Dig Deeper: The Smartest Franchisees in America
Selecting a Franchise Location: Carefully Evaluate Your Retail Site
What else makes a great retail-site location? More than half of franchises are retail businesses, for which location is especially important, says Phil Baugh, senior vice president of Baum Realty, which is based in Chicago and works with a number of large franchisors, like Potbelly Sandwich Shop and Haagen-Dazs. Think you've found the perfect site? Think again. You have some more homework to do:
Study the traffic patterns. Are you on a desirable side of the street? Baugh says that being on the sunny side of the street in the afternoon can make or break a Haagen-Dazs location. Consider the small details, like if drivers will have to make an unprotected turn across several lanes of traffic to reach your site.
Is there enough parking at your site? Make sure you visit the site at several different times during the day because there could be a popular restaurant in the same shopping center that monopolizes the parking lot during lunch and dinner hours.
Look out for your neighbors. In a typical suburban shopping center, you'll be sharing the space with a number of co-tenants, so do your research on them.
- Competitors: Think about your direct competitors, not just in your shopping center, but also within a close radius of it. Do you out-position them? (For example, Baugh suggests that if many of your customers are driving to you from a particular office park, you need to be closer to that office park than your direct competitors.)
- Demand generators: If there are companies similar to yours that are doing well and driving customers to your area, you probably have a greater chance for success too, Baugh says. "If there's a really strong Chipotle near you, and you're going after that same type of customer as a sandwich shop, it shows that there are a good number of customers in the market," he says.
- The tenant mix: Check out the other tenants in your mall, shopping center, or nearby area. "If you have a child care franchise and you're trying to attract parents and their children, you don't want to be next to a liquor store," says Jania Bailey, president and COO of FranNet, a Louisville-Kentucky-based franchise consulting firm. Try to find a space with companies that are complimentary to your product or service. If that's hair care, it might make sense to be near a tanning bed or a nail salon, she says.
- The anchor store: It could really benefit your business to be near a major store like a Wal-Mart or a grocery store, but your strategy shouldn't rely entirely on the biggest tenant of a shopping center to help drive your store's sales. That location could easily close or relocate, or it can even end up hurting you if it's monopolizing parking spaces.
Be financially realistic. In the end, a location is only perfect if you can afford it. "Sure, everybody would like to be at Rockefeller Center," Baugh says. "But it's really about understanding the economic realities of your concept." He says that for restaurants in particular, it's standard that 8 to 10 percent of sales would go to the total occupancy costs. "If you're above that, you've given yourself a headache even before you've opened the door," he says.
Dig Deeper: Franchise Site Evaluation Form
Selecting a Franchise Location: Recognize that Criteria are Different for Non-Retail Sites
Retail franchise businesses only account for part of the wide variety of franchise business options to choose from. For instance, Jani-King is one of the world's largest commercial cleaning franchises. Each one of its franchise owners is home-based, says Robert Kindred, a spokesperson for the company, which is based in Addison, Texas. "It's to make it as easy as possible for the franchisees, and to keep their costs down," he says. "We have regional offices to provide training, operations support, and marketing materials."
It makes sense to pursue a home-based franchise when you are going to your customers, rather than your customers coming to you. A similar business is industrial franchises, where again a highly visible or easily accessible location is of less importance.
Instead, you can focus more on finding a manufacturing facility or a warehouse with a low cost of rent. But in these cases, you still need to think about your target customers and select the territory with the greatest density of those customers, Baugh says.
Dig Deeper: How to Start a Home-based Franchise
Selecting a Franchise Location: Close the Deal With a Professional
Once you think you've got your perfect site, work with a real estate broker and a franchise attorney to seal the deal. "It's a very specialized science," Baugh says. "It's much more complex than looking at the size of the building and the rent. A lot of factors go into the site that could create a lot of headaches and cost a lot of money."
You can expect a good amount of support in the final negotiations from a quality franchisor. "I really didn't know what to look for in a lease," Pitchford says. "Subway did most of my lease negotiations for me."
You've spent most of your time focusing on selecting a site, but a professional will carefully examine details that you might easily overlook. For example, you'll want to make sure there are extensions on the lease, or that if a major tenant in the shopping center closes or relocates, that there is a provision to lower your rent as a result.
"They should really represent your best interests," Pitchford says. "They want to increase the probability of you being successful."
Dig Deeper: Thinking Beyond Location
