Out of the Box

Did you ever wonder how large chains and franchises decide where to open new stores? Discussing one recent opening in Brooklyn, a prominent daily intimated that the choice was made because the real estate in the area was extremely reasonable. I have no doubt that it factored in the decision, but fundamentally, location should not be selected because real estate prices in the area are valuable.

It would be fair to say that some of the very factors that are weighed in a decision to open a big store should also play a part in the decision of small storeowners. Large companies will do a great deal of due diligence prior to committing to a location. They will begin by gathering every piece of data on the area, most notably the demographics of area residents. They will want to know such important factors as age, income, and education. They may look at housing prices and even at the amount of deposits in local banks. All of this information will give them an important profile of their potential customers.

Their next move will be to evaluative the competitive environment and try to figure out how that will effect their marketing dollars and even pricing.  Then they may move on to looking at traffic, whether by foot or by vehicle to come up with an idea of what kind of volume they can expect. This is why many stores often join malls with other big store, so that they can be sure of the traffic. 

While many companies will only go though this process once they have secured the site, others are constantly evaluating locations for expansion opportunities and then look at the real estate in the area. One other consideration will be the actual theme of the store, which in some cases will follow a boiler plate or cookie cutter store model while in other areas it will be custom designed, largely because of the make-up of the area.

I have often advised small entrepreneurs who are contemplating opening a store to follow the research models of larger chains in going through their due diligence. The nuances that are important to the large store are equally as crucial to the little store. They too need to know who their potential customer will be, what the competitive environment will be like, and how to position themselves in the community.

Charley and Vicki Nieu were considering opening an ice cream store on the West Coast, a business that Vicki’s parents had in Vietnam. Their model was what they called an “ice cream plus” store, offering various foods that include the ice cream, ranging from sandwiches to pastries. They were pretty certain that their concept would be well received, but couldn’t decide on a location, until a friend came up with a novel suggestion that the Nieus followed.

The suggestion was that they actually follow Starbucks or another well-known brand to wherever they may be opening next. The friend suggested that the chain will most likely have done a good deal of the research that the Nieus required with the exception of evaluating the competitive environment for the ice cream that they plan to sell. They ultimately decided on a suburban location about 30 miles from their home and within 6 months they had already recouped their investment.

There is a great deal of evidence to support such a concept. Many strip malls are built on having a strong anchor and then adding a series of smaller stores. The theory is that the anchor will draw the traffic into the mall benefitting the other stores. That still does not absolve the smaller stores from being creative in their merchandising and marketing, but at least the location is working in their favor. They often let the world known that they are in “the ABC Mall, next to Starbucks.” Successful businesses work on retaining customers even in such a situation, which means that even if a customer is not driving to the mall for a coffee, they will still come to shop at the stores or the other neighboring stores.

Location is such a major factor that one popular store couldn’t figure out why they weren’t doing more business on a street that was less than 2500 hundred feet away from the main commercial strip. But when they could find no rational explanation, they took advantage of the first opportunity to move around the corner and sales more than quadrupled in the first six months. Research might have told them that being in close proximity to a busy shopping street is not like being right on that street.

Marketing programs for stores that piggyback on to larger chains in an area are sometimes markedly different than when they are alone in a location. They have to factor in that anything they can do to drive traffic to the area will also help the other stores, including the chains. But by the same token, just getting customers to the location gives them a better chance at drumming up business for their stores. So it is likely that their ads would say something about the location in addition to simply selling their virtues.

Many smaller stores simply leave the “driving the traffic” to the larger store and concentrate on selling their store, albeit that they will highlight the location. The trick is to be vigilant and to recognize what the chain and the competitors are doing, so that precious dollars can be saved to market the store. But marketers say that marketing a location works. They call it the old Macy’s and Gimbel’s (a popular department store that closed more than a decade ago) deal where Macy’s brought the customers to West 34th Street in Manhattan and Gimbel’s simply took advantage of the traffic without spending anywhere what Gimbel’s had spent.

Out of the Box is a collection of strategic marketing articles that Lubicom has published on various topics, trends and ideas in the marketing world. The articles have been published in the Hamodia weekly newspaper circulated on three continents to a readership of well over 100,000.

The name, "Out of the Box" is a term used frequently in business nowadays to describe creative thinking that is not the norm. It is meant to help a business pull away from the pack or separate oneself from the competition. It is to some extent fraught with risk, simply because it is not the run of the mill thinking, but it is at the same time the key to reaching the next opportunity.

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