I want to open an athletic shoe shop selling top brands. I've considered locations including outlet malls, major malls, and a train station shopping strip. How do I determine the best location? —N.W., Fairfax, Va.
Location is probably the most important decision you'll make as a startup retailer, so you're wise to give it plenty of thought. Start by identifying your target customers. Will you be selling primarily to serious runners, student athletes, or mainstream shoe shoppers?
"The more mainstream your appeal, the broader your array of competition, which will mean that…you need to co-locate with your competitors to be a contender," says Devon Wolfe, a managing director at Pitney Bowes MapInfo, a location consultancy. "If you're going the specialty route, your store will be more of a destination, which means that you can locate closer to your target customer and worry less about competitive positioning."
Once you narrow down your target customer as specifically as possible, figure our where that customer resides in your market, Wolfe says. You can use U.S. Census data, or you can purchase reports, maps, and advice from a data vendor or location consultant. "Look for locations that have high counts of your customer in a quick driving distance and provide easy access and visibility to your customer. As you open the store, you'll certainly want to consider local marketing campaigns, especially if you're not associated with a branded franchise," Wolfe says.
Where you locate will also be affected by your business plan projections and how much you have budgeted for rent, says Bob Kramer, a retail consultant. "Assuming a 40% gross margin, I would budget 10% of sales to cover both rent and advertising. Choosing the location will determine what is left for advertising," Kramer says.
If a typical large malls asks around 8% of sales for rent, that will leave you with only 2% for advertising—a slim budget for a new business that needs to get its name out, he says. "Personally, I would not choose the major mall. And an outlet mall—where sales are price-driven—seems to be an ill fit for top brand athletic shoes," says Kramer. "You want to target customers willing to pay the higher price for an excellent shoe with an excellent fit and excellent service."
Wolfe agrees: "Outlet malls tend to focus on either single manufacturers or closeout specialists who buy overruns and overstocks from various manufacturers. If that's not your business model, I would avoid the outlets."
In order to make a train station shop a viable retail location, it would need to draw more shoppers than just commuters—unless the commuting traffic there is huge, Wolfe says. "The other thing to think about is whether a train commuter will be willing to take the time to comparison-shop for shoes," he notes.
Depending again on who is your target customer, you might think about an independent location in a small strip center or a store in a center anchored by a large traffic generator such as a Wal-Mart (WMT), Kramer says. "Wal-Mart is not likely to carry the top brands, but they will draw customers towards you," he notes.