Location, Location, Location (and Marketing & Merchandising, Too)  11/27/2017

Long ago, when I was first starting out in retail, a friend of mine asked me if I knew the first three rules of restaurant management. When I replied that I didn’t, he said that it’s all about, “location, location and location”. The point being that a great restaurant still has an uphill climb in a bad location but a mediocre restaurant can do fine in a great location. Over the years, I have come to believe that this rule applies not only to restaurants, but to almost all retail establishments. All you need to do is look at the variances in volume among stores in the same chain only a few miles (or in New York City a few blocks) apart to see what a huge effect location can have.

This is reflected in what only can be described as the slow-motion train wreck now effecting many retail chains. A&P, for example, had the opportunity to run their business badly for over 25 years before they finally went out of business a couple of years ago, and this seeming inability to destroy their own company traces directly to the fact that A&P had stores in great locations. The stores could get really, really bad before they had to shut down. And I think we are seeing this activity again with some other retailers, who seem to believe that their robust portfolios of prime locations and great brand names will overcome any level of operational ineptitude.

Because we all now know how important location is, and how critical the real estate decision making process is to the long term viability of the retailer. Location selection, like merchandise selection, used to be an otherworldly mix of art and science, a combination of map-reading skills and a “golden gut,” all of which led to a reasonable number of successes along with a large number of failures. Years ago, it was not so unusual to see a fast food restaurant, or even a chain clothing store, open and close within one year.

These days, location selection is mostly science. Real estate departments are well-stocked with data analysts looking at everything from traffic patterns to local income trends. There is no set of data too obscure to be considered when looking for the site for the chain’s next location. Success or failure can be driven by the zip code of the location, the congestion of the specific street, the turning regulations on that street, and physical shape of the site’s space.

But this scientific focus can lead to some interesting outcomes. Case-in-point: I spend much of my summer in Pawling, NY, about 70 miles north of New York City. Pawling still counts as a rural community, but the suburbs are creeping in. This summer, ground was broken on two new retail sites on the main road through town. We locals were curious what new shopping opportunities would be available to us. Within a few weeks a sign went up on the first property letting us know that Advance Auto Parts would be arriving soon. Shortly after, a sign went up on the other letting us know that we will now be served by the latest outpost of Auto Zone. That is to say, two very similar retailers are now opening up on the same side of the same street, within two miles of each other.

What first struck me about this situation was that while the people of Pawling may need one discount auto parts store, we do not need two. But after I got over my disappointment about that, I was struck by the realization that this could not possibly be an accident. It seems clear to me that not only are both Advance and Auto Zone using computational algorithms to drive their site selection process, but that they are clearly using the same one, or at least a very similar one.

And I guess that this is OK, but I do have to believe that one of the elements in the algorithm is “distance to the nearest store like ours,” which must have just shrank from about 12 miles to about two miles. So not only are we Pawling-ites disappointed, but my bet is that both Auto Zone and Advance will discover that their sparking new stores will underperform the models they were built on.

How Marketing, Merchandising & Service Fit In
But this is all water under the bridge now. The challenge that remains is for both Advance Auto and Auto Zone to realize that their competitive situation has now significantly changed, and the market they are in is inherently more competitive. This will require some quick and smart adaptation by the two chains – both at the corporate and store levels. First and foremost, both chains need to double down on the basics of their business. They will need to make sure that they have their pricing correct, and do not try to overcharge an underserved market, but just as importantly, they both need to make sure that their customer service is absolutely top-shelf.

Many consumers wander into auto parts stores knowing that they have a problem, but not knowing the solution. And I can assure you that the difference between walking into an auto parts store with a burnt-out headlamp bulb and being handed a huge book where you look up the replacement yourself, is very different than being met by a knowledgeable associate who can walk you through the process and solve your problem quickly and efficiently. So, while pricing is important, service may be just as important.

And beyond the building blocks of price and service, there are a variety of other approaches which can help one chain distinguish themselves on a micro level. Making sure that the product mix is attuned to the local auto ownership stats is critical. We have many Subaru cars and SUVs in our town, due to the weather and the terrain, so making sure that you have all of the parts for all of the cars made by the ninth ranked car maker may not matter elsewhere, but it matters in Pawling.

Finally, technology can play a role in these retailers marketing approaches. Recent improvements in geo-fencing allow for more precise targeting, allowing AutoZone to leverage its location in a strip mall (next to the town’s only Supermarket) versus Advance’s location in a stand-alone store. And smart loyalty marketing programs can help these new stores retain their new customers.

So, while the real estate departments of these two chains are perhaps guilty of simply plugging the statistics into the model and hoping for the best, the merchants still have an opportunity to create successes for our town’s new stores.

David Diamond

David Diamond Associates

David Diamond is president of David Diamond Associates, a consultant to retailers, manufacturers and service providers to the food and CPG industries.He can be reached at (646) 742-1373

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