Reference no: EM132643928

In contrast to large national chains that prefer one hundred percent locations, many smaller retailers seek out lower quality locations. Let us examine the retail site location strategies of Wireless Toyz (www.wirelesstoyz.com), a retailer of all brands of cellular phone service and accessories, as well as satellite television, and Downtown locker rooms (www.downtownlockerroom.com) (DTLR), a retailer of fashion apparel, shoes and music aimed at 15-25 years-olds.

Wireless Toyz seeks corner locations at busy intersections. According to Richard Simtomb, the retailer's vice-president of franchise and real-estate development, "We are looking for location in middle class, predominantly blue caller neighborhoods with a minimum population of 50,000 people within the trade area and positioned at intersections with daily traffic counts of at-least 50,000 vehicles." Unlike other retailers, however, Wireless Toyz will acquire locations in poor conditions or locations requiring significant renovation, such as a vacant former gas station.

An average Wireless Toyz occupies 1,500 to 2,500 square feet. In some cases, the franchise or the firm will lease larger retail space, around 4,000 square feet, and then sublease half of the space to the retailers. While Wireless Toyz can use location of less than one half acre, a location of this size is generally too small for drugstore chains or coffee shops such as Starbucks. And while Wireless Toyz will consider corner locations in strip shopping centers, it will not lease store located in the middle of the strip centers or go into centers with Wal-Mart or Target as anchor tenants.

In 2004, Wireless Toyz expanded from 27 to 63 locations. Over 100 new locations are planned as it expands from 12 to 19 states. In 2004, same store sales increased 30% per year for the third year in a row. Its average store has $900,000 in annual gross sales.

DTLR is currently seeking 3,500 to 4,000 square foot locations in the Mid-Atlantic States and in metropolitan markets. DTLR does not favor college towns due to the low disposable income of many students. The retailer's director of community and corporate outreach says that, "The biggest challenge we face in real-estate are, first finding the best location in the marquee mall or strip shopping center, and second dealing with the exclusive clauses that other tenants may have in place to prevent us from entering the shopping center. " While DTLR welcomes competition from national chains, many national chains seek to limit the retailer's growth through these restrictive lease provisions. Over the past five years, DTLR has grown from 18 to 40 stores and plans to grow by adding 10 new stores each year.

Commercial Net Lease Reality (www.cnlreit.com) (CNLR) is a real-estate developer that performs fee development projects for many small retailers. In contrast to built to suit projects where CNLR owns the land and building and then leases it to a retailer, in fee development, a retailer pay CNLR a fee to manage project in which the retailer owns land and building. The fee development approach minimizes the developer's risk, while it provides depreciation and capital gain opportunities for the retailer.

QUESTIONS

1. Discuss the pros and cons of the use of lower quality locations by small chains in contrast to the use of one hundred percent locations by larger chains.

2. Evaluate Wireless Toyz' site selection strategy.

3. Describe the pros and cons of ownership versus leasing for a small retail chain.