Double Data
- August 5, 2019
- Our People
Retail site selection depends on understanding key factors on micro- and macro-levels
As a tenant representative, I am often charged with representing local, regional, and national retail brands in search of their next locations. Finding the right site extends beyond the physical space and an “open” sign in the window. In fact, it extends beyond the streets that lead to the storefront – it involves the co-tenants and nearby shops and services. Commercial real estate professionals need to ascertain the context of the targeted trade area for effective site selection.
One of the most effective tools for developing context is sales data from neighboring merchants and operators. Sales volumes are an essential, critical metric in defining trade areas and determining a site’s potential context, value, and opportunity – even more so than land sales and lease comps. This information, when combined with local market knowledge, technology, and operator input, can provide a multi-dimensional site profile.
In fact, operator performance (i.e., sales volume) is a critical decision-making factor requested by tenants of all types. The overall sales volume picture is colored by quantitative and qualitative data derived from several sources at both micro- and macro-levels. These include direct input from other operators, local market knowledge and expertise, local relationships, and data collected by the various local tax, economic development, and other regulatory agencies.
A quick word on data integrity: The constantly shifting retail environment makes this element more important than ever. To ensure data integrity, employment of a variety of data collection efforts is key. Multiple sources establish a 360-degree perspective, while appropriate checks and balances can help ensure maximum data integrity.
Direct Input from Operators
Relationships in commercial real estate are everything. They enable access to off-market properties, confidential information, and key people who make things happen. Build relationships and tap into them for access to networks, insights, and perspectives on the targeted trade zone.
Reach out to directors and executives of retail and restaurant operators where connections exist. Conversations about the targeted area, regional trends, and sales volumes provide valuable input. Bulk-level conversations with regional and national networks allow protection of data privacy while deploying appropriate checks and balances to verify information gathered from other sources.
Interviewing managers from relevant area stores is a direct approach that yields surprising results – especially when a general idea of the operator’s benchmarks offers useful intelligence in return. Ask to speak with managers, franchisees and owners, and even popular bartenders. Informal conversations are productive, but scheduled meetings and reciprocated insight prove even more lucrative.
Sales reports from public companies are also available, typically found online – look for the investor section. These reports help build context at the macro level with same-store sales, sales per square foot, top-performing locations, and regional performance ratings.
Even cold calling can pay off. An abundance of information can be collected with a phone call by interns or junior associates to area merchants. Inquire about sales volume, customer traffic patterns, and other operational indicators, but reassure non-disclosure of the data to facilitate buy-in. In return, share the final report from these efforts with these merchants, including data summary and trends, keeping data sources anonymous.
Agency Data
Regulatory agencies along with tax and economic development entities offer sales and economic data gathered at the local, municipal, county, and/or state level. Often readily available on the agencies’ websites, the data fills in the context picture from various angles:
- Sales taxes paid (a general indicator of sales volume).
- Liquor sales volume by outlet (a general indicator of consumer patterns).
- Employment by industry (general insight into the segment health).
- Number of restaurants or merchants opened in an area (a general indicator of market saturation).
You may find other relevant data including demographics, housing trends, income levels, etc. – all good indicators of sales volume potential.
Local Market Knowledge
Supplementing all this data you’ve researched and collected, gaining on-the-ground local market knowledge is indispensable. Local brokers entrenched daily in the market as well as with property owners can provide essential insight. To build your street-level intelligence:
- Drive the trade area to understand the consumer profile, traffic patterns, and active brokers, as well as popular shopping centers, favorite merchants, and key commercial corridors.
- Talk to market experts. Brokers and landlords help flesh out the picture of the trade area from different perspectives. Consider the various data gathering methods and tools employed for site selection. Experienced brokers combine street-level intelligence and relationships with technology and hard data. Insights on sales volumes, traffic patterns, potential challenges, and emerging pockets or intersections may also be shared.
- Connect with other professionals active in the trade area. What trends are relevant? What regulations or issues are top-of-mind within the target zone? For instance, are there current or developing zoning, accessibility, or neighborhood issues that may impact sales volumes?
Sales volume is not easy to obtain, but it is a decisive – and foretelling – component of the site-selection process. As such, employing a variety of data gathering methods, from both direct and indirect sources, at both micro and macro levels provides valuable insight, along with essential checks and balances to ensure data integrity. The goal here remains the same – a highly successful, sales-driven site-selection process that ends with another “open” sign.
For essential tools for site selection analysis, log into Site To Do Business.
The Micro and Macro of Sales Data
Data at both micro- and macro-levels create a well-rounded market perspective. While knowing how much one grocery store generates a year is good for an idea of the potential sales volume of a specific location, when combined with the regional or national ranking, a well-rounded macro-level perspective takes shape. Both these data levels are important in determining the potential for success in an area.
Let’s take a look at an example. A merchant in Market A averages $1 million in annual sales, but the company’s national average is $2 million. Does this mean that the area is severely underperforming? A closer look at the micro level reveals that another area store that opened two years prior generates $1.4 million in annual sales. Further, you discover that 80 percent of the merchant’s stores are on the West Coast’s most heavily populated areas with a long operating history.
If you only considered the macro data, it appears that the store is operating 30 percent below national average. However, with additional context, it really performs 40 percent better than market average, even though it’s only been open for two years. An assumption could be made that the store is more successful than initially assessed based on original data in a vacuum.
Statistics can mislead without the whole picture. Analysis of both micro- and macro-data shapes store comparisons. It also provides a more in-depth understanding of the region, including sales maturity and circumstances specific to the site.