Northern Tool + Equipment

Risk is part of life for the retail industry, and choosing locations for stores is one of the riskiest decisions we make. The costs involved with renovations or new construction are significant, and choosing an unsuccessful location can have a significant impact on the company’s overall profitability. Northern Tool + Equipment has enjoyed high overall success with our store location choices, and that’s largely because of the approach we take to our real estate decisions. 

Choosing locations for new stores isn’t simply a matter of finding available space in densely-populated areas. Simply having a large number of people living in the vicinity does not translate to having a lot of customers interested in the products we sell. 

In areas — those not heavily populated by do-it-yourselfers and tradespeople — we might consider ourselves fortunate if 10% of potential shoppers would patronize our stores. Clearly, that wouldn’t be a great recipe for success, so we must be deliberate about where we locate our stores, focusing not only on the usual retail considerations — visibility from high-traffic roads and highways, access, etc. — but also considerations unique to us. 

Demographics

We need a large number of tool buyers in the vicinity of our stores in order to attract paying customers. We particularly look for professionals; even in down economies, service businesses still need to buy tools! By researching the kind of shoppers in a given location, we can predict with confidence how well a new store will perform. 

Surrounding Businesses

In shopping center locations, we consider what other tenants are already there. We’re more likely to attract customers in centers that have auto parts and sporting goods stores rather than clothing stores. 

Needs-Based Suitability

Factors unique to what we sell also need consideration. For instance, we sell utility trailers, which means we need to be able to display them outside. Not all venues allow external displays, which helps us quickly narrow down possible locations.

Lease Terms

We also need to carefully check not only the terms of our lease but those of surrounding businesses. Some retailers have specific clauses in their leases which prohibit direct competitors from opening in the vicinity. Surprisingly, not all landlords are aware of these terms or disclose them if they are!

Ill-considered choices carry significant costs, while choosing wisely can make the new store and the whole company flourish.

These clauses can lead to enormous losses, as chicken restaurant Raising Cane’s discovered when building a new location in a mall in Indiana. They signed a 15-year lease, only to discover after spending over $1 million on their store that the McDonald’s on the property had exclusive rights to sell chicken at that location! They are now suing the property manager. That is, to put it mildly, quite a mess. It’s a perfect illustration of why due diligence often includes far more than just reading your own lease.

Cost Considerations

The pandemic changed almost everything, including store build outs. Because of ongoing supply restrictions, new construction takes much longer and is significantly more expensive than before COVID-19. This means many retailers, ourselves included, may favor renovating existing buildings over building new ones. 

But that, too, has nuances to be aware of. Not all pre-existing buildings are created equal! We recently built a store in a former Bed Bath & Beyond location. It took us only ten weeks to refit the store for our purposes. By contrast, we also opened a location in a former grocery store that took significantly longer. That costs more, both in the buildout and the delay in opening.

These are just some of the things retailers should consider when choosing new locations. Ill-considered choices carry significant costs, while choosing wisely can make the new store and the whole company flourish.