Figuring Out Where Your Franchise will Thrive, Not Just Survive
The location a franchisee leases is like the foundation upon every other brick is laid for the business. Franchise tenants understand this intellectually but often make poor site selection choices based on unit scarcity, bad timing, or other factors that positively or negatively influence them. Prospective first-time franchise tenants need to adopt the mindset that if they don’t find the right location, at the right rental rate, at the right time – they’ll walk away and not lease the wrong location. This, however, rarely happens in real life.
When it comes to leasing commercial space, in general, you get what you pay for – and the more you pay, the better the location. But if that was an absolute truth, all a franchise tenant has to do is find the most expensive location for lease and set up shop. But it’s not an absolute truth. Franchise tenants frequently sign long-term lease agreement agreeing to pay rental rates that could have been negotiated much lower.
When you’re looking for the right property, having a checklist of desirable criteria can help you stay on track. Here are just a few of the many factors to consider:
Demographics: Consider the average age of people living in a particular area, the type of home people are living in (people living in apartments can’t physically accumulate consumer goods like a large homeowner can), the mean income and proportion of two-income households, and ethnicity (leasing space for an Italian coffee shop in an area populated by Asians who may be more inclined to favor tea over coffee could be a mistake).
Traffic flow and visibility: Study the number of pedestrians and motorists at various times throughout the day. Do motorists have to turn left across a busy intersection to enter your parking lot? Evaluate which side of the street is better for your business (e.g. restaurants do much better on the side of the street where most people are driving home from work). Lack of visibility for your store front can cause people to drive right by it, especially if the traffic is heavy. Trees in a parking lot can block signage. Some landlords overbuild their pad sites near the road, thereby blocking the visibility of the retail plaza behind. Is there a bare patch of ground between your desired site and the roadway? If so, you can safely assume that someday your landlord will lease that pad site or construct a building there that blocks visibility to your signage and store front.
Competition: If you don’t know who your competition is and where they’re located, you can’t hope to compete with them. Not only should you be acutely aware of your competitor’s services, products, and pricing, you should have someone “secret shop” their business, try their products and/or services, and report back to you about the experience. As a bonus, have the secret shopper ask your competitor about your business (if you’re already open) to discover what is being said about you. You also have to think about future competitors. This means anticipating where your competitor may lease space or set up shop in the years ahead.
Remember that there are two sides to the competition coin:
- Join them. Locating beside or near your competition to siphon off their customers is a legitimate site selection strategy for some businesses. In many cities, there are “restaurant row” and “fashion mall” areas that attract many shoppers because so many similar tenants are close to each other.
- Avoid them. Locating away from the competition often makes sense to personalized and/or healthcare businesses (e.g. fitness clubs, hair stylists, and/or tanning salons). Customers tend to be loyal to these businesses because they can only use one at a time.
Dale Willerton and Jeff Grandfield - The Lease Coach are Commercial Lease Consultants who work exclusively for tenants. Dale and Jeff are professional speakers and co-authors of Negotiating Commercial Leases & Renewals FOR DUMMIES (Wiley, 2013).