I recently got an opportunity to consult with a small retail chain, thanks to a consortium I’m a part of and I was asked to write a small piece on the important points to be considered while selecting properties for retail. I promised to revert with “8 to 10 Bullet Points” in a few minutes and ultimately churned out this report that runs into six pages! As it is compressing some 22 years of experience gained by leasing and or project managing close to a million square feet of space, I thought it would be a good idea to share it with others who may find the information useful, or for students of retail who could understand the dynamic of site selection based totally on personal experience.
Please note that these points are generic points and hence are not placed according to any priority, but sometimes, depending on the Format, Size, and Target Audience, some of these points may attain a higher level of importance or even a criticality, which needs to be established subsequent to a detailed study.
Further, the criticality of Property selection is heightened when one is choosing a High-street location, as the costs are generally high and the foot traffic is not always assured. Thus, the following considerations would be most relevant for the selection of High-street locations.
Mall location considerations are entirely different and will depend on the success of the mall to attract the appropriate footfall in sufficient numbers, together with the design of the mall, the traffic flow and store design. Thus, mall locations will require a detailed and separate study.
Property Identification can be clubbed into four main considerations:
A. Format / Business Considerations
B. Commercial Considerations
C. Technical Considerations
D. Hygiene Considerations
A. FORMAT / BUSINESS CONSIDERATIONS
Depending on the merchandise being sold, location would be ideally located in certain markets in the city where similar merchandise is sold or is famous for. Thus, taking on the traditional or established players in the city and offering a differentiated experience or merchandise to be considered.
The network plan will need to be defined. Under each of the above classifications, one needs to clearly define whether one is targeting the following groups:
- Impulse /
- Daily Needs
Thus, an Impulse Luxury item will need to be located in the middle of a high income shopping district that hosts sufficient footfall of the audience who can afford the merchandise, on the other hand, Luxury Daily Needs products can be a little less exacting in choice of location as one hopes to promote premium and budget customers to try the merchandise. Similarly, Premium Impulse merchandise needs to be very aptly located on High Street / Malls / Luxury Destinations.
Work Place / Residence Locations of Audience
Studies have shown that a large percentage of customers prefer to stop by and shop for their requirements while driving on the way home from work. Thus, being located on a street that connects a popular work district to a high end residential district is always a good idea. However, it is critical to be located on the left side of the road (Indian driving characteristics).
High Street Considerations
When a High Street Location is being considered, one has to primarily determine whether the street is a One Way or not. If it is a one-way and does not funnel people from a work district to a residential district, it will not be an ideal choice.
Distance of Storefront from the Street
Most retail formats require vast amounts of visibility into the store to encourage passersby to promote themselves to visitors after being enticed by the displays in the store. Thus, if the storefront is too far setback from the pavement, the impact of the display is minimized.
Availability of Storefront Parking
Most formats that have some parking facilities in front, are seen to perform better than those on high-streets that do not have parking. Thus, properties that have some parking in front of the store, subject to the point about the distance of storefront from the street, will be desirable.
The size of the store shall be as per the requirements of the business, and shall be able to carry the entire assortment of merchandise correctly and efficiently. The added requirements of the space for the Stock Cycle and the Staff Cycle need to be provisioned for. If the space is too less, this will result in the assortment getting pruned, and if the space is too large, it will be inefficient and result in higher costs.
Width of Frontage
Based on the format under consideration, the site being selected shall offer a minimum credible width to achieve a defined Entrance, offer Good Visibility and ensure an Attractive display.
Site Aspect Ratio
This is the ratio of width to the depth of the site. Depending on the format, rectilinear spaces would be ideal, where the width is not too large and the depth consequently too shallow. On the other hand a narrow frontage with a very long throw for the depth is not desirable.
One of the most important aspects that need to be considered. Buildings that are intelligently built will have made specific and sufficient planned spaces provided for signage. The store will require adequate signage length to make a good impact and further, the width of the signage shall have a minimum such that a standard width of material can be used for the signage without wastage.
Storefronts that have clean signage and ensuring that the width and specification adopted by all the tenants of a building follow the same guidelines, the visual presentation will be orderly and impactful. If everyone follows their own standards, this will result in visual clutter and nobody’s signage will be effective. Thus, poorly designed buildings that have not specifically planned for sufficient signage needs to be avoided.
B. COMMERCIAL CONSIDERATIONS
Cost of Rent
The monthly cost of rent outflow shall be based on the profitability analysis for that neighborhood. The potential of the location to support its rental shall ideally be judged on the basis of the expected turnover at that location. Based on analysis, rent outflow shall be pegged at an Allowable Percentage of the Expected Turnover, say 10%. Thus, if the required turnover level cannot be achieved within the time frame agreed, the site would be under severe strain.
