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Sep, 10 2010


WHILE surveying for an ideal location for your business, it is imperative for the prospective franchisee to do an in-depth market study.

WHILE surveying for an ideal location for your business, it is imperative for the prospective franchisee to do an in-depth market study. Before investing time and money in a particular venture, the franchisee must figure out the profitability of a site.

Rely on research

Before penetrating into any location, an in-depth market research should be conducted by studying chief indicators such as demographics of a particular city/town/state/region in terms of area, population density, residential density, per capita income, urban population, crime rate, literacy rate, employability, important cities, industry size of different retail segment and its growth, presence of national and international labels, quality of competition, weekly or monthly spending on various brands, desirable method of evaluating an ideal spot for business, customer traffic count in a location, accessibility by public transport, availability of adequate parking space, floor-wise property cost, etc.

Pradeep Hirani, Chairman, Kimaya Fashions Pvt Ltd, reveals, “In terms of location, we look at the demographic and cultural mix of the city/locality, population density, traffic generators in and around the site, competition and presence of complimentary service/businesses in the vicinity, security, availability of manpower, visibility and signage, economics of location (rent and lease related), traffic count and accessibility.”

Balvinder Singh Ahluwalia, President, Koutons Retail India Ltd, says, “We check out the demographic profile of that particular area, including population, sex ratio, education, lifestyle and majority of age group. We try to understand the economic condition of the people of that area, whether they are from upper, middle or lower income group.”

Identify target group

Know your target consumers and how brand conscious they are. Check how regularly they spend on retail products, is it in the start, middle or month-end. While doing research on site selection, the franchisor must study his target customers, their age groups, income profiles, tastes and preferences. “Our target group is largely in the age group of 13 to 20 years, most of whom are school/ college going. The target group is very choosy about the places they visit. Hence, the need to keep their choice of an ideal hang-out location for gaming is a must in our business,” explains Arun Mehra, COO, Zapak Digital Entertainment Ltd.\

Choose product type as per your retail format

Scrutinise the demand and salability of your product and find the right catchment area and adjacencies. In retail segments such as food and beverage, apparel, footwear, consumer electronics, gifts and greetings, jewellery, bookstores, entertainment and discount stores, the franchisor/franchisee follows a different criterion for picking out an ideal location and conducting research on the basis of their product type and their target consumers.

Seek advice from experts

Location plays a prominent role in retail business as Return on Investment (RoI) depends largely on it. Franchise consultants can provide you research data about the viability of a particular city or region.

  • The franchisee should always endeavour to consult his franchisor regarding the criteria they follow before choosing any location.
  • If a national-level player aims to strengthen his business in tier III or tier IV city, the franchisor may not have adequate information on the profile of that particular city/region. For this, the franchisor can make use of franchisee's knowledge to know more about the market in terms of target audience, income profile, competitors and optimum channels for heir growth.
  • The franchisee can also consult real estate brokers in this regard.

Cash in on closeness with competitors

Your closeness with competitors will indeed help you to benefit from their marketing efforts. For instance, some businesses like quick service restaurants often operate their stores in an area where their competitors also exist and eventually do better in areas where there is competition.

As per HUL’s spokesperson “Competitors' outlets located in an area spell higher probability for location visited by the target consumers. Usually, higher density of similar types of outlets tends to act as magnet, which attract large footfall. This is the ethos on which traditional as well as new malls work.”

Pavan Gadia, Vice-President, Ferns N Petals, says, “To open outlet in a locality where the competitor already exists is purely a business decision to take advantage of the existing client base. Moreover, competition results into better services and product, apart from competitive prices. It also attracts more customers as they get a variety to choose from in the same place.”

Ahluwalia adds, “You cannot escape competitors at any place in the world. If an area contains the population that has got good buying capacity, then obviously all brands would compete to open their stores in that area.”

“In my opinion, competition is not a pressure but an opportunity to prove your versatility if you have a strong product/service and have done your groundwork well,” elucidates Hirani.

Jay Gupta, MD, The Loot Store, states, “If various brands open in one locality, it will lead to increase in the overall footfalls in that location. A new market can be created and this will be beneficial for all.”

Review footfalls

Before finalising the site, the franchisee must study the consumer footfall. S/he should try to look at the customer traffic patterns, especially on weekends or on a regular basis, to figure out the profitability of a space in that market. Franchisees can check out the type of customers who often come to shop and can also assess the financial bracket they come from.

Product visibility

The franchisee must look for high visibility areas with good customer traffic and ample parking space. Your brand should be easily accessible by public and private transport. Gadia says, “Visibility of store is again an important factor while selecting a new outlet. It should be close to residential or commercial offices to increase day-to-day sales. The area should have proper parking place too, because these days Delhi is at miserable stage in terms of parking.”

