Slicing the Retail Pie

By Kenneth Katz and Jeff Green

Back in January, we looked at the role big data is playing in providing retailers with more tools to find hidden markets and deepen demographic data. As the retail industry continues to evolve, there is an accelerated push toward more retail formats and categories. It is becoming more and more clear that as social, commercial and design trends all have a profound and varied impact on the professional landscape, the industry’s collective understanding and full use of available data within real estate is still stuck in the statistical Stone Age.

In the final part of this two-part series, we take a look at the often complicated and multi-dimensional choices that retailers and brokers face when making real estate decisions with such rich data. The retail real estate industry can, and should, do more to go beyond population trends and traffic patterns to get more detailed and accurate information about actual expenditures. This will ultimately allow for a look into the future of any given retailer in a specific market.

Residential population and income data generally represent the traditional and most basic form of research available to retailers. Today, we have a much more comprehensive and granular picture of where consumers are on a daily basis (not just where they live) and what they are spending. The demographic reports that now carry data about daytime population provides a lot of valuable information but the key is to take the next step and translate that information into dollars.

One of the most important benefits of being more analytical and using new tools to evaluate demographic potential through the prism of demand and consumer behavior is the way in which it opens up valuable new perspectives for retailers. Retailers have always been highly motivated to get more information about the size of the ‘demographic pie,’ or market demand, and having an even better understanding of this is a very powerful insight. Focusing in on the competition’s presence within the market and the true demand for any given product encourages retailers to think more critically and strategically about who else is sharing the metaphoric ‘pie.’

For instance, a highly active trade area like Memorial City or CityCentre in Texas has multiple colleges, medical offices, hotels, businesses, etc. that can contribute to any retailer’s success. However, because it is such a popular trade area that “hits on all cylinders,” it is likely to be more saturated with similar retailers vying for the same dollars. While this may work for some retailers, it may not be the best option for others.

This is a consideration that retailers have too often undervalued: Historically, retailers have entered markets with blinders on when considering saturation and the impact of other brands. Optimistic brands often believe that, with their seemingly superior product, the competition is less relevant, and market potential wins out. Moving closer to real numbers for demand with consideration of who is already catering to it helps to refocus that perspective on what is available as opposed to what exists and what dollars are still, or could become, available.

The question then becomes, does it make more sense to go for the larger piece of a smaller pie, or a smaller piece of the larger pie? In other words, do you want to be the only one in a small market, or one of many in a very large and active market.

While every brand may have a different (and wholly legitimate) way to arrive at a data-driven decision for these grey areas, the one thing we know for certain is that being the first or only one in a market gives a very clear advantage. While it doesn’t guarantee exclusivity in the long-run, there is significant value in establishing a market foothold with regard to the shopping patterns and social and retail connections that can pay lasting dividends. The value in this data comes from a clearer understanding of a store’s potential based on geography, traffic, demand and competition.