How to Select the Best Retail Location
In Retail, success is all about location, location, location. We all 'know' this, and yet the majority of tea shops are in terrible places. The problem is one of experience and perspective. Understanding the profile of your typical customer is crucial, as it helps in projecting their buying preferences and behaviors. Many tea entrepreneurs incorrectly assume that their customers will behave like them, forgetting that they are a unique group. So, what might be the 'perfect location' for your store, and how can you avoid making mistakes in your selection?
The perfect location for a retail tea shop is one where there is a significant concentration of consumers who are primed to shop. An ideal example is several women meeting in a retail shopping area to spend the day shopping. They browse from store to store, stop for lunch, and then resume their shopping. The purpose of the trip is not to buy anything in particular, but to shop! For these customers, shopping is the target activity, and they are intentionally seeking new and engaging shopping experiences and new and interesting products. This is not to suggest that women are the only customers of a tea shop, but merely to paint a vivid picture of the consumer mindset that will make a tea shop most successful.
Let's agree that the ideal location is surrounded by consumers who are primed to shop and looking for new and interesting stores. It is easy to exclude the vast majority of retail locations. It's essential to avoid making up scenarios to justify a particular location, as it can lead to poor decision-making. Instead, simply ask yourself which shopping areas are well known for attracting throngs of people who are not going to a specific store and are not running errands, but instead are going to shop!
Most tea entrepreneurs will quickly agree with this ideal scenario, but then will cite several myths as justification for choosing the lesser rents or the closer proximity of secondary locations:
Myth #1: Tea lovers will find me. There are not nearly enough tea lovers out there to support a retail store. According to a study by Mintel, 75% of US households purchase packaged tea products at some point each year. 15% of those purchase loose tea. That gives you roughly 11% of US households that have purchased loose tea in the past year. While there are certainly tea lovers who only drink bagged tea, it's a safe assumption to say that MOST "tea lovers" purchase at least some loose tea, and so we use this 11% number as an estimate for the percentage of "Tea Connoisseurs" in the US population. A fraction of those will care enough about tea to go out of their way for a Specialty Tea shop. About 5% of the US population is sufficiently interested in tea to visit a Specialty Tea shop if it's near their destination, and likely 1% of all consumers will travel specifically for a Tea Shop.
Myth #2: I'll drive traffic through advertising. Advertising will help, but you should consider it a strategy of last resort, not a primary path to success. Advertising very rarely gets people interested in something they don't already buy, so you're only advertising to 11% of the population. Even then, the majority of those who might be interested in your offering won't respond. (What percentage of advertising do you see is for something that you buy over a year? What percentage affects your buying behavior?) The rule of thumb in marketing is that a consumer needs to be exposed to a marketing/advertising message an average of 16 times before they notice and react. (How much advertising can you afford?)
Your best form of advertising is a well-placed storefront! Suppose you are located in a shopping area where consumers go and are already predisposed to shop. In that case, you are effectively advertising to people who are in the right mindset and already within sight of your store. Spending an extra $1,000 a month on rent to be exposed to more shopper foot traffic is far more effective than spending those same dollars advertising to people that may or may not care and may or may not ever visit the area where your store is located.
Marketing is a key tool for creating customer loyalty and keeping people coming BACK to your store. Every tea shop should have a marketing budget! However, it's essential to understand that marketing is ineffective for attracting new customers. Setting realistic expectations in this regard can help you allocate your resources more effectively.
Myth #3: I'll pick up customers from traffic to X. You might be counting on high volumes of foot or vehicle traffic to high-end grocery stores, restaurants, theaters, gyms, salons, yoga studios, business centers (commuters), and tourist attractions. Regardless of whether or not the customer walking by is your target customer, you should dramatically discount any form of traffic that is not focused on retail shopping. The explanation is straightforward: if you are on your way to the grocery store, the movies, dinner, the gym, the salon, or work, how likely are you to see a cool new tea shop and stop in to check it out? You need traffic that is primed to shop! Tourists may be more valuable than some of these other forms of traffic, but only if they are doing touristy activities that are conducive to carrying shopping bags. People who are sightseeing or on their way to the beach are unlikely to walk around with a bag of tea and a teapot.
Vehicular traffic is worth even less. Most people drive past stores every day that they've never actually noticed, and the likelihood that someone will see a new store and stop in on impulse is extremely slim. In fact, high vehicle traffic may actually depress your sales because all the noise and commotion are likely to deter the type of relaxed foot traffic that will stop outside your window and take note.
The simple truth is that your rent will likely be between 10% and 25% of sales*. You need to view rent as buying customers. If you can double your foot traffic and sales by doubling your rent (while keeping many other costs steady or rising only slightly), then why wouldn't you? Don't take the risk of a secondary location! Your odds of covering your expenses from the day you open are significantly better if you open in a prime shopping location than in a secondary one, and it takes months to build a customer base. Decide for yourself which of these theories applies to your future location:
Theory #1: Select a location with no real competition (where no one is selling products of your caliber or offering an experience that rivals yours), and you can attract all the specialty tea drinkers.
This is the most common approach to selecting a location for a tea shop. Except for ethnic communities, it is rare to see several tea shops nearby. There is a large potential customer base in just about any market that is currently underserved, but developing a market is often slower and more expensive than offering a more competitive product to an already established customer base.
Theory #2: Position yourself near a perfect competitor, and you create an even bigger draw for your product or service. Tea lovers will come from farther away because there are TWO great tea shops to visit. The apparent boom in popularity of premium tea will entice the curious novice.
