Page 106 - DMGT550_RETAIL_MANAGEMENT

Unit 6: Financial Strategy and Retail Locations

1. Physical constraints: Does the site have difficult topography? Are the soil conditions such Notes
that blasting will be required? A review by a geologist will quickly assist in determining
whether the soil conditions will result in any unusual site costs. Are there any easements
or rights of way that will affect access or use of the site? Do a title search earlier rather than
later to identify any potential negotiations with additional third parties.
2. Conservation issues: Are wetlands on the site? Are they regulated by the state or federal
government? Is the site in an established flood plain area? Reviewing local or county soils
and flood plain maps will reveal these facts. Additionally, if you suspect that the site may
be home to some rare species of plant or animal life, consult with a qualified botanist or
biologist to avoid any surprises.
3. Environmental dilemmas: Phases I and II audits may be warranted on the site-certainly
any financial institution will require a preliminary study. Understanding state and federal
environmental protection laws is important; however, be sure to include the reporting
criteria from your lender in any requests for proposals to environmental review companies,
because many of their guidelines now go beyond state or federal regulations.
Assembling a qualified and experienced team of professional consultants is critical to the success
of any project. Site selection and development focus on managing the process versus monitoring
the transaction.

The Players
In addition to the developers, professional consultants, brokers, and tenants, today communities
themselves are very much a part of the success or failure of proposed retail projects. Citizens are
more educated, sophisticated, and involved in the development of their communities. Organized
grass-roots efforts opposing retail projects are no longer the exception but the norm. Community
public relations is an important early step to identify opposition groups and potential objections
so that issues can be negotiated and projects are presented in a manner that will win all necessary
approvals. Satisfying the concerns of the municipal planning and zoning boards is critical;
however, the potential always exists for a “change of heart” by one board member as a result of
pressures from organized, vocal opposition-which could prove fatal to a project. In a few areas,
the competition among tenants has created direct or indirect opposition for projects-an expensive
lesson to learn and too often overlooked by developers.
Increased site costs, costs to development of community opposition, high land prices, and
changing tax laws, including the new impairment standard (FASB Statement number 121) and
IRS Section 263A (capitalizing unimproved land development costs) have contributed to rising
project costs. As a result, many retailers have found themselves in the development business to
maintain already thin profit margins and meet their objectives for new locations. Other new
players in the site development arena include real estate investment trusts, which will continue
to see mergers as shareholders demand favorable returns.
The changing rules of retail raise as many questions about site selection as they answer. For
instance, what will happen when category-killer retailers finally “kill” off each other? Will we
see a vast landscape of big boxes waiting for redevelopment? Will cyber retailing live up to its
hype and actually decrease the need for retail space? Consider the coming decrease in disposable
income-expected to drop off after 1996-as well as the compression of the retail cycle (concepts
that once took 10 years to mature now fade after five or six years).
These are the factors that will continue to influence retailers in their search for perfect locations.
Flexibility and preparedness will aid savvy developers and brokers in staying one step ahead of
the game.

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