The two most critical elements in creation of the first store are location and the presentation of store design. Because location is so important to the first store, this chapter concentrates entirely on this topic. Store design and related issues follow in the next two chapters. Too many people treat their first store almost as an orphan, thinking that a “good enough” site is in fact good enough to get started. You should be disciplined in your search for the best location to open your first store. I have met many entrepreneurs who say that they specifically selected an “off-target” location because they wanted to be able to perfect the concept quietly before presenting it to the market. Nonsense! In these cases, the rent is lower, but so what? You still must pay your employees and your operating costs, as well as the rent, lower or not. The only thing you are likely to “perfect” in a sub-par location is bankruptcy. Rule Number One is: Always open your first store in the best location. Rule Number Two is: See Rule Number One. You should be disciplined in your search for the “best” location. Your objective is to find a Grade A site in a Grade A trade area that generates the right kind of traffic, offers great visibility, and has good aesthetics.

Later chapters go into great detail about methodologies to develop the criteria to obtain “A” properties. The point to make now is that there is more to a good site than just a property's X and Y coordinates on a map. Too often in retail real estate, people think in a literal, two-dimensional way. They speak of “the site at the corner of so-and-so.” You would think they were targeting a cruise missile. To separate myself from the two-dimensionalists who speak of siting, I speak of locationing, which defines real estate in terms of branding.

Locationing is the combination of the location of the site itself and its physical layout and characteristics—the specific feel of the surrounding area, the physical presentation of the building to the street, and the way the building and the site will present your business to the customer. Locationing encompasses all the components that enable you to create something physically unique and special for your concept. The examples that follow in this chapter about locationing show the many opportunities to find good properties to establish great brand positioning or to modify properties to improve the brand positioning of the site—that is, to create a brand-building location of an otherwise unremarkable site.

When it comes to locationing, people tend to stumble. Having ideated their concept, they rush to complete the first step toward opening a store, that of securing a location. Staying disciplined is the key to doing this step right. When searching for your first location, establish your site criteria and do not waiver from meeting them. Because by definition your first store must be a flagship store—a store that establishes your brand—it is imperative that you put your money into a location that creates a marketing buzz in the community. If you have a new on-trend concept, your flagship store or the initial group of stores needs to be located in the market's core business district (if it caters to business), or in an area that has “influentials,” such as individuals with high per capita income, professors in a college town, or trend-setting young singles.

Sometimes landlords, recognizing the benefit of having an intriguing new concept in their building (or just wanting to lease the space), will make a persuasive offer. To lure you into the space, landlords might offer such terms as a large tenant cash allowance to pay for the store build-out or a lease with overly generous and lenient terms. No buyer would knowingly order the wrong product when buying merchandise for a store because the payment schedule was more favorable than the product needed. Neither should a retailer settle for a less than ideal store location because of a “good” lease offer.

People also trip up because they do not think they can afford to pay the higher rents for the better locations. In actuality, you cannot afford not to pay the higher rent to get the best location. Securing a great store location is always difficult. In a good economy, finding the perfect available location is a daunting and arduous task. A growing economy creates a landlord-driven leasing market, just as it drives a seller's market in residential real estate. Do not let this difficulty deter you. Saving 30 percent on rent is meaningless if poor storefront visibility and low pedestrian traffic limits the concept's potential sales over a ten-year lease. Short-term thinking on the cost of rent leads to long-term disaster on store revenue. Being even a few doors away from the perfect store location may have serious consequences. One final strategic reason exists to grab the preferred location. By leaving the best place open, you run the risk that a competitor might take it one day and out-position you, like a military force securing the high ground for strategic purposes.

