Sep 7
13:45

2011

Stew Spence

A trade area is a specific section within your target market that match the primary demand for a specific product or service.

Different ads are inserted into the classifieds of your local city newspaper (if it’s smart) for each appropriate neighborhood, since each area is considered a different market segment or trade area.

You can put an ad into the newspaper that’s delivered just six blocks away from your house, but it might not appear in your newspaper unless their demographics match what you’re looking for.

If you were building a brand new store or trying to buy a property, you need to know something about the viability of that area. You might be interested in the trade area for the various kinds of businesses that are, or will be, located where you are going to be building or buying and we’ve just discussed where you can sometimes get that data as a potential advertiser in your local newspaper classifieds— just ask them.

Many grocers determine the trade area for their store by using what is called the Radius Method. They draw three concentric circles around their potential site, a one-mile circle, then a three-mile circle, and finally a five-mile circle. Their theory is that you could count the households to determine how many people live in each radius. They also know how much money per year they sell to a household from a different source. They typically use the sales and marketing magazines, annual consumer price, or consumer retail surveys. They know the kinds of things that the average person within a specific Zip Code or even a census tract, buys in a grocery store.

An average household might spend something like \$500 or \$600 a month at the grocery store. Multiply that amount by the number of people who live in that area and then multiply it by 12 months. This formula provides information on their store potential, within the three circles surrounding their store. These companies have their own individual profiles.

For example, suppose you were a Winn-Dixie and you think you can sell to 85% of the people in the one-mile circle, not counting any competition. You also think that you might be able to sell to 29% of all the people in the three-mile ring not counting competition, and to 10% or 12% in the five-mile circle. You add up all those numbers, and if the number is \$27 million and you are going to build a 50,000 square foot store. Divide those numbers to arrive at \$540 per square foot. Since you are a Winn-Dixie, your standard goal is to have \$500 of square feet in sales when you open a store. So, you’re okay at \$27 million. However, if you could predict only \$13 million in sales, you wouldn’t go there.

Use Google’s www.freedemographics.com for sample demographics and you’ll get over 100 hits. You can also search Geographical Information Systems (GIS) for online information on drawing these circles. GIS reports from these sites can tell you how many people are in a specific area and even what their income level is. Although all this information is available, you don’t really need it to evaluate potential tenants for your retail property in our opinion. That’s because you don’t have to be as smart as the retailer. You just have to be smart enough to be able to pick the right retailers as your tenants— the ones who know what they’re doing (the ones that know how to determine their trade are)!

Stew Spence invites you to learn to earn high and even INFINITE returns investing in commercial real estate with a group (on money you used to have sitting in pathetic CD's at 4% or less) when you become a Select Member with America's #1 Real Estate Network today! Join us for an upcoming educational presentation to get information or to get started now: commercial real estate investing

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