location. There may be a general problem or a lack of interest by the mall owners that could hurt all tenants. You don’t want to sign a lease and find unpleasant surprises later, so check out things in advance.
How does the mall look on the outside and the inside? Is it well kept? Do they decorate for the holidays? Do they have special events inside and outside that draw people? Visit some of the stores that are the size yours will be and talk to the owners. Are they making money? Do the mall owners or the landlords promote the mall on radio or TV? If it’s located near an interstate or a major highway, is there an exit within a mile of a mall entrance? Is it easy to get into and out of the mall, and is there enough parking?
An all-important question is whether your type of store will benefit from mall-style shoppers. Sit on one of the benches and watch the people go by during the day and in the evening. Are these the kind of people who will shop at your store? Will they purchase your products? And most important of all, can you make a profit after paying all the expenses?
Most locations will also charge a triple net (taxes, repair, maintenance) or CAM (common area maintenance) fees in addition to rent that must be paid monthly or quarterly. These can be from 2 to 15 percent of the rent, and you need to compare them to those of other nearby locations to make sure they’re in the ballpark. These charges generally cover common area maintenance, landscaping, snow removal, and costs for other services.
The things that the triple net covers should be itemized in your lease, so learn what they are. You should also get a quarterly report that itemizes all the CAM expenses. Most people consider this as part of the rent when planning expenses. Your rent will likely increase a little every year, so check the escalation amounts in your lease before you sign it. If the landlord’s estimate for the expenses and taxes is lower than they really are, all tenants will get a final invoice after the end of the year.
Take your time choosing your location, because you’re going to have to live with your decision and pay rent for a long time. A little advance investigation will give you much peace of mind later. If you are doing an expensive build-out, you may want to have a clause in your lease giving you first rights to renewal. This prevents the landlord from replacing you if business is very good in your current location and the landlord decides he wants a different (perhaps higher-paying) client in that space. You will have the first option to renew at the current rates so that you can protect
your business location.
Once your location is selected, stop thinking about it—the decision has been made. It’s time to get on to the purpose of your new business. Why are you in business, and what makes you different from all the other companies in the same industry? It’s time to write your mission statement, which is your overall business objective.