Around our area in Melbourne, every time a new apartment building is built, it just seems automatic that they place retail stores beneath it. Most are set up to be a coffee or food shop – and I can only ask: WHY?
Is it the developer pushing to gain the maximum revenue from the development? Or is it the council thinking they will be helping the community with more retail?
Around the Camberwell/Box Hill area in Melbourne, we have vacant spaces that have already cost people a fortune. Many of us think we are already overstocked with coffee shops and quick service restaurants. Yet this is what keeps coming up on offer. Unfortunately, the developers or their agents always find a small entrepreneur who thinks they can make a go of it. And then the problem just becomes bigger.
Case study #1
Opposite our office in Surrey Hills [Melbourne], a new three storey apartment block was built. Below it, the developer placed two large cafe/QSR food outlets facing Canterbury Rd and on the ingress side of the road. This meant that you pass them as you are heading into the City of Melbourne.
I have run many training courses for Site Selection for the FCA, and one of my basic rules is that food is more often purchased on the way home, rather than on your way to work!
Once the apartments were built, the first two tenants were a burger shop and a Greek yeeros shop – both very expensively fitted out. The yeeros shop lasted three months, and the burger shop around six months. The burger shop then became a coffee shop, which lasted another three months, and now both are vacant.
What has this cost the tenants, and the owners of the shops?
Case study #2
Maling Rd in Canterbury [Melbourne] is a trendy shopping “village”-style shopping strip with quirky retailers and independent coffee shops.
Recently, a set of apartments were built at the end of the strip. These have had a terrible history (leaks and other defects) and include two large retail shops below. So far, these have never been occupied, and it looks unlikely to change.
A decade ago, every new development seemed able to support a coffee shop below. But this is no longer the case. Post-covid, amid an economic downturn, the vacancy rate in shops has been growing.
Don’t think that just because your business is in a new development, demand will be built in.
How to pick a store location based on demand
To open a successful retail business, demand for the product needs to be proportional to the competition.
In the cases above, there is likely too much competition – i.e. from other hospitality venues in the area – and too little demand in the area. The assumption made by the developers and naive small-business owners is that the tenants living above the shop will all become customers. But of course, this is not necessarily the case.
One of the metrics we often use in area analysis for our customers is population/competition. In the case of a “coffee and cake” type of store, we often use the metric:
We can compare locations by dividing population by competitors. This does vary depending on what you are selling. For instance, say you own a “destination” business (i.e. a wedding dress retailer) that people are more willing to travel to. In this case, you are going to be looking at a larger population and competition radius.
In summary, do not think that just because a few people live above your new business opportunity, that is automatically going to supply the demand for your projected sales. Think about a much wider audience, and how competitive your product is to what else is available.
If you’re currently selecting a site for your small business, this article has more factors to consider.
