Monday, August 8, 2016

Retail Site Selection 101: What Can We Learn From the Closure of Walmart Express Stores?

This month's Planning Magazine reports on an issue that affects many of the commercial corridors we often work with: business closures. The article "Big Box Bust?" covers the closing of Walmart Express stores, a new retail concept that sought to provide customers of less dense communities a streamlined version of its full-size stores.While Walmart Supercenter stores average 180,000 square feet, the Express stores were between 12,000 to 15,000 square feet (about the size of an average Walgreens store) and focused on a few grocery items and other key essentials.

As the article noted, the closing of Walmart Express stores affect more rural geographies and areas with limited access to groceries and other daily essentials. The closures of all Express stores (and not of the Supercenter stores) means that this was not an issue exclusive to a particular community but it was a problem with the larger strategy and criteria of how Walmart initially chose its Express sites.

When working on retail attraction projects we often we see communities trying to make their corridors attractive to retail businesses without understanding retailers' rationale and decision making process.While every retailer follows its own site selection process, several factors are universal and key to business success. On the following paragraphs we go over some of the basics of retail site selection, discuss some overall lessons learned from the closing of Express stores and briefly consider  the role planners can play in retail attraction and site selection.

Site Selection Basics

Trade area: retailers must understand where most customers will come from and how far they will be willing to travel to a particular store. The trade area determines the boundaries in which to collect demographics, a key and vital information to understand the market demand and the viability of a location.  It also helps retailers plan regionally and avoid placing too many stores together and “cannibalizing” each other.

Demographics: retailers must know who the customers are, what they buy and how much they typically spend. Armed with this data, retailers can set criteria to evaluate distinct sites and geographies.

Physical attributes: when examining sites within a trade area, retailers will not only check the location of competitors but also the presence of other businesses that share similar customer-base and can complement (and attract) customers to its front doors (also referred to as co-tenancy).

As important are the sites’ visibility and accessibility. Retailers want their stores to be seen and to be easily accessible by their customers, whether they are coming by car, bike, foot or public transit.

Cost per square foot: A site’s visibility, access and co-tenancy all influence cost per square foot and ultimately the store’s bottom line. As discount retailers generally run on tight operating margins, any increase in a location’s leasing costs (with all other factors remaining equal) could make a store economically unviable.

In the case of Walmart’s Express stores, the site selection strategy may have played a key role to the concept’s demise. The majority of Express stores were located within 10 miles of a Supercenter, which Walmart believed would complement customers’ trips to these Supercenters. Additionally, as the Planning magazine points out, stores were serving relatively isolated, thinly populated trade areas where household incomes were well below the national average. In its analysis, the consulting firm CDS Community Development Strategies found that more than 80% of closed Express stores needed a trade area of 100 square miles or more to reach 5,000 households (equivalent to 5,000 households within a 5.7 mile radius). In comparison, convenience retailers such as Dollar Tree requires a population of 20,000 within 5 miles and 7 Eleven requires 5,000 within 1 mile.

Thus, with thinly populated trade areas, thin operating margins and entrenched competitors, Walmart Express stores experiment didn’t last.

Planners Contribution
Planners and other community leaders can play a significant role in the site selection process. They can help retailers by providing and interpreting data about local traffic patterns and future development plans that might affect market demand as well as by providing valuable information of community preferences and lifestyle.

Planners can also provide significant contribution to communities willing to attract retailers. Knowing how a community fits into retail trade areas and what sites might be most attractive to retailers can help local communities not only by allowing them to target appropriate retailers, but also to optimize their time and resources in pursuing the right ones.

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