Retail location analysis: compare store opportunities

Retail location analysis compares proposed stores on the sales they could support and the contribution left after running them. Start with supplied catchment summaries, documented sales assumptions and comparable rent quotes. Calculate every site on the same basis, then test whether a weaker sales outcome changes the decision.

This comparison starts after candidate sites and market summaries exist. It supports a commercial decision without collecting demographics, drawing catchment maps or valuing property.

1. Put the evidence and assumptions in separate columns

Ask the real estate team for each site's catchment boundary, source date, household count, relevant category spending and competitor summary. Ask finance for the proposed occupancy costs and a consistent treatment of variable and fixed operating costs.

The Small Business Administration's market research guidance identifies demand, market size, customer location and market saturation as questions to investigate. A household total is background evidence; it does not establish that those households will buy from your store.

The Census Bureau's demographic and economic reports can support research on selected areas. Keep the original report and geographic definition beside any supplied summary. A ZIP code, a drive-time catchment and a city boundary describe different populations.

For each input, record whether it is observed, quoted or assumed. Capture rate is the assumed share of relevant category spending the store would win. It needs support from comparable locations and competitive conditions, rather than being adjusted until the site looks attractive.

Broader sales and stock measures belong in retail analytics. This worksheet isolates the assumptions behind the proposed location.

2. Build a consistent annual comparison

An illustrative US homewares retailer is comparing Maple Plaza and River Center. Both estimates cover a full stabilized operating year. The category-spending figure is a supplied estimate for the same merchandise category and year at both sites; these are illustrative inputs, not published market statistics.

Use columns A through H for the following inputs, with the sites in rows 2 and 3. Contribution rate means sales less merchandise and other variable selling costs, divided by sales, before the site fixed costs shown here.

Other occupancy costs include the assumed common-area and property charges. Other site fixed costs cover the stated staffing and operating schedule. Exclude any item already deducted when calculating the contribution rate. The contribution margin ratio explains that separation.

Enter these spreadsheet formulas in cells I2 through N2, respectively, and fill down:

=B2*C2
=I2*D2
=J2*E2
=SUM(F2:H2)
=K2-L2
=(F2+G2)/J2

Here I is annual category spending in the catchment, J is estimated sales, K is contribution before site fixed costs, L is site fixed costs, M is contribution after those costs, and N is the occupancy-cost ratio. Format D, E and N as percentages.

Maple's sales are 10,000 × 1,200 × 6.0% = $720,000. Its contribution is $288,000 less $240,000 = $48,000. River's smaller market still produces more contribution after fixed costs because its occupancy costs are lower under the stated assumptions.

Dollar figures are rounded to whole dollars and ratios to one decimal place. The check is contribution after fixed costs plus fixed costs equals contribution before fixed costs: $48,000 + $240,000 = $288,000 for Maple, and $58,800 + $210,000 = $268,800 for River.

3. Test the downside before choosing a site

Change only estimated sales: assume they are 20.0% lower while the contribution rate and site fixed costs stay unchanged. This is a sensitivity case, not another measured forecast.

In cells O2 through Q2, respectively, enter:

=J2*(1-20%)
=O2*E2-L2
=L2/E2

O is lower-case sales, P is the resulting contribution after fixed costs, and Q is annual break-even sales.

Maple falls below break-even; River remains above it. At break-even, $600,000 × 40.0% = $240,000 for Maple and $525,000 × 40.0% = $210,000 for River, exactly covering their respective fixed costs. See locational break-even analysis for a fuller cost-volume comparison.

This ranks two supplied opportunities. Finance still needs a separate opening investment and cash review, while real estate must resolve lease and physical conditions. The expansion owner should also check transfers from existing stores before treating the projected site contribution as incremental company profit.

Where retail location analysis goes wrong

• Boundaries change between sites. A larger geographic area can inflate a market comparison. Keep catchment definitions explicit.
• Capture is presented as fact. Category spending is not store sales. Record the evidence supporting the assumed share and challenge it independently.
• Occupancy charges are incomplete. Rent alone can omit material common-area, insurance or property charges. Use the same scope at both sites.
• Costs appear twice. Deducting variable costs through the contribution rate and again as fixed costs understates contribution.
• The opening year is called stabilized. Ramp-up sales, setup costs and timing differ from a full operating year. Keep them in a separate case.

Compare your proposed sites in Covirage

Bring a sample of your own site comparison file with supplied catchment figures, rent quotes, cost assumptions and sales scenarios. Covirage maps the columns, and its tools compute and check the financial comparisons; the external AI model explains the results with every figure traced to its rows. Create a free Covirage account and bring your file after setting up your business.

See analysis of spreadsheet files for the supporting business use case.