Space availability

Depending on the space availability, The Loot store stocks its categories in four distinct formats. If the store space is 500 sq.ft, it will be a category store catering to just one category like men's casual, if it's an extra large format store, it will include all categories, including home linen.

In case of Kimaya, space availability and location of the store in any city changes for sure, but the degree to which it changes is variable. For example, Kimaya stores in Delhi have diverse formats. The one in Emporio is very different from that at Saket, Ambience mall and Mehrauli. Also, the stores in Mumbai work on a different layout as compared to Kimaya in Chennai or Bengaluru.

Distribution channels and retail locations

Based on space availability, the franchisee can open his outlet through different retail distribution channels such as carts, kiosk, shop-in-shops, exclusive brand outlets or multi-brand outlets, which will help you boost your business.

For location, explore the number of malls, high streets, IT parks, BPOs, metro stations, hotels and airports. Also ensure that location should be within your means, spacious enough and where you can expect maximum footfalls.

Evaluate the property cost:  The franchisee must consider the real estate cost for opening small size or large format stores in varied locations. Chetan Shah, Country Head, Pepe Jeans India, informs, “Negotiate best with the landlords in terms of rent and don't just blindly accept the fancy rentals quoted by some landlords.”

Identify suppliers, manpower: Ideally, the location should be well-situated for your clientele, employees and suppliers without being too expensive. The franchisee must find out the suppliers near the location so that they are able to make quick deliveries on time and seek manpower.

After evaluating the location, the franchisee must consider the following points when it comes to finalising the deal.

Ask for exclusivity: If a franchisee wants to achieve success in any location, then he/she should ask for exclusivity, which means that he/she will have the authority to operate in one location, where no other franchisee would have any authority to operate the franchise of a same brand. For instance, Kimaya provides exclusive territorial rights to its franchisees and restricts itself from selling the same franchise concept to another in the same area. Gadia adds, “We do take care of exclusivity of franchise according to the policy because if we sell two stores too close, then it will cannibalise sales and cut into profitability of stores. So, we always keep a distance of at least 2 km between two stores to ensure profit and sales of the franchise.”

Gupta of The Loot store says, “We do not offer exclusivity but if there are plans for expansion in that region, we give existing franchisee the right of refusal.”

Taking permits for location: The responsibility of obtaining building and occupancy permits, business operation permits and other local licences and permits should be mentioned in the lease and in the contract with the contractor. Your lease with the landlord should contain the clause for allowing the use of premises for intended franchise.

Although it is the franchisee's responsibility of taking up the licence and permits, the franchisor also lends his support in getting the permission and licence from the government. Contrary to the statement above, HUL’s spokesperson says, “We help guide franchisees on various permits and licence required. However, the onus and responsibility of getting these approvals and meeting statutory compliances lie with the franchisee.”

Sunil S. Amre, Manager, Franchisee Operations and Business Development, Shoppers Stop Ltd (Crossword franchise), elaborates, “In case of franchise network expansion, we expect our franchisee to arrange all permits and licences. However, we extend our support and assistance in early execution and fulfillment.”

In case of Koutons, it is the franchisee's responsibility to take permit from the local authorities to run a business commercially in a specified store. The company does not get involved in this process.

Lease terms: When you enter into a lease agreement with the property developer, always make an endeavour to involve an expert to make you understand the lease terms. Typically, a lease agreement depends on the location, store size, duration and amenities being offered to the franchisee by the property owner. As it takes usually one to three year's time to reach the break-even period, it is advisable to go for a long-term lease agreement. Sumit Sharma, General Manager, Franchisee Management, Next Retail India, informs, “Before finalising the deal, the franchisee must sign a long lease term of at least nine years with the landlord.”

For example, Ferns N Petals guides its franchisees to look for important aspects like to get the lease period extended for at least up to five years or ask for grace period for fitouts, etc. The franchisees are advised to ask for basic parameters from his/her franchisor for site selection. The franchisee should also be able to get all utilities like water, electricity, etc, installed on the premises.

Negotiating and finalising the property: Most of the franchisors not only help in choosing the right location but also assist in negotiating rentals, other terms and conditions and even closing the agreement with the landlords. Hirani believes, “The franchisee must look into the economics of location, which includes rent, the percentage rent clauses, common area maintenance, real estate taxes, landlord insurance, etc. The franchisor usually sends one of their operations support staff to verify the acceptability of the site. Finally, the negotiation and finalising of the lease agreement is to be done with help from the franchisor and an experienced attorney.”

“Usually all organised retail space is negotiated by us. However, lots of locations are also directly negotiated by franchisees. In such cases, we help them close the deals or advise them on prevalent rentals,” says HUL’s spokesperson.

Amre of Crossword says, “We ask our prospective franchisees to shortlist five to six properties so that they can themselves analyse and pick the best possible location for their brand expansion in the city.” The Loot Store has a databank of properties and it helps the franchisees in selecting the location. At the same time, it also plays an active role in negotiating for property.

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