Assume that you are considering two locations for your first store. The two are identical in terms of demographics with equal traffic during different day-parts, and so on—both have the usual attributes of a good potential site (without considering the previous attributes of locationing). One site is in a strip mall set back from the street with all the cookie-cutter aspects of typical strip building design: metal doors, anodized aluminum window frames, stucco exterior material with a four-foot high fascia for signs. (The fascia is the location on a building's storefront elevation where a tenant's sign is mounted. The façade is the front or main face of a building.) The other location is a former bank building. Built in 1940, the classic building has a unique architecture and high-quality detailing. The interior has vaulted ceilings and plaster walls. Assuming it fits with your concept, good taste says you would choose the bank. Good business would confirm that decision, even if it costs more money to convert the bank building to suit your new concept's presentation than it would to convert the strip-mall site. The consideration is how the dull conventionality of the strip mall will be perceived from the outside versus the timeless grace of classic unique architecture. The retailer must ask, “How will the customer first react upon viewing and approaching the store by car or foot?”

Properly executed, a strip-mall storefront can adequately present the brand, but it is not usually the best choice of locationing to distinguish your brand and establish your unique presence. In Woodinville, Washington, for instance, a small restaurant known as Italianissimo developed a loyal local dinner clientele, but because of its location in the corner of a strip mall, the establishment never became the place to eat. Eventually, the restaurant moved about half a mile away into a new, elegant little center in which it was the primary or anchor tenant. Now, the restaurant is jammed on weekends. It is a place where people want to come. (The owner was clever enough to keep the old location as a bistro for light fare.) You need to ensure that your first store is in a location that presents your brand to the customer in a way that differentiates your business and its offerings. The first store location is as much about exterior aesthetics as it is about being on a great intersection and having great co-tenants.

I confess that I am partial to good architecture and stylistic classic buildings with clerestory glass storefronts and humanly scaled detailing. Starbucks was growing at a time when regional banks were consolidating. As a consequence, many banks closed branches all across the country. We converted more former bank spaces into coffeehouse/general retail use than any other company in the world. If we had shipped all the vault doors back to Seattle, we could have opened a museum. (I wanted to preserve the vault doors in some way, and we talked about converting them into tables to use in the coffeehouses; however, bank vault doors made of lead and steel were not designed to be moved easily. It would have cost at least $5,000 to remove and re-set each one! So we typically sealed them open and designed the former vault spaces to be used for storage or, in a few cases, for secluded seating areas.) Many banks had been remodeled and updated in the 1950s in ways that covered up the original quality detailing and design of the buildings. It was always an adventure to peel off the existing layers to rediscover the underlying architecture. It is amazing to see what you can find beneath surfaces in older buildings that have been “modernized” over the years—too often in inexpensive or tacky trendy ways. At one early Starbucks store in New York, we stripped away several layers of dropped ceilings and a number of interior wall layers to expose the original brick walls. We used this unique character and refinished the wood floors to create a warm, comfortable, open sitting area on the second floor. We added an eclectic collection of tables, chairs, and couches from garage sales in New Jersey. The total cost of the furnishings was $1,200, keeping the price of authenticity within reason. Part of proper locationing is choosing a building so that, on opening day, your concept looks and feels to the customer as though it has been there for years.

As important as it is to respect the architecture of the building, it is equally important in urban locations to respect the neighborhood that surrounds the store. The store will be more successful if it is an integral and intimate part of its locale. Its “look” should be seamlessly woven into the fabric of the street. With the right real estate, the retailer should strive to present the brand in a way that promotes the business and seamlessly connects to the character of the street. At Oak and Rush in downtown Chicago, we relocated from nearby to take advantage of the opportunity to design a new two-story building on a vacant lot. For our design direction, we picked up the physical proportions of the two-story buildings on the block. The main influence was the window pattern and general curb appeal of the Barneys store opposite us. The result was a flagship store presentation for Starbucks in the major market of Chicago, helping to position us as the leader in the coffee category.

