I have been dealing with several companies that are concerned about optimising their networks. They want to expand, but they don’t know exactly where to go. The reason that each of them have come to me is that they recognise that their current system of property analysis is flawed: The turnover from their latest stores just haven’t stacked up to expectations.
The key factor behind these poor results is that they put location first and customer second. That is, the leasing arrangements took precedence over where their customers are, or where they would likely be shopping. In almost every instance, a “great” lease was what ultimately drove the decision to open a store. Furthermore, that “great” lease has actually turned out to be very costly in terms of lost sales, lost customers and lost opportunities.
One company I have worked with opened up an outlet in a waterside suburb of Perth in a newly built strip centre of about five specialty stores. The strip itself has reasonable vehicle traffic and population density in the catchment is fine. As it was a new facility, the centre offered a good fit-out and some generous inducements. The company jumped at the deal.
And that’s where it all went wrong. While the High Street itself is fairly busy, it is not the prime retail destination for the suburb. Moreover, much of the car traffic is heading to the beach. Finally, there is a good shopping centre that is 2 – 3 kilometres away which has good anchors and a reasonable range and selection of specialties. The company looked briefly at the shopping centre, but deemed it “too expensive” and never went beyond that.
Two years after the store opened, sales are close to 50% below expectations and a competitor has moved into the nearby shopping centre, with reports that it is doing good business there. There are three more years to go on the lease and the company is now actively looking for a more suitable location.
The lessons here are simple: When you put yourself first ahead of your customer, you lose. The incentives here were fascinating to dissect. The property guys had their mandate to keep costs down as low as possible. The retail network people had a KPI to expand the footprint. The data analysis team had to provide the broad demographics. However, no one in the organisation really looked at the decision as a whole. Every one played their part and got their bonus for meeting their performance goals, but the company lost out. Unfortunately, no one was charged with seeing whether it all worked well together.
Another company, which sells a specialised product and service, put its Adelaide store in the eastern fringe of the CBD. It knew that it was not a great location – terrible parking, poor signage, on a small side street – but felt that a presence in the precinct was better than nothing. The over-riding strategy was that any location was better than no location. Again, a lease was signed that locked a company into an inferior position, both in terms of location and overall strategy.
The location turned out to be the dud that all knew it to be. Again, customers were lost to competitors and when better locations came to the market, those too were lost to competitors.
The best retailers wait years sometimes for the right location to become available, and when it does they are not hesitant to pay top dollar for the privilege. Companies such as Nike, Apple, Zara and H&M know that their brand and their marketing are all wrapped up in their locational decision. A poor location not only loses sales and gives strategic advantage to competitors, it also can undo all of the work that a company undertakes to position itself in the minds of consumers.