Changing demographics. It happens. Are you changing with them?
I have a client that has multiple retail locations. He’s in and out of store number 3 all the time. Store number 1 and 2 are doing better sales, but store number 3 is profitable and life is fine. He’s there for years. I mention he’s in and out of the store all the time because most people don’t notice things that happen slowly – and the demographics changed since opening the store many years ago. So we decided for various reasons to run some demographics on all 3 of the locations and we discover that the demographics in store number 1 and 2 have much higher income levels than store number 3. And there are great alternate locations in the market where store number 3 is located.
“Gee! Maybe it’s time to move.”
So we looked around and find a store in a much higher demographic area. The rent is higher too. It’s a little scary because of the higher rent, and “Does the theory work in reality?” Turns out it did. Within the first few hours of opening, the manager of new store number 3 is saying “Holy smokes! Look at all the people walking in the door!” And sales volume went way up.
So you can have a bunch of smart people thinking “We’re making money. Life’s fine”, but not paying close attention and realizing they could be making a whole lot more money. They upgraded their location and kept up with times.
Realize: Demographics change over time. Some areas decline in income level. Some go up in income levels. I’m sure many people have memories of locations that were once in the middle of nowhere – between market A and market B and servicing neither, then one day 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 or whatever. You know things change and just pay attention.
Let’s look deeper into demographics. Income levels, age levels, household budgets – it’s amazing all the information that’s available. Typically, look at 1, 3, and 5 mile radiuses, or 3, 5 and 10 depending on the type of business . . . sometimes you’ll go out 20 or even 50 miles! I like to get the 1 mile radius to see what the immediate neighborhood is like. What are the income levels there? Reason: We have found that higher income level people won’t go to lower income areas to do their shopping but the reverse is not true. The lower-income people will go to higher income to shop. So we just want to make sure that spot is going to be suitable for our typical customer. Some businesses want to be in low income areas – it’s their demographic! We’re all different with different needs and situations, but for a business that needs more spendable income – which is fairly typical – then you want to make sure that population is there.
Then we look at how far will people DRIVE to come to this business. In addition to the radius, we like to pull drive times: How far 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 that subdivides your market area and people can’t cross it except for 1 spot or another, or a river or something else where that 5 mile radius is completely irrelevant. That’s why you want to do a 5 or 10 minute drive time or something.
And it’s easily done. It’s pressing button A instead of button B and the service spits out whatever you asked of it.
So, in conclusion: pay attention to your demographics when your lease comes up for renewal. Think about “Could my business make a lot more money someplace 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 maintain the status quo.
C: Yes! That’s right and even if it’s expensive to move, even if it’s a pain to move, even if your employees are used to living nearby. Also, it’s good to pull the demographics so you know the full story when you’re renegotiating with your current landlord. Now you have some leverage and you can point out to him that you know “Gosh, I’m halfway suffering staying here.” And it might affect the rent and the incentives that you’re able to get from that landlord to stay. Many landlords feel 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 my business is going to be more successful elsewhere, I’m pretty obligated to move. I’ve got my family, retirement and inheritance to think about or if it’s public company, I got my stockholders to think about. It’s nothing personal but we just have to do the smart thing.
N: 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 1 step ahead of the game. Thanks.