In Vancouver, B.C., we redesigned a former restaurant; among other changes, we reused operable overhead garage doors that roll open, enabling customers to look out on a lake in an indoor/outdoor design and directly connect to sidewalk activity. This is another example of the use of unique physical design elements to build brand awareness. The distinctive storefront gives the customer something to talk about and relate to, supporting the brand's position in the community's eyes. Across from the ABC television headquarters in the upper west side neighborhood of New York, we painted a mural of a theater audience on a wall looking toward the customers inside the Starbucks store as a thematic connection to the Lincoln Center and the ABC neighborhood. The mural not only connected our store and brand to the work of most of our customers there, but it also served as a backdrop for the television interviews that are held in the store on a regular basis. On Chestnut Street, a favorite neighborhood strolling street in San Francisco, we were the first to install operable, sliding-glass storefront windows to bring the street into the store and allow our customers to connect to the activity on the sidewalk. At a location in Seattle, we transformed a rundown hamburger outlet by peeling away the walls and ceiling layers to reveal the building's structural beams and columns. The store design fit in well with the Northwest architectural style. Like many others, that Starbucks store has a fireplace. I have seen parents in there dressing their kids for weekend snow skiing outings, people assembling to meet their carpool there, and lots and lots of meetings taking place. I knew that we were succeeding with our designs when customers were so comfortable in the store that they relaxed as they would in their own living rooms.

Even if you do not have a landmark location, you can still demonstrate vision in the way you use the physical presence of the site to best present your brand. Rather than accept an existing building design formerly leased by a fast-food chain in Vancouver, Washington, we added a two-story tower element to display the Starbucks sign for the 60,000 vehicles passing daily. Here is the idea again of the “brand beacon,” of using your real estate to build brand awareness. We used architectural tower elements elsewhere when they effectively served to highlight the brand. In a shopping center near the University of Washington in Seattle, we were offered a great corner location in an older shopping center that was undergoing renovation. We created a new two-story façade with a steel and glass awning that wrapped around the entire storefront. The design was so exciting that other retail shops around the store picked up the motif. In Sacramento, California, we added on an outdoor pergola to an existing nondescript building that not only served as a brand beacon but also served to create and enclose an inviting shaded outdoor sitting area. In Santa Barbara, a city well known for its agreeable year-round climate, we wanted to offer outdoor sidewalk seating to our patrons. The store is located in a typical neighborhood shopping center. The sidewalk was too narrow to allow us to set out tables and chairs, so we pulled back the actual storefront to create an outdoor space for five or six tables. This amenity for customers immediately differentiated our location from that of our competitors.

One of the biggest challenges for restaurants is that many city building codes discourage outdoor café seating areas. San Francisco is a city where you might expect a lively café life, but for a while San Francisco had such restrictive codes that it was almost impossible to open a new restaurant. What had happened is that in the 1980s, the original Gianini Bank building, now known as the Bank of America building, was vacated and ultimately leased to a Carl's Jr. hamburger franchise. The citizenry, who pride themselves on the town's culture and architecture, went berserk at the sight of one of the oldest and most important buildings in the city becoming a fast-food restaurant. To avert the spread of other fast-feeders, the planning commission adopted a rule to prevent the conversion of any existing retail uses to restaurant sit-down service. To open a restaurant in the City of San Francisco, you effectively had to buy an existing one, and for a chain that would have been economically unfeasible.

At that time, I was a principal in the real estate brokerage representing Starbucks in Northern California. In 1991, I identified three great available locations in the city that had been formerly occupied by general retail users. Because each of them had an existing built-up window display platform from the previous use, they could be used as benches for perhaps a dozen Starbucks customers. Because the beverage line would efficiently serve the majority of customers, I knew Starbucks would be successful in these units despite the lack of other seats. Yet I could not believe the city would continue to forbid restaurant development. I had lived in San Francisco for a number of years. It is a beautiful city, a lovely place to walk, one of the most livable cities in America in its atmosphere and outlook on life. Yet it had little night life and lacked the most visible feature of Mediterranean towns: outdoor cafés. When I joined Starbucks as senior vice president that year, I offered up my idea for the company to be the catalyst to convince the city of San Francisco to modify the planning code to allow more sit-down uses. Starbucks agreed to support the effort. We found a land-use attorney and a public relations expert who understood how to move changes through the political process. Our proposal would enable a general retail space to be converted to allow sit-down food consumption if the dedicated seating area in the new store was limited; the final proposal specified that such areas would be no greater than 400 square feet with no more than 15 seats. The “beverage house” code, as it became known, quickly developed support and appeared to be heading for passage.

