Retail Site Selection is Art and Science

Topics: site selection, art, science

Transcript:

Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa, and I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management.

Welcome to Retail Retold everyone. I’m your host, Chris Ressa. And thank you for joining me today. We have some great episodes coming between now and the end of the year. And some of them, hopefully, fortunately, but fortunately, or unfortunately, will be some stories that I will tell and not be the standard interview. So we’re going to have a bunch of interviews lined up. But we’re also going to have some stories where I’m giving you a read on what I’m seeing in the market.

And then a story that speaks to that. Today, I want to talk about the manifestation of what has happened with all the new tech that’s come into retail real estate, the impact that has had, and how the art of real estate still is super important. And the two things that I think we see a lot of today that are impacting retail real estate decisions and where stand up stores end up and how the store ended up in your neighborhood, or location analytics, and sales forecasting software.

For those who don’t know, location analytics really aims to provide data around human movement and where people are moving and how they are moving from place to place. Some call this location analytics, geofencing, traffic counting the cell phones and a whole bunch of other stuff. And the other is sales forecasting, where there’s a lot of tech around that retailers have that can do a very good job of forecasting the sales for location.

Ressa 2:05
One of the things that happens is retailers typically will put a market strategy together, where they figure out based on sales, forecasting, their current business and a bunch of other data points on where they should be locating stores, both in markets and insights. And one of the inhibitors to this for retailers is their existing portfolio. Because they might have a store with a lease, they and it might inhibit them. Getting that demand that they believe is there based on their data today.

And it’s important to the retailers that they grab and access that potential business. This is a challenge that I think is accelerating because of migration. And the changing of markets is happening. So fast migration, hybrid remote work, the changing of markets. This is causing people to continuously reevaluate their existing store fleet, ie their portfolio, and how to position it best to get access to the business they believe they can do in a certain place.

Until I’ll give you a story to further explain. We had a property that we had purchased to be a big box center pre vacant, and we had a tenant we were pursuing the first one to anchor the project. And now there’s many anchors in this project. And they liked the project. They liked the idea, the vision and the market. They knew they needed to be there. But they had a store five, six miles away. That had long lease term. And they weren’t sure if they were going to keep that or they were going to close it.

The sales status didn’t say the if they opened another one they should close it. What it did was to make the project work at the property we owned. They could only pay so much in rent. The reason being is the forecast showed that putting the store here with cannibalize the sales of the existing store was like five six miles away. Now, we believe there were things that weren’t coming up in the data that that probably wouldn’t happen. And we had our own challenges where we had purchased the property for a certain price.

There was a cost to do the deal. And we had to return we needed to hit it. And so we had a bid ask challenge on the rent, even though everyone wanted to do this. So how do you get to the finish line? Well, what we had said was, listen, we don’t think that it’s going to happen. So let’s have a mechanism in the lease, that if the cannibalization does not happen, that the rent would move up to where we needed to be.

We also did some value engineering on the cost to bring the cost down so that we could not get exactly the return we wanted, but get close if we missed on the upside. But it led to us constantly evaluating on an annualized basis, the sales of two locations. And if the one location didn’t decrease, and the existing location hit their sales threshold, that the rent wouldn’t be triggered to move up in the lease.

And then there was a lot of language around this, obviously, this is an interesting concept. But we believed that the trade area worked differently than the sales forecast was saying. And we were trying to both get creative to make a deal work. And I think that’s the art that the industry is going to require in order to accelerate store growth in the places where retailer believe they have demand. Because and by the way, both locations still operating today, what has happened is they realized they needed both.

And so the sales forecasting deed, data and software is incredible today, and that it hits the mark, often. It doesn’t change the fact that commercial real estate people need to be creative, in order to make deals work. doesn’t change the fact that sometimes there’s an art and there’s anecdotal data, that is super critical in site selection, that doesn’t show up in software in numbers. And so I share that story because rarely does a rent move based on the sales of two locations.

And I think it’s an important one. And the other thing about this that I think is important is, this is why an attack enabled, and automated world relationships still are critical. Because in order to have something like that work, the two people need to be able to sit in a room, have a meeting of the minds, which is what happened. And then that person has to go in front of their committee. And on the other side, they’re the real estate agents to go to their committee and explain this uniqueness to everybody.

In a world where everyone’s looking for speed, speed speed. People would say, if it doesn’t check all the boxes, it slows things down. I would argue, in this scenario, it sped things up because that retailer wouldn’t have had a store in this market for years. The individual deal took longer, potentially because of the unique structure. But the access to the potential business that wasn’t being garnered by the other store would have taken a long time.

And so that’s what I have for everybody today. A short episode story on some creativity if you want to talk more about that and how we got that done, feel free to reach out to me. You can reach out to me on LinkedIn or you can email us at retailretold@dlcmgmt.com and I hope everyone has a great rest of the week and look forward to you join in for our next conversation. Thanks everyone.

Thank you for listening to Retail Retold. If you want to share a story about a retail real estate deal that you were a part of on our show, please reach out to us at retailretold@dlcmgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney Also don’t forget to subscribe to Retail Retold so you don’t miss out on next Thursday’s episode.