One of the most effective strategies to conducting site selection is not by looking for the proverbial needle in a haystack, but instead, by using the process of elimination.
The number one reason for a franchisee's failure or poor performance can be a poor location. A poor location can ultimately be the result of poor site selection. How else can you explain that identical stores from the same chain or franchise system will vary as much as 200 percent in sales volumes? Of course you will need to factor in store size, marketing budgets, management, and so on; however, these are all secondary to the importance of location, in my opinion.
Essentially, there are three types of franchise businesses: profitable, break-even, and go-broke. A truly profitable franchise location will make money and the business will appreciate in value. A break-even franchise location will pay the owner a small salary and pay the rent but not much more. The go-broke location that comes to my mind lasted less than three months from opening to closing for one unfortunate tenant. Despite my warnings that this was a go-broke location, the business owners poured in $80,000 into their store setup and couldn't pay their rent by the second month of operation. Usually, a go-broke location will not only steal your capital but also put you into personal bankruptcy - after you have maxed out your credit.
If you thought that franchise site selection was all about location - location - location, you're right …intellectually. However, when first-time tenants with limited leasing experience are involved in the site selection process, good old common sense often goes out the window. Consider for a moment that site selection involves both science (with part research and part timing) and good intuition (part luck). Franchise tenants, typically, will mistakenly rely on either a landlord's real estate agent or their franchisor (without a dedicated in-house real estate team) to lead them through the process.
In my book, Negotiate Your Franchise Commercial Lease or Renewal, I have dedicated an entire chapter to site selection. Here are just a few relevant tips from the expert:
If you find yourself weighing a better location at a higher rent versus a lesser location at a lower rent, my advice is to go for the first option. When consulting to franchise tenants and doing site selection, my job isn't to find the cheapest location, it is to select a site that will help the restaurant tenant maximize his/her sales.
Also remember that landlords sometimes prefer to lease their worst space(s) first and save the best space(s) for last. Usually, the individual unit or location you lease within a shopping centre or strip mall is more important than the mall itself - or at least equally important. Know that lease rates within a building can vary by 200 percent depending on unit desirability, walk or drive-by traffic flow, space shape, quality of neighbouring tenants, anchor tenants, and your operating status as an independent or a national chain name. While you don't always get what you pay for in leasing commercial space, you normally don't get more than you pay for either.
Note that if you already own a franchise business but are considering relocating when your current lease expires, start your site selection at least nine months ahead. If you cannot get a satisfactory lease renewal, you will need this time to select alternative sites and negotiate a new lease elsewhere.
Franchise tenants need to know there is a great deal more involved with the site selection process than just what is explained here ... these pointers are just a few tips of the iceberg.
Dale Willerton is The Lease Coach, a Certified Commercial Lease Consultant and author of "Negotiate Your Franchise Lease or Renewal". Got a leasing question? Call 1 800 738-9202, e-mail DaleWillerton@TheLeaseCoach.com or visit www.TheLeaseCoach.com / www.HelpULeaseFranchise.com.
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