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How to open a store, part 1: Property

  • Property
  • September 20, 2016
  • Sarah Dunn
How to open a store, part 1: Property

Let’s pretend that I’m going to open my dream retail store. It’ll be a shameless replication of the greatest idea anybody’s ever had – Café de Comics, a Korean franchise which combines cat café and comic shop in locations across Seoul. Customers get to settle down with a coffee in one hand, a hefty trade paperback in the other, and a cat sleeping peacefully beside them. Look out, Heroes for Sale, here comes Scribble Kitty!

To make this utopian vision a reality, I’ll first need to make a lot of decisions. Not just around exactly how fast I can obtain each new issue of Brian K. Vaughan’s Saga or whether to adopt adult cats or kittens, but:

  • Where will we be located?
  • How will I fund this?
  • What if something terrible happens?
  • Where do I start with technical issues, like payments?
  • What about ecommerce? (After all, some people are allergic to cats.)

I’ll take you with me as I ask every question you were afraid to ask about opening a retail store, and probably a few more.

Property

More and more new retailers are opening pureplay ecommerce sites before committing to bricks and mortar stores. We’ll explore this option in the ecommerce section, but for now, let’s assume I’m diving in at the deep end and opening Scribble Kitty as a physical store.

The fundamental question retailers need to answer before selecting a site, Lloyd Budd of Bayleys says, is: “Who are your customers?”

“You have to understand how your customer engages with your business before you choose a location.”

Different locations suit different businesses, and a perfect location for one kind of retail store might be the death of another. Your business might only be relevant to people who earn over a certain amount, or people of a certain age group.

Once your customer base is identified, you can get down to the task of finding out where they live, work and shop, and then position your business there. Budd says Bayleys uses data to help with these decisions.

For example, say you’re seeking a catchment area of at least 5,000 people with a spending power of a certain number. It’s possible to put that brief into a property search, highlight key areas, and then search more closely within those areas. Further considerations are the amount of public profile required, parking, storage space, whether any other business is sharing the space, and whether there are any restrictions on the use of the building that may rule out your business as a tenant.

Some tenants require a high-profile frontage, says Budd, and others can handle being tucked away in the middle of nowhere because they’re online or have a dedicated customer base who will come to them. Often, low-profile stores will be part of a portfolio strategy in which a retailer will have just one flagship store with lots of profile and signage, but support its less-prominent outlets with other productivity online.

Once a site has been identified, it’s time for a site inspection. There’s a lot to consider, says Budd: “You’re making this decision for three years, five years, 10 years, the duration of a lease.”

The impact of the store frontage is key, as the store’s overall size is not necessarily the whole story. A store that’s got a five metre frontage and is 20 metres deep is less valuable than a store with a 10 metre frontage and is five metres deep.

Visiting a store in person also allows you to make a judgement call on the amount of natural light it gets. The direction and amount of sunshine is important, says Budd - for a cat café like Scribble Kitty, which incorporates a food and beverage offering, the daylight angles must be right for the time of day that customers will be visiting.

Bathrooms for customers and staff are a tricky area, Budd says. Regulations around having or not having a bathroom are governed by local councils, which consider the size of the retail space and the number of customers.

When it comes down to negotiating the lease, Budd recommends retailers go bold. The price of the rent and the length of the lease are the two crucial points, but Budd says he personally would also ask the landlord how much incentive they’re willing to provide to get them to lease the space.

“They’re not questions that are asked often enough,” he says. “Tenants should be asking, ‘If I sign a longer lease, will you give me a bigger incentive?’”

For 80 percent of the retail market, Budd says, it’s appropriate to budget around 8 – 12 percent of the businesses’ turnover towards rent.

This story originally appeared in NZ Retail magazine issue 745 August/September 2016

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