Connections: the Key to Success in Chain Store Real Estate

Not too many years ago, chain store real estate was almost entirely a “people” business. The ICSC was the formal organization that provided regular gatherings among landlords, tenants, brokers, and all the other suppliers to the shopping center/chain store industry.  “Going to Vegas” has become an annual pilgrimage for dealmakers since 1986 (the first convention was held in New York in 1958). The telephone and the automobile were the primary research tools.  The research department was often located at one of the many bars, restaurants, coffee shops, and golf courses across the country.

It was the connections between people that allowed critical information about sales performance, rents, consumer trends, and competitive strategy to flow through the marketplace.

The connections between people are as important today as ever because profit margins have become squeezed, capital is harder to come by, and mistakes are less forgivable.  However, the idea of “connections” has taken on many new meanings in today’s chain store industry.

The most basic concept of connection is the relationships between the stores themselves.  Have you ever thought about the phrase “chain” store?  It’s an analogy, of course.  Here are some ideas that come to mind when we hear the word chain:

  • A series of similar things connected together (stores, restaurants, service centers)
  • A device for transferring power from one place to another that provides an optimal combination of strength and flexibility (distribution channel)
  • It can be used to secure something valuable (a customer base)
  • A chain is only as strong as its weakest link.  Some links are stronger than others and weak ones might need to be repaired or replaced (fleet management)

Today, firms are paying a lot more attention to other types of connections to maximize profitability:

  • Connections to customers – many channels for interaction (buzzword today is “omnichannel”) including ecommerce, social media (e.g. Twitter, Facebook), and non-traditional stores (kiosks, co-branding, sports venues, airports)
  • Connections between stores based on strong branding, efficient replenishment, moving merchandise between stores to avoid lost sales from stockouts
  • Connections in the minds of customers between the brand and its competitors (well-differentiated value proposition)
  • Connections between the brand and the retail format of the store (mall vs strip, cotenants, neighborhood quality)
  • Connections between trade areas in a market – intelligent layout to maximize presence while minimizing cannibalization

Finally, there is an increasing focus on connections in site analysis:

  • Connections between the attributes of a proposed site and existing stores (analogs)
  • Connections between predictor variables (based on their weights) and a sales estimate in a regression model
  • And let’s don’t forget the connection between art (human judgment and experience) and science (information systems and analytics) that is the essential foundation of good real estate decision making!

It’s easy to talk about connections and see how important they are to success in chain store real estate.  It’s not as easy to prioritize our effort and money on the things that will deliver the most value. 

I am hoping that this blog will become a catalyst for discussion among people in the chain store industry on the topics of business processes, analytical methods and tools, and the training of our human resources.  In the coming weeks I will add an interactive component to the blog centered on the idea of “storytelling” to enrich our ability to distinguish good real estate from bad real estate.  Most of us can identify “good” and “bad” features such as visibility, parking, population density, affluence, and retail presence.  But how much of which good and bad features work together to produce a successful store?

The foundation of this investigation will be insights gained from the field of cognitive science which is revolutionizing our understanding of the way people think and make decisions.  We will be more focused on the behavioral aspects rather than the biological (neuroscience), but the distinction is becoming blurred between these areas of study with the advent of fields such as “neuroengineering”, “neuroinformatics,” and even “neuroeconomics.

For some interesting background reading, check out these sites:

http://en.wikipedia.org/wiki/Cognitive_science

http://www.cognitive-edge.com/

http://prelectur.stanford.edu/lecturers/hofstadter/

Please subscribe to this blog so that you will automatically receive notification of new posts.  I look forward to your comments!

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