Lease It is important to investigate the type of lease the available site carries. Before 1930 many leases were written for a specified number of years, ranging from 10 to 35, with provisions for increases in rent at intervals of 2, 3, or 5 years. In some cases, retailers prefer percentage leases a percentage lease provides for a determination of the rent payable on the basis of the gross volume of sales by the tenant. During the depression in the 1930's the percentage lease came into wider use. It clearly has outstanding advantages to the tenant over the long-term lease with predetermined rentals. Recently the graduated percentage lease has become popular. It provides for a determination of the rent payable on the basis of a graduated percentage of the gross volume of sales by the tenant. This lease avoids one of the weaknesses of the fixed percentage lease. For it does not permit the landlord the same percent on sales of merchandise on which prices are forced down (during a depression, for example) as he gets on sales of regular priced merchandise. However, it is to the advantage of the small independent retailer to arrange for a short-term lease for the first year of operation. The owner of the building usually appreciates the fact that to him the value of a lease is dependent upon the ability of a tenant to realize a profit under it. Therefore, most landlords are willing to agree to an arrangement which will be a workable one over a period of time. History of the Site If a site appears to be a good one in other respects it will be helpful to find out what stores occupied the building during its lifetime and for how long. Did the building remain vacant for any length of time and, if so, why? If a building was occupied by a grocery store for 1 year, a women's ready-towear for 6 months, candy for a year, and then was vacant for 1 year, it would appear to be an unprofitable site and one should look further for the reason. "Hoodoo" sites, on which many enterprises have failed, should be avoided, both for occupancy and as neighbors. Vacant buildings are regarded as bad neighbors, thus vacancies nearby should be carefully investigated. It is possible that the buildings are old and untenantable. On the other hand, perhaps a small amount of face-lifting on several old buildings for which the rent is relatively low would improve the entire block. One store might be able to start a low-cost but very effective renovating program, to the advantage of a group of stores. A great deal can be learned from studying the occupancy history of the site under consideration. In some cities careful inventory of the business and residence property is made and kept up-to-date. In such cases the prospective retailer will be able to obtain all the information he needs. In other towns he can get the records from the city clerk's office. PART II PRACTICES IN SELECTED LINES This section summarizes in a general way the results of a survey, the purpose of which was to discover how locations for certain types of retail stores are currently being evaluated and selected by retailers. Although the site specifications and techniques of analysis described in this section are those employed by large companies, they will be useful to the small retailer as well. Grocery Stores Grocery chains and voluntary associations find it important to locate in a trading center, that is, where there is a drug store, a cleaning plant, post office branch, a restaurant, etc. These trading centers normally will not be in the downtown shopping districts. The executives of one large wholesale grocery company which provides location services to its affiliated stores stated that they will not recommend a downtown location in towns over 7 or 8 thousand population. They consider that the store should be convenient to the customer, and have adequate parking space and rent which is not out of line, that is, not over 12 percent of net sales. A general merchandise wholesaler, similarly, will not recommend downtown locations for its dealers in towns with more than 15,000 population. Therefore, selecting a community for a grocery store becomes largely a matter of choosing in which subcenter to locate. The following factors— listed in order of their importance are considered when choosing a community: 1. Size of the trading area. 2. Type of customers. 3. Income of the people in the community. 4. Parking facilities. 5. Amount and quality of the competition. 6. Population characteristics. 7. Local habits and customs of the people. 8. Extent to which the area is a trading center. For those urban communities for which the data are available, several large companies work out normal trading areas by employing census tracts and checking the trade boundaries using information obtained from mer chants in the area. Census tracts are available for 60 cities in the 1939 Census of the United States. These tracts are small areas, usually having a population between 3 and 6 thousand, into which certain large cities have been subdivided for statistical and local administrative purposes. While this subdivision into tracts has been more or less arbitrary, several principles have been followed. The areas are established with some regard for uniformity in size and in population characteristics and density, and for natural barriers. Population data include sex, age, race, nativity, citizenship, country of birth, highest grade completed in school, employment status, class of worker, and occupation. The housing items include occupancy status, tenure, value or monthly rent, type of structure, state of repair of plumbing equipment, size of household, race of head of household, persons per room, radio, refrigeration equipment, and type of heating equipment. All of this information is of some use when attempting to determine and evaluate a trading area. One large food chain uses the analytical maps and block statistics of the Sixteenth Decennial Census from which they obtain a dwelling count. Then they assume 32 persons per dwelling, and that an average of $250 a year per family is spent on food. Thus they estimate the potential business of any area. The block statistics make it possible to deal with any size area. In addition, they check with wagon vendors of products such as bread and milk-vendors who serve the stores in the area under consideration In this way they are able to modify their estimates of the number of shoppers in the market area. Some companies also use figures on paid home carrier circulation of newspapers as an aid in estimating the potential business