Before John Mullen opened his first used bookstore, he did the same research other new entrepreneurs do. He hopped in his car, drove around until he found a vacant, suitably-sized storefront, called the landlord, agreed on a rent, and three weeks later, opened for business. Fourteen months later, he closed the store, having lost a substantial amount of money and ego.
Mullen’s first mistake was letting an available site dictate the location of his store. He took a reactive approach, instead of developing a systematic search for the proper site. Whether it’s determining where to open a single shop or penetrating a new market with several locations, the steps a retailer should go through are the same:
1. Understand the target audience. A drug store, a high-end women’s dress shop and an electronics store sell distinctly different products. Their target markets are also different. Retailers need accurate profiles of their typical customer. It’s often best to start simple, with broad-based characteristics, such as gender, age and income. More advanced characteristics include marital status, family type and social and cultural factors. There are numerous ways to do this, including observing existing (or competitors’) patrons, getting information from trade and industry groups or hiring an outside consultant/consumer research company. At the conclusion of this stage, a retailer should have a comprehensive list of key characteristics for the core customer.
2. Examine the market. Once a profile has been developed, determine where these people live. Several companies sell this vital demographic information. For as little as a few hundred dollars, they provide retailers with population statistics and maps depicting key demographic variables. The target profile developed in the previous step serves as a road map in determining the demographic variables on which to focus. If the typical customer is in the 30- to 50-year-old age group and a college graduate, focus on those factors, both in the statistics and in the maps. The areas with high concentrations will be easily identified.
3. Gauge the competition. Now that the best areas have been identified, estimate the effect of competing retailers. It’s rare that areas with high potential are void of competitors, so the key is an accurate measurement of the competition. This is usually accomplished by visiting each store in the areas and rating them on a standardized checklist. Mullen, for example, should have visited all of the bookstores in the targeted areas and noted such things as square footage, size of inventory, amenities, breadth of material and other items related to the industry. He also could estimate the success of the store by observing the number of patrons over a week or two-week period.
4. Locate the suitable site. Having found areas with the highest potential and the location and strength of the competition, the last step is to find the right site. A variety of factors come into play, including square footage, visibility, parking availability, signage requirements, economics (rent and tenant allowances) and a host of other issues. There are two primary things to remember: first, respect the competition, but don’t fear it. If there is a good site across the street from a competitor, rely on your evaluation to guide you. Second, don’t put all your eggs in one basket. Take the extra time to choose a backup site or two just in case that ‘can’t miss’ site doesn’t pan out.