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.
Opening Remarks
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.
Considerations
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.
Audience Classification
- Luxury
- Premium
- Budget
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.
Store size
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.
Signage Space
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.
Visual Clutter
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.
Rent Escalation
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.
Ceiling Height
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.
Columns
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.
Toilets
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.
Traffic Conditions
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.
Concluding Remarks
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.
Thank you.