of an area. After all such estimates have been made, the larger companies often hire a marketing research agency to evaluate the community. One technique commonly used by these agencies is to note the license numbers of automobiles parked at certain stores in the area, later getting the addresses from the motor vehicle bureau and spotting the addresses on a city map. In this way the size of the trading area for automobile customers can be determined. Since the radius of the market area is limited (4 or 5 blocks for the ordinary grocery store, 1⁄2 to 34 of a mile for the large super-market) the selection of a site which can be and will be easily reached by customers is very important. Areas are not regular, so it is important to watch for and avoid unusual features, such as railroad yards, industrial areas, cemeteries, bluffs, rivers, and hills. For estimating the sales of competitors many different methods are in use varying greatly as to dependability. One large voluntary group has developed a unique method. The cash register in the competitor's store must be the type which prints on the tape not only the dollar total of each individual customer's purchase but also a cumulative figure showing the number of customers for the day or for several days. Then this company's representa tive makes the first and last purchase of the day (or days if the total is cumulated). By assuming an average of $1 a sale, it is then possible to estimate the total sales of the competitor. Another technique used not only to estimate the sales of stores but also to form an idea of the size of the trading area is the personal interview method. Interviewers canvass the residents of the community to find out where people buy their food items and why. When planned and carried out by an experienced staff, this method is reliable. It is unwise for an inexperienced person to use it, however, because of the ease with which a bias or error can creep into the questionnaire, the recording, and the analysis of the data obtained. The factor of good parking facilities, although important to all stores, is of paramount importance to grocery stores. Food stores are different from most others in that food purchases are bulky and people want to drive to the store and park easily and conveniently. This is not so important, of course, for credit and delivery stores, although even there many people prefer to make personal selections of food. Grocery stores usually allow three square feet of parking space to one square foot of floor space. Drug Stores Location is very important to the success of urban drug stores. In small towns, however, the variety and amount of merchandise carried, as well as the service provided, attract more customers than does the store's location. The factors listed by drug store executives as necesary to consider when deciding on a community are: 1. Amount and quality of competition. 2. Type of customers in the area. 3. Income of people in area. 4. Characteristics of the community's population (i. e. age, race, number). 5. Local habits and customs of the population. 6. Type of transportation. 7. Stability of the community. 8. Size of the trading area. An executive of a large wholesale drug company and the owner of a conspicuously successful independent drug store in a midwestern city classifies drug stores into four types, namely: (1) Small stores which are found in neighborhood areas of cities and small towns. These stores sell ice cream, candy bars, cards, etc. and must remain open long hours to make any profit. It is important to choose a location in an income area where credit is not expected by customers, but other than that location is not as important as the hours the store remains open. (2) Semisuper stores which sell a great variety of merchandise and which also locate in outlying neighborhoods. They should be situated where pedes trian and automobile traffic from the residential area passes on the way to and from outlying or central shopping centers. It is usually wise to avoid a newly built up residential district because people will want to trade on credit unless the payments have been completed on the new homes. Locations suitable for these stores are too expensive for the ordinary neighborhood drug store. (3) Super-stores which locate in a small shopping center. These are larger drug stores carrying a very wide variety of items. The public demands at least 50,000 drug items and in order to take trade away from the center it is necessary for these stores to have a larger inventory than do the drug stores downtown. (4) Super-store markets. The executives interviewed claim that there will be an increase in the number of drug stores of a department-store type in suburban shopping areas, particularly in those developed by real estate companies. In the main, suburban drug stores of this type are specialty shops handling specialty items. Although 100-percent locations are not essential to large drug stores, they are highly desirable. Such drug stores are primarily convenience goods stores and rely, therefore, on being accessible to large numbers of people. As a matter of fact, some well-known drug chains, as well as women's ready-towear, variety, and other chains which derive their principal volume from the sale of small items, especially to women, have a fixed policy of choosing a 100-percent location. These locations will be found first in downtown centers. Larger outlying shopping areas also provide 100-percent locations. With the relatively recent growth of these outlying areas one large drug chain has tended to be more interested in locating in these centers than in the downtown area. The real estate manager of another well-known national drug chain classified drug stores as: 1. Impulse buying and convenience goods stores. 2. Stores which are open 15 and 16 hours per day. 3. Fountain and merchandise stores. He claims that their stores fit into the first group and must, therefore, have a location convenient to the shopping and amusement centers. This chain tries to spread its stores geographically in both downtown and outlying centers. In order to select the sites convenient to the greatest number of people they make traffic counts at various times of the day: 10: 30 to 11: 30 a. m.; 2: 30 to 3: 30 p. m.; 5 to 6 p. m.; and 8 to 9 p. m. They also make some attempt to analyze the traffic by sex and shopping intentions. Variety Stores Although there are some exceptions, variety stores, insofar as they can afford it, locate as near as possible to the largest department stores and close |