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Choosing a store location

Charles Cain - Mar 18th 2010

Happy Shoppers

In Retail, success is all about location, location, location. We all "know" this, and yet the majority of tea shops are in terrible locations. In fact, after talking with well over 100 prospective tea shop owners in the past two years, I'd say the majority are inclined to choose terrible locations. The problem is not a matter of intellect but of experience and perspective. Few tea entrepreneurs understand the profile of their typical customer and many incorrectly project their own buying preferences and behaviors on their customer (since most people aren't crazy enough to open a tea shop you have to accept the reality that you're a little different). In the following article I will attempt to briefly describe the "perfect location", and dispel several key myths that lead people down dead ends of business and marketing strategy.

The perfect location for a retail tea shop is one where there is a significant concentration of consumers who are primed to shop (read more on the types of tea shops in Developing the Retail Model). The perfect example would be several women who meet in a retail shopping area to spend the day... shopping. They browse from store to store, stop for lunch, and then resume their shopping. The purpose of the trip is not to buy anything in particular, but to shop! For these customers, shopping is the target activity and they are intentionally seeking new and interesting shopping experiences and new and interesting products. I'm not suggesting that these women are the only customers of a tea shop, but merely painting a vivid picture of the consumer mindset that will make a tea shop most successful.

If we agree that the ideal location is surrounded by consumers who are primed to shop and looking for new and interesting stores, then it becomes pretty easy to exclude the vast majority of retail locations. Instead of making up scenarios to justify a particular location, simply ask yourself which shopping areas are well known for attracting throngs of people who are not going to a specific store and are not running errands but instead are going to shop!

Most tea entrepreneurs will quickly agree with my ideal scenario, but then will cite several myths as justification for choosing the lesser rents or closer proximity of secondary locations:

Myth #1: Tea lovers will find me. There are not nearly enough tea lovers out there to support a retail store. According to a 2007 study by Mintel, 75% of US households purchase packaged tea products at some point each year. 15% of those purchase loose tea. That gives you roughly 11% of US households that have purchased loose tea in the past year. While there are certainly tea lovers that only drink bagged tea, it's a safe assumption to say that MOST "tea lovers" purchase at least some loose tea and so I use this 11% number as my estimate for the percentage of "Tea Connoisseurs" in the US population. A fraction of those will care enough about tea to go out of their way for a Specialty Tea shop. My personal guesstimate is that about 5% of the US population is interested enough in tea to go to a Specialty Tea shop if it is near where they are going anyway, and maybe 1% of all consumers will go out of their way for a Tea Shop.

Myth #2: I'll drive traffic through advertising. Advertising will help, but you should consider it a strategy of last resort, not a primary path to success. Advertising very rarely gets people interested in something they don't already buy, so you're only advertising to 11% of the population. Even then, the majority of those who might be interested in your offering won't respond. (What percentage of advertising you see is for something that you buy over the course of a year? What percentage actually affects your buying behavior?) The rule of thumb in marketing is that a consumer needs to be exposed to a marketing/advertising message an average 16 times before they notice and react. (How much advertising can you afford?)

Your best form of advertising is a well placed storefront!! Again, if you are located in a shopping area where consumers go and are are already predisposed to shop, then you are effectively advertising to people who are in the right mind-set and already within sight of your store. Spending an extra $1,000 a month on rent to be exposed to more shopper foot traffic is far more effective then spending those same dollars advertising to people that may or may not care and may or may not ever visit the area where your store is located.

Marketing is a key tool for creating customer loyalty and keeping people coming BACK to your store. Every tea shop should have a marketing budget! That said, it is terribly ineffective for attracting new customers. I've spent tens of thousands of dollars testing and unequivocally proving this theory!!

Myth #3: I'll pick up customers from traffic to X. I've talked with tea entrepreneurs counting on high volumes of foot or vehicle traffic to high end grocery stores, restaurants, theaters, gyms, salons, yoga studios, business centers (commuters) and tourist attractions. Regardless of whether or not the customer walking by is your target customer, I would encourage you to dramatically discount ANY form of traffic that is not focused on retail shopping. The explanation is easy: if you are on your way to the grocery store, the movies, dinner, the gym, the salon or work, how likely are you to see a cool new tea shop and stop in to check it out? You need traffic that is primed to shop! Tourists may be more valuable than some of these other forms of traffic, but only if they are doing touristy activities that are conducive to carrying shopping bags. People that are sight-seeing or on their way to the beach are unlikely to walk around with a bag of teas and a teapot.