All landlords will expect the rent to escalate at a particular rate each year, and would typically expect an escalation rate that covers for inflation. This can be bunched together and charged once in 3 years to ensure that the store gets a chance to stabilize before suffering a higher rental.
Cost of CAM (Common Area Maintenance) or Utilities
In some cities, Commercial properties are required to pay higher costs towards Water and Power Utilities. Thus it is important to understand the cost of utilities fully before committing to a property. In managed properties like malls, this is a shared expense and depending on the professionalism and efficiency of the mall, the costs can vary between 20% to 50% of rent outflow. Thus, it is as important as the rent, and similar to rent suffers from some escalation too.
Cost of Signage
Municipalities of several cities charge a license fee for the signage f a store, beyond a particular size or area. This could be of sizable value and hence it is important to peg the cost of this license as part of the input Operating Costs.
C. TECHNICAL CONSIDERATIONS
Availability of Power
It is important to correctly determine and establish the amount of Connected Load that one will require. Typically, all buildings would have been designed on some assumptions and the power connection available would be a finite defined limit. If the formats requirements exceed the permitted load / available connection, the enhancement costs are quite prohibitive and due to the shortage of power in most Indian states, quite long in lead time.
Use of Generator
Generators are used when the connection is of lower capacity or is not available to the store at the time of launch. However, captive power generated using fossil fuels typically costs about 2.5 times public utility power, and hence quite unaffordable in most instances. Even when the connected load of sufficient capacity is available, generators are used when there are power failures and due to the cost consideration mentioned before, the absence of mains power for extended periods of time could have serious financial impact on the store. It will not be out of place to mention here that power generated by use of fossil fuels is highly polluting in nature and it will be necessary to minimize the use of such devices.
Space for Air Conditioners – ODU’s
The building shall have sufficient setbacks and locations that can take the mounting of the required number of air conditioning units. As these generate considerable heat and also a fair amount of noise, they may be objected to by neighbors; hence it is critical to locate them appropriately. Conversely the length of the piping permitted between the ODU and the IDU is finite and has to be taken into consideration while deciding if it is feasible to have cost-effective air conditioning in the site.
Most retail formats have some standard fixtures that they need to display and stock their merchandise, and hence the services need to be placed above that height. Thus the ceiling height or more accurately, the clear height below the lowest beam of the site shall be sufficient to house the fixtures and also have remaining height in which false ceilings, lighting, ducting and other services can be comfortably run and efficiently maintained.
While columns are an integral part of any building, it must be noted that modern and well designed buildings have a minimal number of columns, ensuring that the space utilization is of a higher efficiency. Multiple and closely spaced columns result in the racking not being laid out in the most useful manner resulting in low efficiency.
D. HYGIENE CONSIDERATIONS
Handicapped / Wheelchair Access
Some municipalities insist that certain types of public buildings provide for free and unrestricted handicapped access. This needs to be evaluated, and checked if the building under consideration requires the same, and whether it meets the criteria.
Availability of clean and safe toilets for staff and customers.
Safety and Security
The site that typically has staff working till late hours, stores high value merchandise or stores cash collections overnight shall have sufficient evaluation of the safety and security aspect for all the three store cycles, i.e. The Stock, Staff and Customer Cycles.
Presence of Pavement, absence of Electrical Infrastructure
Other aspects that need to be looked into are whether the pavement / footpath in front of the store is sufficiently wide and safe for customers to use, and whether there are any obstructions from Transformers, Telephone Junction Boxes, etc that can adversely affect the visibility of the store and also render the pavement unsafe for pedestrians. Particularly, the presence of un-cleared garbage and badly broken down pavements and roads in front of the stores needs to be avoided.
To permit customers to cross the road with ease and safety, the traffic shall be sufficiently light and well regulated, or if the traffic is very dense, safe Zebra Crossings and or Subways / Skywalks shall be available at a reasonable distance.
Legal Documentation and Ownership
Properties need to be leased from people who are the rightful owners and sufficiently rigorous due diligence needs to be carried out by an expert law firm to establish the same. The Lease Document shall be drafted in a scientific and totally legal manner that can stand to scrutiny by any public office. Finally, properties that are taken on lease for commercial activities shall be declared Commercial and documented as such. Residential premises shall not be leased for commercial activities as this is a contravention of the law.
While the above list is a comprehensive list of Look-Out-For items for a person entrusted with property search, each format will have its own specific and specialized requirements that need to be studied in detail and locations appropriate for the business identified. In the event that a more specific study is required to define the requirements of a specific store format, the same can be provided subsequent to a detailed study of the format, the assortment, the profitability and the catchment analysis.
Ideally, for a chain store a detailed Net Work Plan shall be drawn up in consultation with Operations and Marketing, reflecting the market potential of the city and the desirable locations that one would like to be present in, and based on the same the site search should be initiated. Please do contact the undersigned for more detailed support.