Analyzing how other businesses affect yours will help you decide your optimum choice of Tucson retail space for lease.
In competitive markets, whether in Tucson or elsewhere, the best locations for your Tucson retail space for lease generally have moderate competition and high demand. Low competition may produce a big success but usually has increased risk.
Competition not only depends on the site of your business. Image is important, including
- market presence
- perceived quality of the product
When you have a strong image, high competition may improve sales. A weak image may suffer greatly even from moderate competition.
Direct competition comes from businesses whose theme, merchandise, food or target customer is similar to yours. Direct competitors essentially compete for the same dollars within a trade area.
The reason your business is selected over a direct competitor might include
- habit or preference
- perceived quality
- the V-factor, the tendency for customers to seek out variety, especially in dining habits.
True direct competitors tend to divide the market, each getting some proportion of the demand within the trade area.
Indirect competition comes from stores that sell your food, merchandise or service as a small part of their overall business.
For instance, a grocery store that has a limited selection of office supplies is an indirect competitor for an office super-center. WalMart is an indirect (as well as direct) competitor for most retail businesses in a small town.
Indirect competition also comes from stores selling goods similar to your store, but with a different theme, price, quality level or selection.
The question of direct versus indirect competition is especially complex for merchandise because many retail stores, from discount to specialty, will carry some of the same merchandise.
Adding to an already complex issue are
- pressure from franchises to keep the impact on their existing stores as low as possible
- strategic questions based on your expansion plans in the market
- general myths associated with cannibalism and its overall impact on sales.
Cannibalism is a strategic issue because it is impossible to build out a market without cannibalizing operating stores. Lower sales are expected in existing stores as you open new stores and make the gradual transition from a destination to a convenience business.
But the effect of dividing competition among your stores is considered positive because it usually is an indication of market presence or even dominance rather than a poor development strategy.
The exception would be the rare situations where you unknowingly wipe out an existing store by opening a new one with a much stronger strategic position.
In general, the effects diminish over time. Even if they do not, in some cases it may be strategically wise to maintain a minimum level of cannibalism as you seek Tucson office or retail space for lease to be sure that you are not leaving gaps in the market.
From a market perspective, you goal may be to dominate the competition by saturating the market with your store. In such a case your major concern is not individual store sales, but the total dollar amount extracted from the market. The same considerations apply even if you are building only two stores in the market.
For a healthy business, new customer sources driven more and more by convenience factors will replace destination customers lost through cannibalism.
When considering the impact of cannibalism on a Tucson retail space for lease, be certain to frame the discussions in terms of profitability, not overall volume. This may change your mind.
Competition Levels of Retail Space for Lease
No Competition. Having no competition can mean the best of times or the biggest of blunders. In any case, it is almost certain to involve some risk.
No competition can be a slight plus when your concept is familiar and established. It is a definite plus when the trade area has at least moderate demand for your product and your concept is successful in similar markets.
No competition can be a negative when it is relatively untested, either because you have a new concept or you are entering new types of markets. Use caution when considering sites with no competition.
Low to Moderate Competition. A site with little or moderate competition helps draw customers into the area, as do non-competing businesses.
High Competition. In a healthy market, additional competition helps to meet the strong demand. Once the market is saturated, however, any additional competition
- reduces sales for all similar stores
- adds little drawing power
- reduces the number of customers per business.
In saturated markets with strong competition, consider your
- market presence. You have a safety net if you are an established concept in the market. New concepts should beware in very competitive locations.
- strategic position. A strong strategic position is invaluable in highly competitive areas. It is always worth the extra investment after a year or so.
Trade Area Impacts
The business cluster defines the immediate trade area for your store. The cluster may be
- other businesses in a strip center or an out-parcel near the center
- a loosely aggregated group of businesses surrounding a mall
- another grouping of retail/restaurants contiguous or connected in some other way.
Balanced retail areas, ones offering a variety of shops, dining and services, often do better than areas with a limited number of similar retail outlets.
The retail area has a local demand of people who live and work near your store. You must determine if there sufficient local demand to support you and the competition.
The retail area has some potential to draw customers from outside the immediate trade area.
When determining whether a Tucson retail space for lease site is competitively strategic, ask yourself these questions:
- If the local trade area is not adequate, does the retail area have sufficient drawing power to support the existing competition plus your concept?
- If you sum the trade area potential and the expected drawing power outside the trade area, do you have enough potential customers per competitor to be successful?
- If you divide the total demand by the total number of competitors, would your share be adequate for a profitable store?
- What are the volumes like for other direct competitors in the area? If these are below average, the supply/demand curve is most likely on the declining side. Can you tolerate below-average sales?
In the final analysis your job is to make a judgment call on the impact of competition. This analysis can be helped with
- statistics on consumer dollars spent per person for your product.
- common sense and a little hard information about how well competitors are doing.
- knowing where this site will be on the supply/demand curve and whether you can tolerate even more competition in the future.
Commercial Real Estate Group of Tucson can provide the analysis you need to determine the business competitiveness of an area. Contact the tenant representation company to learn more.