This is a transcript of an episode of the LeaseSmart Podcast.
Craig: Today, this is kind of interesting. I want to talk about demographics, specifically changing demographics.
I have a client who has multiple retail locations. He’s in and out of store number 3 all the time. Stores number 1 and 2 are doing better sales, but store number 3 is profitable and life is fine. He’s been there for years. I mention he’s in and out of the store all the time because it’s odd that you know you don’t notice, it happens slowly maybe, that the demographics have changed. So we decided for various reasons at one point to run some demographics on all 3 of the locations and we see that the demographics in store number 1 and 2 are much higher income levels than store number 3. There are great alternate locations in the market where store number 3 is. It’s like “Gee! Maybe it’s time to move.” So we looked around and we find a store in a much higher demographic area and this was all predicated by the way because of a lease renewal. The landlord was being difficult and lost some of our loyalty so we decided to look elsewhere. It turned out to be a very good thing. Now, we actually paid more in rent for a different location with much better demographics, so it’s a little scary to test “Does the theory work in reality?” Well, it turns out that it did. Almost within the first few hours of opening the new store number 3, people were pouring in and sales were great.
So there you have a bunch of smart people saying “Yeah, we’re making money. Life’s fine.” But they weren’t paying attention and now they’re making a whole lot more money. They upgraded their location and kept up with times. You know demographics change. Some areas decline in income levels. Some go up in income levels. I’ve seen it many times. I’m sure most listeners have some areas are out in the middle of nowhere; they’re in between market A and market B and then one day, all of a sudden, it’s like “Wow! This ‘middle of nowhere’ is now right in the middle of everything! Now we’re right in between A and B and people come from both places to our store or our office. You know things change and just pay attention.
In addition to demographics we consider the radius. I like to look in income levels and age levels, etc. It’s amazing all the information that is available. We look at 1, 3, and 5 mile radiuses depending on the type of business. I like to get the 1 mile radius just to see what the immediate neighborhood would be and we could do a half-mile radius study if we wanted to but we just like to see the immediate neighborhood. What are the income levels there? And the reason is that we have found that higher income level people won’t go to lower income level areas to do their shopping, but the reverse is not true. The lower income level people will go to higher income areas to shop. So we just want to make sure that the spot is going to be suitable for our typical customer. Now some businesses want to be in low income areas. I’m not disparaging that. We’re all different with different needs and situations but for a business that depends on customers to have a more spendable income, which is fairly typical, then you want to make sure the exact spot is there.
Then we’ll look at how far are people willing to drive to your business. We’re typically looking at 3-5 miles. Sometimes I’ll work with a movie theater and people would drive 20 miles, or 30 miles on an interstate, especially if there is nothing else out there. It just depends.
In addition to the radius though. I actually like to, more importantly, pull a ‘drive time.’ How long will people drive to this location. We might pull 5 minute, 15 minute, 30 minute drive times, whatever you feel is accurate for your business. That’s very important because if you pull a radius of 5 miles, there may be a major interstate or a river that subdivides your market area and people can’t cross it except at one spot and then that 5 mile radius is completely irrelevant. That’s why you want to consider drive time instead.
N: Oh yeah! That makes sense.
C: Yeah and it’s easily done. It’s pressing button A instead of button B and the service spits out whatever you asked. Pay attention to your demographics when your lease comes up for renewal. Think “Could my business make a lot more money some place else?” Sometimes the answer is “YES.”
N: Yeah, so you’d have to take the initiative and not get comfortable where you are. So it looks like if you do a little market research and you take a leap. You’re putting yourself in a position to thrive instead of just…
C: Yes! That’s right and even if it’s expensive to move and it’s a pain to move. I know your employees are used to your current location. You may not have to move far away either, but if nothing else, it’s good to pull the demographics so you know the full story and when you’re renegotiating with your current landlord, you can point that out to him by saying “Gosh, I’m halfway suffering staying here.” It might affect the rent and the incentives that you’re able to get from that landlord to stay. Many landlords of course feel that they own you once you’re there but they don’t and you just need to explain to them that it’s nothing personal but if your business is going to be more successful elsewhere, you’re pretty obligated to move. You’ve got your family, your retirement and your inheritance to think about or if it’s a public company, you’ve got your stockholders to think about. It’s nothing personal but we just have to do the smart thing.
N: I love that you said “halfway suffering.” So cool. Okay I think that makes a lot of sense for our listeners. It’s important to have these reminders so that we can make sure that we are making the smart choices and we are one step ahead of the game. Thanks!