Theory #2 is rare in the tea industry, but is ridiculously common with good restaurants, clothing stores, and boutique shops in general. Consumers like to go somewhere that offers a "critical mass" of whatever it is that interests them. Customers like choices, and so long as what you are offering is genuinely competitive in terms of quality, price, service, and experience, you'll do just fine.
The perfect location for a retail tea shop is one where there is a significant concentration of consumers who are primed to shop. An ideal example is several women meeting in a retail shopping area to spend the day shopping. They browse from store to store, stop for lunch, and then resume their shopping. The purpose of the trip is not to buy anything in particular, but to shop! For these customers, shopping is the target activity, and they are intentionally seeking new and engaging shopping experiences and new and interesting products. This is not to suggest that women are the only customers of a tea shop, but merely to paint a vivid picture of the consumer mindset that will make a tea shop most successful.
Let's agree that the ideal location is surrounded by consumers who are primed to shop and looking for new and interesting stores. It is easy to exclude the vast majority of retail locations. It's essential to avoid making up scenarios to justify a particular location, as it can lead to poor decision-making. Instead, simply ask yourself which shopping areas are well known for attracting throngs of people who are not going to a specific store and are not running errands, but instead are going to shop!
Most tea entrepreneurs will quickly agree with this ideal scenario, but then will cite several myths as justification for choosing the lesser rents or the closer proximity of secondary locations:
Myth #1: Tea lovers will find me. There are not nearly enough tea lovers out there to support a retail store. According to a study by Mintel, 75% of US households purchase packaged tea products at some point each year. 15% of those purchase loose tea. That gives you roughly 11% of US households that have purchased loose tea in the past year. While there are certainly tea lovers who only drink bagged tea, it's a safe assumption to say that MOST "tea lovers" purchase at least some loose tea, and so we use this 11% number as an estimate for the percentage of "Tea Connoisseurs" in the US population. A fraction of those will care enough about tea to go out of their way for a Specialty Tea shop. About 5% of the US population is sufficiently interested in tea to visit a Specialty Tea shop if it's near their destination, and likely 1% of all consumers will travel specifically for a Tea Shop.
Myth #2: I'll drive traffic through advertising. Advertising will help, but you should consider it a strategy of last resort, not a primary path to success. Advertising very rarely gets people interested in something they don't already buy, so you're only advertising to 11% of the population. Even then, the majority of those who might be interested in your offering won't respond. (What percentage of advertising do you see is for something that you buy over a year? What percentage affects your buying behavior?) The rule of thumb in marketing is that a consumer needs to be exposed to a marketing/advertising message an average of 16 times before they notice and react. (How much advertising can you afford?)
Your best form of advertising is a well-placed storefront! Suppose you are located in a shopping area where consumers go and are already predisposed to shop. In that case, you are effectively advertising to people who are in the right mindset and already within sight of your store. Spending an extra $1,000 a month on rent to be exposed to more shopper foot traffic is far more effective than spending those same dollars advertising to people that may or may not care and may or may not ever visit the area where your store is located.
Marketing is a key tool for creating customer loyalty and keeping people coming BACK to your store. Every tea shop should have a marketing budget! However, it's essential to understand that marketing is ineffective for attracting new customers. Setting realistic expectations in this regard can help you allocate your resources more effectively.
Myth #3: I'll pick up customers from traffic to X. You might be counting on high volumes of foot or vehicle traffic to high-end grocery stores, restaurants, theaters, gyms, salons, yoga studios, business centers (commuters), and tourist attractions. Regardless of whether or not the customer walking by is your target customer, you should dramatically discount any form of traffic that is not focused on retail shopping. The explanation is straightforward: if you are on your way to the grocery store, the movies, dinner, the gym, the salon, or work, how likely are you to see a cool new tea shop and stop in to check it out? You need traffic that is primed to shop! Tourists may be more valuable than some of these other forms of traffic, but only if they are doing touristy activities that are conducive to carrying shopping bags. People who are sightseeing or on their way to the beach are unlikely to walk around with a bag of tea and a teapot.
Vehicular traffic is worth even less. Most people drive past stores every day that they've never actually noticed, and the likelihood that someone will see a new store and stop in on impulse is extremely slim. In fact, high vehicle traffic may actually depress your sales because all the noise and commotion are likely to deter the type of relaxed foot traffic that will stop outside your window and take note.
The simple truth is that your rent will likely be between 10% and 25% of sales*. You need to view rent as buying customers. If you can double your foot traffic and sales by doubling your rent (while keeping many other costs steady or rising only slightly), then why wouldn't you? Don't take the risk of a secondary location! Your odds of covering your expenses from the day you open are significantly better if you open in a prime shopping location than in a secondary one, and it takes months to build a customer base. Decide for yourself which of these theories applies to your future location:
Theory #1: Select a location with no real competition (where no one is selling products of your caliber or offering an experience that rivals yours), and you can attract all the specialty tea drinkers.
This is the most common approach to selecting a location for a tea shop. Except for ethnic communities, it is rare to see several tea shops nearby. There is a large potential customer base in just about any market that is currently underserved, but developing a market is often slower and more expensive than offering a more competitive product to an already established customer base.
Theory #2: Position yourself near a perfect competitor, and you create an even bigger draw for your product or service. Tea lovers will come from farther away because there are TWO great tea shops to visit. The apparent boom in popularity of premium tea will entice the curious novice.
Theory #2 is rare in the tea industry, but is ridiculously common with good restaurants, clothing stores, and boutique shops in general. Consumers like to go somewhere that offers a "critical mass" of whatever it is that interests them. Customers like choices, and so long as what you are offering is genuinely competitive in terms of quality, price, service, and experience, you'll do just fine.