Imagine you were going to going to open a business. Let’s say it’s a coffee shop that will try to attract college students and hip, young professionals. There’s an available retail space in a neighborhood that appears to have a lot of the target customers in it and the building looks nice enough. Is it a good location for your coffee shop? Will there be enough young, hip coffee drinkers in the area to sustain the business?
Obviously I haven’t given you enough information to answer those questions but, astoundingly, many people start businesses or open branch locations of existing businesses without much more hard information than what is provided in the previous paragraph. They trust hunches and casual observations when they should be doing some homework in the form of a demographic analysis before making a site selection decision.
Most people are aware of the term demographics and understand that it refers to the characteristics of the population in a given area—variables like gender, age, household income, etc. For commercial purposes “demographics” often becomes an umbrella term that also includes information about consumer spending and what are sometimes “usographics” (i.e., the usage of products or services, for example “bought car in past 12 months,”). This type of information is vital when assessing the suitability of many commercial sites. In the coffee shop example, it is important to know if there are 400 people in the target age range living within two miles of the site or if there are 4,000.
The good news is that demographic analyses are quick and relatively inexpensive. (In fact they are a true bargain when weighed against the cost of opening a retail business in the wrong location! ) A very basic analysis can even be done for free using U.S. Census data, but for a more nuanced, in-depth and specific analysis, one usually needs to buy syndicated data from a vendor such as Experian or Claritas. It’s also usually worth hiring an experienced analyst or consultant to do the work, as they will often have access to advanced tools like GIS (Geographic Information System) software that ties demographic data with advanced mapping technology. Also, an experienced commercial demographic analyst will often have insights on what a realistic market area might be for a given type of business in a specific type of area, for example, the drawing power of a furniture store will cover a much larger geography than a take-out restaurant and the distance people will travel to either one will depend on many other variables.
It should be noted, that in many cases, this type of information is available through commercial real estate brokers. But one should always keep in mind that those brokers are in the business of leasing property and the demographic data they provide will naturally paint the location in the best possible light. The information they provide prospective tenants is for marketing purposes. The data will usually be accurate, but probably won’t tell the entire story. The best advice we can offer is to pay attention to such data, but to do your own analysis to supplement it.
Data-driven decisions are always better than flying blind and operating on unproven assumptions. Getting hard unbiased data about the demographics of a market before making the investment in a bricks and mortar location is a prime example of how a small investment of time and resources upfront can avoid the costly mistake of picking an unsuitable location.