First published in the Financial Times on 2nd September 2014.
Finding the right sites for one of our retail operations is a favourite task
Finding the right sites for one of our retail operations is a favourite occupation. I suppose it must be the thrill of the chase. But despite having been involved in launching over 500 restaurants, cafés and shops over the past couple of decades, sadly I still don’t possess a magic formula which guarantees success. In this game, the priority is to secure the correct property: as Ray Kroc, who developed McDonald’s, said: “I’m not in the restaurant business. I’m in the real estate business.”
There is nothing more exciting than coming across a new neighbourhood, and alighting upon the perfect building for a branch of Patisserie Valerie, Gail’s, Philpotts, Rocket, Draft House, Feng Sushi or a Grand Union bar. The search involves persistence and patience. Some streets are clearly appropriate yet a suitable retail unit isn’t available. I love opening stores in emerging neighbourhoods, where rents are still affordable but the major brands are absent. I remember when we brought PizzaExpress to gentrifying streets in the 1990s: our arrival boosted their desirability and even increased home prices.
You need expert and committed real estate advisers on your team, who understand your specifications precisely and know your budgets and brand well. I prefer corner locations, with as high a footfall as you can afford. The frontage, layout and square footage must meet minimum criteria. Transport links and parking are helpful but not essential. Typically I am biased towards traditional high streets and away from shopping malls. The former generally have independent landlords, who are often more flexible than institutional property owners. But even retail parks and travel terminals can work given decent terms. Obviously the size of the store must fit local demand.
The vast majority of retail operations I’ve owned have been located in renovated structures, rather than new build sites. Often they are attractive period properties, which add to the outlet’s character. This means the physical fabric of the building is vital, which is why a structural survey is usually necessary.
I push for new leases wherever possible, with certainty of renewal at the end. I almost never take premises with less than seven years’ lease duration – and really want 10, 15 or 20 years to justify the substantial investment we make. Frequently landlords make capital contributions and offer rent-free periods for tenants with good covenants, which is why corporate scale and financial backing help so much when growing a retail chain.
Of course you need locations that are actually to let or for sale. Sometimes one can pay a premium to buy out an existing tenant but that tends to be expensive. The advantage might be the existing planning permissions, and facilities like air-conditioning, plumbing and kitchen extraction.
Construction costs always play a part in the final decision of whether to open in a specific site: often one has to walk away because the building estimates are not justified by the level of income the site is expected to generate.
Each concept has different demands. Some outlets can afford higher rents because they have higher spends per head, sell higher margin items and so forth. Mostly I avoid super-prime strips because the occupation costs are prohibitive but Metro Bank, where I’m a non-executive director, actively seeks them out – the economics of a successful retail bank mean it can afford stiffer rents. Meanwhile the prominent retail frontage provides permanently visible marketing.
It is essential to study day and night time traffic, and at different times of the week and even months of the year. The demographics of the spot should be researched: nearby competitors analysed; the logistics of supplying and staffing the new branch must be taken into account. Firms like Apple have an advantage when scouting for retail sites: they have a database of registered users, which identifies the highest customer concentrations.
Locale doesn’t only matter for physical stores: it matters massively in the online world. A new book by David R Bell, called Location Is (Still) Everything, demonstrates how physical and virtual shopping are connected and that location, location and location remain the most important three factors in all forms of retailing.