You don’t have to be a realtor to have heard the old adage that the key to success is location, location, location. That is probably truer today than it’s ever been, but the formula for a good location has complicated over time. The “if you build it, they will come” rationale worked for Kevin Costner, but that sort of strategy could very well be catastrophic to a startup. There are botched developments in Nashville’s not-too-distant past that seemed to have used this philosophy as the driver in where to set up a brick and mortar shop. One such development was known for years as the “mistake on the lake.” For entrepreneurs or expanding businesses, here are some suggestions for avoiding notorious geographic nicknames when picking out a location.
First, go back to your business plan. The fundamental question of whom and where your customers are needs to be addressed. Be patient in your research. Use formal and informal sources. If you aren’t native to the area, talk to the locals, as they will have invaluable insight.
Then, you need to look at your financial pro forma. Based on the industry you’re in and the margins, establish your budget for occupancy expense, either in rent or a loan payment. Then the financial side of your search is a matter of budgeting and finding an affordable premises within your desired location.
Additionally, make sure you do not overlook surroundings. Retail needs rooftops. Nashville is a growing and vibrant city but still has one half the density of comparable markets. According to the Nashville Business Journal, we’re averaging 1,300 people per square mile in the city. However, cities like Charlotte and Austin have nearly twice that density.
Look at Ikea’s recent decision to open a store in Tennessee. Many Nashvillians (myself included) were disappointed and confused when Nashville was not selected in late 2014. Ikea’s metric is that there has to be at least 1.5 million people within a 60 mile radius or one hour drive. Nashville met that criteria; score one for the home team.
Ikea’s next criteria has to do with land availability. They need 20-30 acres to build one of their stores. With Nashville’s real estate market as hot as it is right now, that was going to be difficult—not impossible, but difficult. Price also became a factor. Even companies as big as Ikea have to consider the expense and weigh it against the potential for revenue. But this didn’t throw Nashville out of the running. The real reason Ikea chose to open a new store in Memphis was simply because they found the perfect location to fit their needs and had to act quickly. The land was 35 acres and right along Interstate 40 in an area with a major retail presence. What does all this teach the rest of us? In looking for a location, know what you need, know who your customers are, and be ready to move fast, lest you miss an opportunity.
Even when you think you have identified a perfect location, there are other factors to consider. Where is your competition located? Are there zoning considerations? Is the location visible from the right road or route? Is it accessible? You can be on a busy street with lots of traffic, but if there isn’t a turning lane or if you’re blocked by a concrete median, it will create a problem. There is a well-known grocery in Nashville who has perfected a formula for placing stores. Their stores are always on the right side of the road if you are travelling away from downtown. When driving back to the suburbs (this even worked years ago when Nashville was much smaller), the customer can easily stop on the way home and not have to turn back against traffic. The concept is simple, but it was highly effective and is still revered to this day.
Last of all, don’t fly solo. Seek the advice of a commercial real estate professional and do your homework. Talk to your banker, CPA, and attorney. Follow our revisionist Field of Dreams quote. “If you build it smart, they will come to you instead of your competitor.”