Retail Site Selection for Urban Environments	.
Larry E. Lund and Andrew Kinsella	Author Info

Abstract

Cities need to act more like retail site analysts to successfully attract retailers to urban areas. Technology now readily available can assist cities in targeting which retailers are appropriate for a given site and to pinpoint those areas which are currently under-served by major area chains. The following is a brief look at how cities can begin to speak in terms with which retailers are more accustomed to dealing.

Cities, to attract major retailers, often follow a similar approach. When vacant land becomes available, cities frequently work to make improvements to the site, clean contaminated soil if necessary, and undergo all sorts of infrastructure improvements to make the site more amenable to a retailer's needs without first understanding the site location needs of the retailer. Cities then invite the major area retailers to come and view the new opportunities available in the city, certain that someone will be interested. Often, the land will remain undeveloped with little more than cursory interest from the major chain retailers, until finally the city is forced to abandon its search for the ideal retailer and settle for something much less than it originally had in mind for the site.

The question arises - why do retailers continue to balk at opportunities to locate stores in these newly available urban locations? Often, the reason is simply that cities, in their rush to bring retailers to the city, fail to acknowledge the realities of today's retail environment. Retailers often have very firm ideas about where they'd like to locate and these ideas don't necessary mesh with what the city has to offer. Cities need to be smarter in how they go about courting retailers to improve their rate of success. The following article looks at several examples of how cities, using new technology and data now readily available, can begin to think more like retailers and thus improve their success in attracting retail to the city.

Traditionally, many large chain retailers have stayed out of dense urban areas where it has been difficult to assemble adequately sized parcels of land for development. Few retailers are willing to tailor their parking ratios to fit urban realities and have tended to locate in farther out suburban locations, where larger tracts of land were available for development. In recent years, however, America's older cities have seen large swaths of land become available for development through closings of outdated rail yards, abandoned industrial sites and even military base closings. As these sites become available, cities are anxious to bring to the city some of the discount and big box retailers who have to this point shied away from the urban market.

One approach cities have used to "advertise" new opportunities for development is to hold something akin to a "retail fair," inviting potential retailers to see how the city can be a viable option for new development. Our experience has shown that, more often than not, this approach has failed to bear much fruit. This failure isn't so much the inability of the city to promote itself or that the retailer isn't interested in an urban location, but often that the sites available in the city fail to suit the needs of the retailer. While the city has sites where it would like to see the retailer locate, the retailer has its own ideas about where it would like to go. More often than not, these sites are not the same. The retailer may indeed be willing to locate in the city, but not necessarily in the spots the city is pushing.

Cities need to better understand the retailing environment. An analysis of this environment should not stop at the city limits but needs to encompass the entire metro area in order for the picture to come into focus. Cities generally have a very good understanding of the major retailers operating within their boundaries, but fail to look too far beyond their borders to see what's happening in adjacent municipalities and beyond. Our experience in Chicago shows the need to focus on the bigger picture, to look at the entire metropolitan retail environment, rather than just focusing on a neighborhood or the city's retail landscape.

Like many urban areas, Chicago has seen several large sites become available for development in recent years but has had trouble attracting the major retailers to these sites. A myopic interpretation of this problem might lead one to the conclusion that certain retailers still aren't ready to be in the city or are too stubborn to abandon their "cookie cutter" approach to developing new locations. While this may be true of some retail chains, it may simply be the case that the available sites don't fit into the retailer's specific site location strategy.

The following example demonstrates how thinking more like a retailer might aid cities hoping to attract retailers to urban sites. Using a hypothetical site in southwest Chicago, the first step of a retail analysis involves assessing the players in the market, particularly those which fit the area's demographic profile. (For this example we have chosen to look at Target, given its appeal to the middle income households found in our area) Having determined which retailers might locate in our area (rather, having crossed off the list those which won't), the next step involves plotting all metro area locations of these retailers, using a marketing-based GIS system. Depending on the retailer's level of coverage in the area, a pattern should begin to become apparent. Through our experience with working with discount retailers such as Target, we've found that running a ten minute drive time from each location of a given retailer will "connect the dots." Figure 1 shows the results of this drive time analysis for the Target locations in proximity to our site. The ten minute drive areas match up in a pattern that gives us an idea of how Target divides up the territory.

