McHenry Market Pulse: Why doesn’t Trader Joe’s, Whole Foods, Mariano’s Fresh Market, Cabela’s…move into one of the Vacant Buildings and why did Wal-Mart move north to Johnsburg and K-Mart/Sears Grand and Target close their stores?????

When I started working for the City of McHenry 13 and a half years ago I contacted Olive Garden to see if they wanted to locate in the City of McHenry. I subsequently received a letter stating they were not looking at opening a restaurant in the City of McHenry any time in the near future. Fast forward to 2008…Olive Garden built their restaurant located in the Shops at Fox River Subdivision in the City of McHenry and recorded the largest grand opening of any Olive Garden restaurant nationwide.

What changed between 2001 and 2008 to make Olive Garden decide to open a restaurant in the City of McHenry? I am not exactly sure. The City’s population increased by 28% however the housing bubble was in the midst of bursting, and the economy and retail environment began to experience a sharp decline.

While this blog post focuses primarily on retail businesses future posts will focus on non-retail businesses: industrial, office and other service-related companies…because economic diversification is paramount to a community’s long-term sustainability and quality of life. Retail is one piece of the economic development puzzle…

Numerous factors traditionally have contributed to a retailers’ decision when considering opening a new store, expanding an existing store, closing or relocating a store… I say traditionally because economic development is dynamic, always evolving and businesses have to continually adapt to remain competitive…..The topic of how economic development has changed, the "retail experience” and challenges associated with e-commerce will be discussed in future posts.

Location, location, location…. and visibility, accessibility and marketability…Retailers are very concerned with facilitating appropriate access to and from their site; they want to maximize visual exposure and they want to be where their customers are and make it as easy as possible for them to get to their location…..

Socioeconomic, demographic, housing and traffic data...Similar to any business retailers need to maximize their opportunity to be profitable and successful…They know their business the best and therefore adhere to strict criteria when selecting locations. Retailers consistently monitor and collect information about their customers; where they coming from, what distance they travel, their shopping habits and what makes them likely to return.

(Examples: Collecting zip code information; conducting focus groups and consumer surveys, employing regional real estate brokers who continually evaluate regional/sub-regional markets, tracking consumer spending on-line, analyzing population, housing construction, income and traffic data, conducting retail trend analyses, monitoring the growth of other retailers and competitors who are changing their business model, entering new markets and/or closing stores)

They also closely monitor macro-economic trends (interest rates, consumer spending, geopolitical environment (nationally and internationally and anything which may impact their brand/product….

Trade/market area… Each retailer defines their market or geographic area from which (x) number of consumers will travel (walking and/or driving) to obtain their product or service and/or drive-by and buy their product/use their service.

They do this utilizing: population density, number of people living within (x) number of miles from a proposed location, number of vehicles which traverse a roadway each day at different times, income and socioeconomic data of those within the defined market area, daytime population (number of people during working hours/proximity to larger employment centers), as well as other retailers within the market.

Some retailers use drive times: how many people within this market area could drive to buy a product/use a service within (x) number of minutes, and others also use walking time/distances.

Recently, due to economic uncertainty, financing challenges, concerns about growing too fast, etc. retailers are extremely vigilant prior to entering a new market, particularly if they have stores in close proximity. Retailers do not want to locate a store and “cannibalize” an existing store which may be in an adjacent market.

"Retail cannibalization" refers to drawing consumers from one store to a newly opened store of the same brand. In this instance the retailer is making a major financial investment in opening a new store but not adding additional customers; but simply splitting an existing market between two locations.

Market absorption rate is a mathematical formula utilized to determine how long it will take for a market area to absorb a product, service, home type, etc. When a retailer is deciding where to locate a store they want to ensure not only if there is a market for their product or service but what the absorption rate is for that product or service is.

Retailers also consider similar stores when analyzing market absorption rate. Is there too much of product or service (x) within a market area? In this instance market absorption rates are critical as retailers do not want to enter a market which may be saturated or close to becoming so within a certain time period.

Often you will see the same stores in adjacent cities or within (x) number of miles of each other, and in many cities you will see the same store in multiple locations within that the City and you will also see stores in more regional locations: Why? Certain retailers have smaller trade areas, such as fast-food restaurants; others have larger trade areas due to the product or service but in either case retailers want to do whatever upfront legwork necessary to maximize their opportunity to be successful.

While these are still major factors, other considerations also contribute to a business’ decision on where to locate….Retail is continually evolving, companies are constantly evaluating their business model and analyzing their consumers base to remain competitive………

Why doesn’t Trader Joe’s, Whole Foods, Mariano’s Fresh Market, Cabela’s…move into one of the Vacant Buildings and why did Wal-Mart move north to Johnsburg and K-Mart/Sears Grand and Target close their stores????? To be continued...

Coming in future blog posts:

Does the City of McHenry offer incentives to attract new businesses to the City?

Importance of economic diversification: Is retail king of all business? Why office, industrial and other primary employers are equally and in some instances more important to a community than retail?

How do brick and mortar businesses remain competitive with on-line businesses?

What are Class A, B and C spaces?
Importance of a vibrant downtown to a community's economic well-being and quality of life...

Franchising? What is it? What companies offer it and what challenges are associated with attracting a retailer which operates exclusively using franchising?

Future trends in economic development: “market segmentation” “showrooming”; “pop-up” stores; “placemaking/third places” and “creating an experience”….