Digging into the Real Estate Treasure

May 31, 2007  by in UnCategorized   

By Home Furnishings Business in Furniture Retailing on June 2007 The choices revolving around finding the perfect store location can be mind-boggling and much like searching for a buried treasure.

Considered one of the most fundamental choices in retail strategy, site selection takes a dash of science, a dash of expertise and a dash of luck, and as helpful as it would be, there’s no accurate map to lead the way. In today’s competitive environment, locating the best location gives retailers the needed foundation of traffic count, store size and presence for success.

Much like residential real estate, the familiar mantra of location, location, location falls into play. But retailers and experts caution that the search for the best location goes beyond finding the right school district.

Stand-alone spaces, furniture row, malls, the hip, power centers—the available options—give retailers a varied menu of choices when looking to plant stores.

Arts and Sciences of Site Location

City Furniture has a presence in pretty much all of the options, and each one has its benefits and drawbacks. Keith Koenig, president, said there’s both a science and an art to selecting the right furniture store location. He’ll have opportunities to practice both aspects, as the Tamarac, Fla.-based retailer plans to expand from 15 City locations and six Ashley Furniture HomeStores to 18 and 14 storefronts, respectively, within the next two to two-and-a-half years.

The “science,” Koenig said, involves issues such as traffic count, street presence, building size, parking-to-store space ratios, cost of land, restrictions on the size of signs and store facades, and in South Florida, a particular headache—entitlements.

Land costs are a particular problem.

“The cost of commercial real estate here is staggering—if you’d told me five or six years ago we’d be paying what we do for some of these new sites, I’d have said you were crazy,” he said. “Fortunately we have some older locations that help us meet (targeted) average occupancy costs. And available good locations in South Florida are like hens’ teeth.”

Entitlements—permits and approvals required for commercial projects—in South Florida are particularly onerous, he said.

“Ten years ago, there was a lot more vacant land in South Florida, and now where there is vacant land it comes under so much more scrutiny from everyone from the Army Corps of Engineers, to water management authorities, to counties and municipalities,” he said. “There’s one site in Boca (Raton) I’ve been working on for more than five years, and I’ll be lucky if that store opens in two more years.”

Another location in South Miami that City had already spent $1 million to develop got held up at the 11th hour when the property owner got involved with litigation.

The “art” to retail site selection is much more subjective.

“The art is things such as knowing whether an interstate location or building on a surface road is right for the area,” he said. “How do you weigh a good presence along an interstate with maybe difficult access? Visibility and presence is very important, and we aren’t afraid to go with a location on a freeway with high visibility even if access might be difficult.”

A case in point is a site in West Miami along the Florida Turnpike that’s under consideration for a new City store. That location is in full view of around 100,000 vehicles passing by every day, Koenig said.

“On the other hand, we certainly aren’t afraid to be in a surface road shopping center,” he added. “If a site has problems, how creative am I to take this project and turn it into a good location?”

A good example is the Ft. Lauderdale Modernage store City’s buying for conversion into an Ashley store.

“We’re going to have to replace everything there except the four walls,” Koenig noted. “It would be cheaper to tear it down completely, but the current codes would not allow a 52,000-square-foot store to be built—more like 30,000.”

No One Solution

Julius Feinblum, founder and president of Julius M. Feinblum Real Estate, specialists in furniture real estate, said the real estate options available for retailers today are many. No longer are stores only located in the heart of towns where consumers once shopped.

“There is no one right solution,” Feinblum said, adding that retailers have to take all factors into account to find the right strategy for their store, their market and their customer.

For retailers currently operating in a slow or dying retail area, Feinblum advises checking the emotion at the door and basing decisions about relocating on facts.

“We all do it. People go into denial with anything—children, marriage, health, business,” he said. “People have to take the emotion out of it to be sure they make the right business choice.”

Looking at the market, Feinblum suggests taking the first step of figuring out where the growth is and where it is that consumers are doing their shopping. “Look where the major, non-furniture retailers are going,” he said. “That’s a good bet.”

Once the right location is found, it’s important to find out whether or not your business will be welcomed in the “hottest retail corridor in town,” he said.

A Dedicated Approach

With the backing of a dedicated store network, independent owners are given assistance in real estate issues. In the case of Thomasville’s dedicated network, the franchiser has geographical targets in mind for locating stores, but relies upon its retail partners’ expertise in local markets.

“It’s a question of ‘Do you know your territory?’” said Michael Massood, chief executive officer of Thomasville Home Furnishings of New Jersey, which has five existing stores and a new location set to open in Northern New Jersey in December. “Thomasville had identified the area it would like to see another store in, and we also wanted to be in Northern New Jersey. Selecting a site is a collaborative effort, but usually brought on by the dealer, who should know the area.”

Massood has narrowed down the new location’s site to two properties.

“We learned a long time ago that we try to locate stores where our customers expect them to be, not where we want to put them,” he said. “They need to be accessible—no more than seven miles from them. You’ll do business within 20 miles, but seven miles is the sweet spot.”

Accessibility demands multiple stores, Massood believes, as consumers shop regionally. The prerequisiste is plenty of demographic research to find that “sweet spot.”

Future Considerations

Real estate trends in the industry are hard to pin down, according to Feinblum, because business is so soft.

“When the dust clears, there will be a lot of opportunity for indpendent, smaller retailers, and there will be bigger retailers who get bigger,” he said, adding that he sees the industry taking about a year to settle and get back on track.

Massood agrees that instability will continue, and he is taking a conservative approach to growth because of it.

“I hate to say this, but I think you’re going to see a lot of real estate open up when it comes to furniture,” he said. Recent store closures, a trend he doesn’t see slowing soon, “are why we take a wait-and-see approach to growth.”

For City Furniture, new markets are on the horizon. Koenig said he’ll be learning the real estate dynamics in new markets through plans to expand beyond its home base in South Florida.

“The challenge we’ll face in a few years is expanding out of the comfort zone of our own back yard, so to speak,” Koenig said.

The Internet’s effect on how customers shop for furniture has been on Koenig’s mind as well, and he believes it will have a growing impact on how City Furniture selects store locations—and how many it will build.

“The Gen-Xers and Gen-Y will be more familiar with purchasing on the Internet,” he said. “Maybe we can go into a market with fewer stores and do more online.”

He pointed to the “three-legged stool” model at lifestyle retailers such as Crate & Barrel, which blend sales among catalogs, the Internet and bricks-and-mortar locations.

“The store gives the customer the opportunity to touch and feel the quality of the goods, but if I build 10 stores when I could get away with seven, that makes for more overhead,” he said.

There’s a flip side to opening fewer stores, though.

“With the traffic congestion you see in many areas, there’s more segmentation—if you live in Boca Raton and you’re on the east side, you don’t shop the west side” and vice versa, Koenig noted. “As the market continues to grow and become more segmented, maybe we need more stores as customers shop more regionally. It’s the Internet effect versus traffic congestion. I don’t know how it’s going to shake out.”