Then, four days before the code's proposed adoption, one of our supporters had a “slight” change of mind and wanted to exclude from the new rule the North Beach neighborhood, which had a number of Italian restaurants and coffeehouses that served primarily cappuccino drinks. The North Beach neighborhood also had plenty of restaurants, and its sidewalks were the most vibrant in the entire city. Our supporter, who had decided to run for mayor, could not be seen allowing Starbucks to “threaten” the restaurants in North Beach, her political base. We did not argue, as long as the rule applied to the rest of the city. To this day, Starbucks still has no stores in the core of the North Beach commercial district.

Obviously, Starbucks benefited from the addition of the new code. We also opened the door to many other coffee and dessert shops, juice shops, bagel shops, pizza shops, and innumerable small cafés. As more restaurants came into being, more of them also began to use outdoor seating, which was reasonably easy to obtain under the rules. It took several years for the change to take hold, but by 1996 the city's street life had become visibly richer. … And that is how a coffee purveyor from Seattle helped improve the street ambience of San Francisco.

Two lessons emerge from this story. The first lesson is that if government regulations prohibit the development of reasonable retail activity—activity that improves the quality of life for local residents—then you can work within the system to create change. It will take time, energy, and money, but if you create a proposal that takes into account the genuine concerns of the government and the populace, you usually will be successful. The second lesson is not to be deterred by obstacles. Starbucks refused to accept the status quo. We persevered in taking the steps necessary to create brand-building locations for this market.

To show how the wheel keeps turning, San Francisco recently enacted another ordinance that requires any “formula retailers” with a dozen or more stores—in other words, any retail chain—to notify residents of any plans to locate a store in their neighborhoods. The goal is to give residents a chance to comment on new retail stores, but the reality is that the law will stop retailers from coming in. The ordinance also banned chains entirely from one business district. At the minimum, the ordinance will increase costs for retailers and delay openings, and opposition by even a small number of determined activists could prevent any “outsiders” from opening. The law also could have the perverse effect of slowing down the growth of any rapidly expanding local businesses, such as Andronico's, a Bay Area supermarket with 11 stores. Though it is understandable that citizens do not want their streets and neighborhoods to be homogenized by cheap, generic store designs, the ordinance as written is too severe. A better approach would be to limit each chain to one store per neighborhood, with the definition of neighborhood left to the planning department, and to insist on better designs.

San Francisco's reaction is a long-term warning to all retailers of the need for interesting, fresh, varied, quality store presentations. A “one design fits all” mentality no longer suffices. A major national chain store in Seattle's Capitol Hill neighborhood is a textbook case of visual insensitivity. The standard materials used in the building conflict with the materials of the neighborhood. The sign is the biggest sign for four blocks. The parking lot is in front, breaking the plane of the pedestrian sidewalk. A slightly different choice of materials would have blended in the building with others nearby. A scaled-down sign would still have provided great visibility without overwhelming the area. The parking lot could have been put in back, keeping the street and entrance pedestrian-friendly. Three changes, only one of which would have cost more, and the positive impact would have been enormous. In most cases, neighborhood-friendly designs make the initial cost for chains a little higher. However, the increased acceptance by the community and the loyalty that such sensitivity shows drives higher revenues. Only the law of bad design says a chain store has to look like a chain store.

When we first talked about Blue C Sushi, James Allard and Steve Rosen told me that they expected their first store to be open in four to six months. Doing it right, I told them, would take at least three times as long. They laughed at me (“guffawed” is James's recollection). Their restaurant opened 18 months later.

Much of that time was spent in finding the right location. They looked at more than 50 places in the Seattle area. They would bring me in whenever they identified an interesting potential site for the first store, and I would match it up to our site criteria and shoot it down. They particularly wanted one site in the heart of downtown Seattle. To the inexperienced eye, the site was great. It was on the same block as a three-story Niketown flagship store and an Old Navy clothing store. But the other smaller co-tenants on the block would not drive enough midday traffic to Blue C Sushi during the week, and the building façade had no “pop” to it, no visual draw. If it were located mid-block with a non-descript storefront, Blue C Sushi would not be able to distinguish itself. They would be just another retailer located on just another downtown street. The lesson here is to strive to occupy a storefront that serves as a marketing beacon for your brand. In building Starbucks' brand we took highly visible corners to shout the name out to pedestrians. We always looked for “the corner of Main & Main,” as we called such spots. Because of locationing, you could not miss learning the brand. If James and Steve could have secured space on the other side of the street I would have approved it. The reason is that the western side of the street featured more opportunities for storefront design on a human scale, more retail shops in total, and more varied retailers whose appealing window merchandising resulted in 30 percent more pedestrian traffic on that side.

