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Location, Location, No-cation

Location, location, location. We’ve heard this mantra since the moment we started our business plan. Of course we all want class one retail or office space.  But, it is really that important to the success of your business?

But it’s perfect.  The broker came in, showed me this property and it’s absolutely perfect. It will be so easy to move and all of our clientele will come with us.  The spa that was in there was sooo busy.  All of their clientele will come and spend money with us as well.  .  If I could only move my business there, my sales would double. It’s sort of like that first romantic relationship.  You were absolutely sure that they were the one.

We hear from the nail spa owner who figured that the sum total of all of her several profitable 1000 square foot spas  equaled one 5000 square location in a major retail mall in a large urban market.  She was paying about $25 per foot ($2,083 per month) in the smaller spas and was doing about $25,000 per month in revenue. But, in the new, bright and shiny mega mall, with all of the name-brand anchor retail tenants and 25000 people walking by her storefront every day , her new rent would be $65 per square foot or only $27,000 per month   Relatively speaking, this new rent was an increase of 160% over what she was paying. Surely, the super duper location would help her sales do the same.  Heck, if she could only capture 1/2 of 1% of the daily traffic, she would be doing  $3.3mm per year in sales. That was reasonable, wasn’t it?  Her sales increased significantly. to $110,000 per month.  Good volume, but she needed to be doing at least  $220,000 to breakeven.  Why put this kind of pressure on yourself?

Optimism reigns supreme when you are opening or relocating your business. “But it’s only an extra $2500 per month.  The extra space will make us so much more efficient and the new location is so much more visible.”  I’ve asked clients that are moving from their original location not to tell me that their new rent is $8000 per month. They respond by telling me it’s too late, we’re just going to have to find a way to make it work.  Square footage grows from 2000 square feet to 4200 square feet.  Rent goes from $18 ($3000 per month) to $23 per square foot ($8,050 per month).  Is the location worth it?  Sales volume required to breakeven increased to $53,667 per month an increase of 40% over what the business had been doing historically. Somewhere prior to the making the move, the increased real estate cost for the new dream location had been rationalized. Guess what?  After awhile, that space which was just a little more expensive starts to feel like an anchor.

The “science” of site analysis requires that each prospective site should be evaluated in terms of location, visibilityaccess, egressadjacent land uses, proximity to targeted clientele and demand. In addition, I suggest that  the financial impact (cost) of the new facility relative to the current one and the impact it will have on profitability also be analyzed.

We work with our clients to build smaller, smarter facilities. Our medi-spa client in the Midwest was going to relocate to a “better”  location  from her upstairs location to a ground floor retail space. After running the numbers, we decided not to build a new 3500 square foot spa. Instead, we decided that it made better sense to expand her 1800 square foot spa by 800 square feet.  Although the monthly cost would increase, the expanded space would allow us to operate more efficiently, add service staff and take better care of our guests. The projected increase in revenue would more than cover the increased overhead costs. We wouldn’t be spending $150 per square foot to build out the bigger space or risk losing our clientele by the move. Overall, it made financial sense and provided a much  better return on her  investment.

There is no crystal ball. Great locations don’t create successful businesses. Great businesses are a result of great service and relationships.  Businesses that grow have synergistic relationships with their neighbors and other businesses in their community. Successful businesses have the ability to cultivate long term relationships with their clients. Although location is a factor, it is not the reason for the success or failure of a business. That said, the cost of the location has a major impact on the profitability and long term success of a business.

Our market is experiencing a type of business Darwinism.  There has been fall out of many non-profitable or ill-prepared businesses and the stronger businesses have survived. Although our industry is not flourishing, in some markets sales have leveled and are starting to experience some growth. This has provided a lot of opportunity for taking over businesses and facilities that have not survived. Is it worth the investment and risk?

Want to talk about it? As always, we are available to talk and there is never a charge for the initial consultation.

Call 888.727.5489 or e-mail us at Monte@WellnessCapital.com.