Thinking about Real Estate - holistic approach & checklists ~ Sounds + Food 'n' Retail

DellLocations-2.gifI don't know anything about real estate. My sister wants to buy an apartment in Dublin. My father used to own several houses in Germany, the Netherlands, and Belgium. Back in his day, banks were much more liberal about lending money to house-buyers, often sponsoring up to 90% (I think). The climate is far less friendly now and I hope my sis has better luck in Ireland, where house-prices are booming.

Apart from the finance-question, there are of course questions pertaining to the actual and future value of your purchase. Is the price good and will the value increase? Is the location good, why, why not? Does the building need work, how much will it cost? How will your repay the money you borrowed / spent on it? What is your exit-strategy?

Retail Location-location-location

"You can be the best retailer in the world, but if you set up shop in the wrong place, you'll never do much business. If you operate from the wrong properties, you start with your hands tied behind your back."
(Clarke and Rowley, 1995, from a book, called "Retail Marketing," I had on my bookshelf)

While many variables in the marketing-mix can be adjusted in a fairly short time-frame, setting up a new location can take years and the price of failure is high. Hence it probably represents the most important decision a retail-business ever has to make.

According to 1999-stats, each square meter (±3 square feet) in a British grocery-superstore was estimated to cost €750 (±500 UK-pounds). And we are talking several 10,000s square meters for that type of store. Such serious commitments automatically mean that a retailer needs to incorporate a real estate-strategy into his business, estimating whether the future will make his asset a profitable one, or a liability. McDonald's, and I'm sure any major player in this arena, operates much in the same way.

A little anecdote. The reason why I read the McDonald's-biography, was because of these words:
After a few beers in hand, and there was a pause in the crowd, Ray [Kroc, founder of McDonald's] asked everyone in the room, "What business am I in?" The room was silent and people were laughing. No one gave Ray an answer so he asked the question again, in a more serious tone, "What business do you think I am in?" A brave soul yelled out, "Who in the world doesn't know you're in the hamburger business?" Ray laughed and said, "No ladies and gentlemen, I am not in the hamburger business. I am in the business of real estate."
Location Techniques
While, in theory, a systematic sequence, starting with the general appraisal of the area down to the specific site characteristics, would be optimal, this usually only works well with businesses that have medium- to long-term real estate-strategies. Other businesses, where the need for speed is higher, often do not benefit from the luxury of such an approach. Generally though, a location strategy can be split into three:
  1. Search: where the focus would be on finding the right area for a location
  2. Viability: where more focus is placed on specific sites and estimating turnover
  3. Micro: where the features of the site are examined in the context of potential store performance.
Each level can vary according tot the level of specialisation and convenience that the retail-outlet is targeting.

The Checklist
This is the most common tool, at least reported in a study from 1996 (see the "Retail Marketing" book for more). The reasons mentioned at its relatively low cost and technical expertise requirements. While I imagine that today's location-suveyor has more sophisticated tools available, I don't think that factors such as cost and technical expertise should be left out of the picture. In many cases, a checklist will be the first tool that people, especially those with small businesses and limited budgets, will reach towards. For similar (well time-related) reasons, I will focus on this tool alone today, and look at more sophisticated tools in a future post.

Essentially we are speaking of lists, which can vary according to the focus of the store, and cover a series of key-areas. As for the first, the positioning of businesses, the book mentions four dimensions: price, convenience, variety, and proximity, and presents checklists according to each factor. For instance, for convenience, we would be looking at traffic flows to and from the store, visibility of the store, distance to competitors, and geo-demographics. You get the idea.

As to the areas to cover in a checklist, those can include: population-data, such as disposable income per capita, home-ownership levels (which would affect DIY-stores), current shopping patterns, etc. Accessibility-data, which can include public transport infrastructure, parking, access to staff, access to pedestrians, etc. Competition-data, which looks at variables such as existing retail activity, saturation of demand, etc. And finally, cost-data, which includes, well everything that needs to be paid.

Each area will require different research-methods also, ranging from going to your local government, to using commercial databases, to surveying customers directly.

Final thoughts
I'm being a little vague here, because I happen to know and like the professor, Dr. Peter McGoldrick (with his funny-looking moustache), whose book I'm quoting from and hope that people, who are interested in this subject, will buy it.

I'll go more into the subject of locational positioning at a later date. The book does cover more sophisticated methods, such as mapping, geographic information systems (GIS), the analogue method, and mathematical models like multiple-regression techniques. I'll look at those, and at more current developments, as stuff may have changed since the 2002-edition of my book.

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