How Retailers Make Site Decisions
In Alabama retail sales tax is the lifeblood of municipalities. With the lowest property taxes in the country our cities depend on sales taxes to repair potholes, provide police protection, and to deliver other municipal services. Also, retail offerings are considered fun by most of us. We like to shop and we like the experiences that retailers and restaurants offer us.
So how do these retailers come to our community? How do they make their site decisions? Are our mayors’ offices and economic development organizations picking the retailers that come to our neighborhood? How does this work?
Retail site selection can be a mystery, and for sure it is not understood by most of us. In execution, retail site selection is as much art as science, although many of us may think that the decisions just happen or are made by city leaders. Actually, there are a number of factors that influence the decision, and there is a significant human factor involved.
To be sure, retailers keep track of the key indicators that motivate their decisions. These indicators include the population of an area, the income of its residents, the traffic on its roadways, the other retailers in the market that are successful, those stores’ specific sales numbers, and the general growth of the community.
Retailers principally base their decisions on how other retailers are doing in the market. Success brings success, and retailers are powerfully motivated by existing retailers’ “same – store sales,” being the current years’ sales volumes compared with last – year’s sales volumes. These criteria can create a quandary for some markets where there are simply not stores or same – store sales for retailers to consider. This situation creates a burden on those that want to motivate retailers to come to a market when there are not the principal measures of retail success to generate the necessary interest.
Some citizens think that their mayors or City leaders choose which retailers go where in their cities. This, really, is not the case. While the economic – development activities of cities and chambers of commerce can cause retailers to take notice of a market, the specific demographics and analytical conditions of a market are far more motivating.
This is not to say that retail decisions are all based on numbers and statistics. There is a significant human – nature factor that influences site – selection decisions. Think about your job for a moment, and how you want to help the enterprise with which you work. Think about your recommendations to your senior decision – makers about where the next store should locate. Think about your bonus.
Commercial real estate employees of a retailer or restaurant want to make good and successful recommendations. They want to feel positive about locations where they are asking their companies to invest perhaps millions of dollars. Those people, just like us, want to recommend “nice places,” places where they would like to visit and shop, places where they think people will often go to shop and spend money. This is a significant influence on real estate site decisions. Does the place seem nice and prosperous to you?
So, as much as you think that someone in your town may be picking neighborhoods and locations for retail development, it is actually a complicated process that involves numbers, statistics, and a good dose of human analysis. In subsequent articles, this author will discuss what governments can do to foster and encourage retail development, and then what you, as a citizen, can do to be part of this process.