Figure 1. Target Locations in Focus Area

Analyzing this map, it becomes apparent which areas are "covered" by Target and those which are not served by a nearby location. Our location and a significant portion of its corresponding ten minute drive (the shaded red area) appear to be "covered" by an existing Target location. The city, looking at this graphic, can thus deduce that Target will probably not be interested in our site as they already have a presence in the area. Although there are no Target stores in the south or southwest sides of Chicago, this particular site is already well served by a store in nearby Cicero. Thus, Target would be very unlikely to locate another store at this site and the city's efforts would be better spent focusing on other potential retailers. The city can repeat this analysis with each retailer in which it is interested to determine those which might have an interest in the site and those which are not worth pursuing.

In addition to being used to determine which retailers are appropriate for a particular site, cities can also use this approach to determine if certain neighborhoods are being neglected by area chain stores and whether these neighborhoods can support such a store. For instance, in the Chicago example, let's say survey and focus group work has led us to believe there is strong interest in a Target or TJ Maxx location somewhere on the south side of Chicago. As before, we would plot all the TJ Maxx and Target locations in the area and generate drive times around each. Having done this, we would analyze our map to see if there were any holes, focusing particularly on Chicago's south side. Figure 2 shows the results of the graphic analysis of these two retailers.

Figure 2. Retail "Holes" in South Chicago

The grey areas represent the ten minute areas covered by existing locations of these two chains. The map shows that much of Chicago's south side is not served by Target or TJ Maxx and could thus, hypothetically, be viewed as a potential new market for these stores. However, when such retail "holes" arise, particularly in a densely populated market such as Chicago, there is often an explanation lurking in the background. In our example, the failure of these stores to locate in our area is certainly due to the low, and in some cases, extremely low levels of household income found in much of Chicago's south side. In spite of this, there is still retail potential in this densely populated area, though the onus rests on us to prove it to the retailer. One way to do this is through what we refer to as the "analog model" approach. That is, to compare the demographics of our area with those around existing Target and TJ Maxx locations to see if we have a case.

In our example, we see almost the entire southern part of the city falls out of range of these two retailers. In a real analysis, we could look at various city-owned parcels or those which it could readily assemble to suit a retailer's needs. Comparing the ten minute demographics of these sites with those of current TJ Maxx and Target locations should tell us whether a new location is feasible anywhere in our target area. For this example, we will choose a hypothetical site which we feel might have demographics favorable to one of these stores. Using this site, we derive our ten minute drive which, as shown in Figure 3, creates a trade area not currently covered by existing locations of either Target or TJ Maxx.

Figure 3. Testing a Potential New Location

Running the demographics associated with our area and those of existing locations, we can build a comparison of the sites. Table 1 shows some key demographics retailers focus on when considering site locations. (In this example, we compare our site with only TJ Maxx Locations)

Table 1

As this "analog" comparison makes clear, our site, when compared with those of existing TJ Maxx locations has comparable demographic characteristics. The high population, high aggregate income and even the relatively high household incomes make a strong case for the potential of our site. This analysis should certainly perk the interest of a retailer, who can now see that our site has similar demographics to those areas where TJ Maxx is located.

Through such methods, cities can begin packaging potential sites in language retailers can identify with. While not every "hole" can necessarily support a new retailer, this approach will help in identifying those areas which can. With this information in hand, the city can enter an informed dialogue with the retailer, giving them the information they need to know. When potential development sites become available the city can run analyses such as these, even before approaching retailers about the sites. Such analysis will save time by eliminating from consideration retailers who are already in the area or those who would unlikely locate in a site given its demographics profile.

Larry E. Lund, Principal
Real Estate Planning Group
Chicago, Illinois

Andrew Kinsella, Associate
Real Estate Planning Group
Chicago, Illinois