Zeroing in on Success
When a retailer can locate a new store just about anywhere, how does management decide which location is best? While site selection remains something of an art, dependent on the skills and insight of experienced real estate professionals, retailers can use technology to enhance the process.
“Site selection models don’t replace talented real estate professionals,” says Michael Archbold, president and COO with The Vitamin Shoppe, a specialty retailer and direct marketer of nutritional products. “But they are a valuable tool and help inform the decision makers.”
Archbold speaks from experience. Since 2004, The Vitamin Shoppe has been working with Buxton, a Fort Worth, Texas-based provider of real estate analytics and technology, among other services. Buxton helped the retailer construct a model to identify potential new markets and store sites, as well as predict performance of the stores. Having this capability and expertise has been a key to the company’s growth, he says. “The ability to accurately predict how a new store will perform is critical to success.”
Buxton also helped The Vitamin Shoppe evaluate the total potential market in the United States. The two companies continue to work together, updating and analyzing customer, transaction, sales and store data from The Vitamin Shoppe, in order to ensure its ongoing success and growth.
When the two companies began working together, The Vitamin Shoppe had about 235 locations in 20 states. Over the past seven years, it has grown to about 500 stores in 39 states and the District of Columbia, with annual sales approaching $750 million. About 87 percent of its sales come through The Vitamin Shoppe’s bricks-and-mortar stores; the rest are from catalog and Internet purchases. Although online sales are important, most of the company’s growth will continue to come via its stores, says Archbold, adding that management sees the potential for 900 U.S. stores.
Determining site success
Retail site selection consists of two broad areas of analysis, says Brian Bootay, vice president of real estate with The Vitamin Shoppe. The first is scientific analysis, examining factors like the existing retail density within a market area and the makeup of nearby retailers, as well as the overall demographics of the residents in a trade area.
For this, The Vitamin Shoppe can turn to the information generated via its loyalty program, since some 87 percent of its sales are to participating customers. That provides company management with a high level of visibility into its customer base.
The company also will map its data to the psychographic data contained within Buxton’s databases to estimate sales by different groups of customers. While demographic data includes characteristics of a population like age or income level, psychographic data refers to people’s lifestyles and behaviors, such as their media preferences or purchasing habits.
By reviewing both types of data, The Vitamin Shoppe can forecast sales according to some 60 categories of customers, adjusted for the customers’ distance from the store. So, one type of customer might be expected to spend a certain amount each year when he lives within one mile of a store, and some amount less than this when he is three miles away.
Buxton offers a high level of expertise in identifying the psychographic makeup of The Vitamin Shoppe’s customers, Bootay says. What’s more, Buxton can provide this insight for less than it would cost The Vitamin Shoppe to develop on its own.
Tom Buxton founded his eponymous company in 1994 after two decades with Texas consumer electronics giant Tandy Corporation, including a stint as senior vice president of real estate and store planning. He recognized that data like consumer purchasing preferences could be analyzed and used to identify high-performing sites for retail stores.
With insight from Buxton’s applications, companies can determine not just where to locate a store or facility, but how it can be expected to perform, says Charles Wetzel, Buxton’s president and CEO. The company has served nearly 2,000 clients and works with retailers, manufacturers, municipalities and healthcare organizations. While Buxton concentrates in the United States, it can access data on customers in several dozen countries.
Buxton has a database of 75,000-plus customer characteristics, such as brand loyalty and media preferences, from more than 120 million households. “It’s purchasing behavior psychographics,” Wetzel says. Studying this information can be helpful with both new and existing locations. For instance, information from the company’s databases can help a retailer whose surrounding market area is changing identify how to best appeal to the new clientele.
Visibility and prominence
Buxton gets its data in several ways. One is by analyzing the data available from reward or loyalty card programs. Buxton also will examine the area around a business’ physical locations, studying, for instance, how the population mix changes between day and nighttime.
In addition, Buxton works with companies that develop and conduct detailed consumer surveys. Such a survey might identify, for instance, consumers who are status-conscious: Buxton will pinpoint just where these customers are likely to reside so clients can use this information to determine promising locations for future stores.
Customers can easily access databases and tools through SCOUT, an application developed by Buxton. Clients can log into SCOUT remotely and pull demographic reports or evaluate potential sites, among other capabilities. SCOUT also can provide information on a company’s customers in both its bricks-and-mortar and online venues, allowing the client to determine the true value being derived from each channel.
To be sure, site selection still requires an expert on the ground to find and evaluate locations and co-tenants and to determine, for instance, how visible and accessible a particular site is from a major highway, or how easy it is for customers to exit and return to the traffic flow.
Two types of site locations are most effective in drawing in customers to The Vitamin Shoppe, Bootay says. The first is a pad location in front of a shopping center, while the second is an end-cap location within a strip mall, assuming it offers significant visibility to the street. “We’ve found that key to a successful store is visibility and prominence,” he says.
In fact, the company’s research has determined that two-thirds of customers enter the store because of its visibility. “That knowledge drives a lot of site selection criteria,” Archbold says. “That’s why we’re in pads, and why we want to be facing the traffic.”
The Vitamin Shoppe also tries to find locations near traffic lights and which allow exiting customers to make left-hand turns. Management also will evaluate other tenants when considering a potential site, although Archbold declined to identify the retailers The Vitamin Shoppe prefers to be near.
Based on the evaluation Archbold and Bootay conduct at each potential store site, as well as the analysis of customer demographic and psychographic information, they can predict to within 15 percent a new store’s first-year performance. “In real estate and retail, the talk is about home runs,” Archbold says. “But the critical success factor is not striking out.”
Indeed, avoiding strikeouts will be even more important as The Vitamin Shoppe continues opening about one new store each week – a pace it has maintained for several years.
“It’s critical that we not make mistakes,” Archbold says. “A bad merchandise buy can be solved in several months. A bad real estate decision takes 10 years.”