Vehicular traffic is worth even less. Most people drive past stores every day that they've never actually noticed, and the likelihood that someone will see a new store and stop in on impulse is extremely slim. In fact, I would suggest that high vehicle traffic may actually depress your sales because all the noise and commotion is likely to depress the type of relaxed foot traffic that will stop outside your window and take note.

Let me close with a simple truth. Your rent will likely be between 10% and 25% of sales*. You need to view rent as buying customers. If you can double your foot traffic and sales by doubling your rent (while keeping many other costs steady or rising only slightly), then why wouldn't you? I'm not remotely scared of paying rents over $10,000 a month. I don't believe it is any more risky. What scares me is not rent, but being in a location that I am not POSITIVE will provide me with enough primed shoppers. Don't take the risk of a secondary location!

Half of you still don't believe me or trust enough to swallow the high rents of a prime location. So let me try one last angle. Your odds of being able to cover your costs from the day you open are MUCH better if you open in a great location surrounded by primed shoppers than if you open in a secondary location and it takes months to build a customer base.

I won't know it to be true until I see the sign in the window, but my sources in the Real Estate community tell me that one of the leading tea retailers has signed a lease for 1,100 square feet at over $300 a foot. They'll be paying over $27,000 a month in rent, and you can believe they don't intend to loose money on this location. They are buying a TON of traffic. OK, so that would make me a little nervous. ;)

*NOTE: The typical rule of thumb in retail is that rent should be 15% of sales or less. The reality in tea retail is that your cost of labor, product, equipment, marketing, etc. will be below average so it's certainly possible to pay rents of 25% of sales and still be solidly profitable.

Adagio Teas
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Voice your opinion about this article on TeaChat!
Mar 18th '10 10:41
I've written a few articles about choosing the perfect store location.

The value of a Broker in site selection -
http://www.tearetailer.com/article_17.html
Choosing a store location -
http://www.tearetailer.com/article_50.html
When the landlord says no -
http://www.tearetailer.com/article_33.html
The hope, despair and hope of lease negotiations -
http://www.tearetailer.com/article_60.html

I'd love to hear your thoughts or questions.
Charles
Chicago, IL
Mar 19th '10 0:37
Whoa, that is a scary article. :mrgreen:

So while it is all about location location location, clearly a second top cause for failure is under capitalization ...........
Chip
Back in the TeaCave atop Mt. Fuji
Mar 19th '10 6:08
Agreed, under-capitalization drives people to cut corners on location, store design, merchandising, staffing, and inventory. Far too many tea shops are in secondary locations (that don't have enough traffic), with inexpensive fixtures and lighting (that don't give the customer the subconscious cues that they'll get a quality product), poor product packaging (because the minimum orders and costs for professional packaging are too high), inexperienced and unavailable sales staff (because staffing for the infrequent rushes is too expensive), and small collections of products with frequent shortages (because they don't have the cash necessary to maintain inventory levels).

Sadly, what I've just described is MOST of the independent tea shops in this country. These shops are having a hard time surviving today, and once competition comes to town (from other tea shops or other retailers beginning to carry premium teas), they're going to be forced to change or close. The "buy local" crowd is there, but like tea connoisseurs, there aren't enough of them to keep a retailer afloat.

Don't get me wrong, I'm not a cynic. I am fully confident that a well capitalized tea shop in a good location will be a winning combination. American are primed to fall in love with tea and it's pretty easy to turn a curious passer-by into a tea lover. Tea is a GOOD business to be in, but as I detailed in The Cost of Doing Business (http://www.tearetailer.com/article_36.html), it takes a couple hundred thousand dollars to do it right and get the wheels turning on a sustainable, self sufficient tea shop.
Charles
Chicago, IL
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