They also looked in Bellevue, which is an affluent community 20 minutes east of Seattle across Lake Washington. In the last 15 years, the eastside, high-tech boom has turned Bellevue's sleepy downtown into a steel-and-glass high-rise core. Its major shopping intersection is anchored by Bellevue Square Mall, a huge, constantly expanding complex. Several sites in this area offered good traffic flow and visibility, but every potential location was situated in buildings set back on the site; large parking lots separated the storefronts from the street. The sites looked too similar to the existing downscale kaiten sushi competitor already operating in town. A stylish concept will never lift up a poor real estate location, but a poor real estate location will always bring down a stylish concept. In addition, none of the shopping districts in Bellevue offered a neighborhood location that would be busy seven days a week and in which the concept could take root and build a loyal local following. In other words, we were looking for a location that was neighborhood-oriented and also could draw customers from out of the area.

Eventually Steve and James identified a terrific location in the Fremont area, otherwise known as the Greenwich Village of Seattle. Recognized for its eclectic retailers, creative architecture, and the public art displays on its streets, Fremont is a well defined and growing neighborhood much desired by singles and couples. It is considered a hip area to office. There is a high daytime population of businesspeople working in newly constructed office buildings during the weekdays and plenty of local residents and shoppers strolling the streets at all hours every day of the week. It is known as a destination neighborhood, where you would spend an evening walking around and finding a place to eat. If you mention the area to anyone who has explored Seattle, they will say, “Oh, Fremont—I love walking around there!” It has a “sense of place,” a phrase that is difficult to define precisely, but includes a distinct, pleasant identity that draws people. Any area where people like to gather has a sense of place. It can be a town square, a neighborhood, or a quiet street. Bellevue, in contrast, has no sense of place. The downtown core consists of a number of office buildings dissected by clamorous, congested multilane streets. Surrounding neighborhoods are generically suburban. Communities that maintain a sense of place are much more active and have more vibrant retail experiences.

The specific location that Blue C Sushi found was on Fremont Avenue, the main north-south street connecting downtown Seattle to the south with another popular neighborhood, Ballard, to the north. The building itself was a new mid-rise, mixed-use complex with underground parking for retail customers. The building design featured a modern, high, glass and steel storefront presentation for the cutting-edge Blue C Sushi concept. Co-tenants in the building included a West Coast-based coffee house, an upscale grocery that was part of an expanding local franchise, and an upscale ice cream franchise that was part of a rapidly expanding national franchise. The overall high level of foot traffic drives a strong lunch and dinner crowd seven days a week. The actual layout of the space required us to make several compromises, but generally, attention to design can overcome most physical limitations of a site, so we did not let physical constraints prevent us from choosing the best location. Finally, we were able to negotiate a few important lease concessions that gave James and Steve an option to sublease the space if the restaurant did not succeed. Always protect your downside when signing a long-term lease, a topic covered in detail in Chapter 15, “Real Estate: Who Needs Who More, When.”

Blue C Sushi exemplifies the point that the best way to avoid making mistakes comes through a disciplined approach to locationing. Bryant Keil of Potbelly would rather not go into a market at all than take a secondary location. He knows what site criteria works for his stores to be successful and understands the importance of ensuring that each store is profitable. For your first store especially, keep in mind the imperative of location, location, location. If you cannot find a good location to lease in your targeted market, wait until you can. Do not take a lesser location just because it is available. Proper locationing improves the bottom line and more than justifies the added cost over an inferior site. Equally important, every location, particularly the first one, must be treated as an opportunity to establish the brand in the strongest way possible.