Site Selection Myth Busting #2: "Get the most store you can afford", and the wise moves of the Chicago Bears
There's a saying in residential real estate - "get the most house you can afford", since the value of real estate typically goes up. This often translates in the commercial world to getting the most store a business can afford, since moving isn't easy and the more floor area a store has, the more revenue that can be generated (in theory). However, this myth often ignores the very real perils of having to occupy and maintain said space. In this second installment of site selection mythbusting, I examine why the myth of "get the most you can afford" is so toxic, using the NFL's Chicago Bears as a very real, positive example to follow.
Just a bit of context - the Chicago Bears are a long, storied franchise in the NFL, having existed since the 1920s. They play in the 3rd largest media market in the country, and have over 9.5 million potential fans to draw on in the region, and football is BIG in the upper midwest - maybe not the religion it is in other parts of the country - but you know when it's football season by Lake Michigan.
Somehow though, that market size and passionate following didn't translate into a massive stadium. In Dallas, where the Cowboys are worshiped, the owner Jerry Jones built an 80,000 seat stadium a few years ago with capacity up to 100,000. The Bears though? The new(ish) Soldier Field tops out at 61,500 seats, with a max standing room capacity of a few thousand more than that. Until a few years ago, it was the smallest capacity stadium in the country - despite having the 3rd largest market. What gave?
Well, there's a few things that affected the size and location of the stadium back when it was being planned in the 1990s - but there are far better analyses of the political machinations than I could ever hope to provide. The Bears originally weren't planning to stay in Chicago proper, having explored options in nearby suburbs of Hoffman Estates, Elk Grove, and Aurora (party on Wayne). At one point, the Bears threatened to move to Gary, Indiana, to which then Chicago Mayor Daley replied "Let them move to Alaska." Anchorage, of course, would have been a rather unlikely relocation destination for the Monsters of the Midway, and the Illinois legislature rejected the options to build a new stadium outside of Chicago.
Eventually, the Bears, the State of Illinois, and the Chicago Park District (operators of Soldier Field) came to an agreement to renovate the stadium at the same location. While many have derided it's rather...unique appearance - the fact remains that since Soldier Field 2 was built, the Bears have fallen below the 100% attendance mark just ONCE in the last 10 years. This despite the fact that DA BEARS have produced some shockingly bad teams in the last decade, while playing outside, in winter, IN CHICAGO.
So, why does all of this matter? Well, the fact is that the Bears could've stuck to their guns, maybe financed the deal themselves and gotten a massive domed stadium somewhere else in the Chicago area. This maybe could have boosted their revenue - or it could have ended up like the Detroit Lions - who did exactly that and found themselves the only NFL team to lose money in 2013. Instead, the Bears struck a deal to give the land to the City, who promptly picked up the majority of the tab to build the new field. The Bears paid 38% to the deal, and pay an ongoing lease rate of $5.7m/year through 2033. Discounting at 7% over the 30ish year period - the Bears are on the hook for...$300 million dollars. Those Detroit Lions, by comparison, are paying over $350m PER YEAR in debt obligations. And by today's standards, considering the LA Rams are privately financing their $2.6 BILLION stadium - its a brilliant deal for the Bears. Sure, they don't get other stadium revenue like concerts or soccer games - but then again, they don't have to manage those events either, since they ceded control to the City.
Despite the fact that Forbes thinks the Bears whiffed on some massive financial opportunities, in my opinion the Bears were shrewd, competent business people who understood that the more space they controlled, the more they had to spend to deal with it. From a retail store perspective - if you sign a deal for a 2500 square foot store, you as a business owner need to generate revenue to support that floor area. Often times for retail, that floor area means inventory - an initial upfront expense that you need to then sell through to make your revenues and hopefully profits. How many times do you see stores with tons of room and little inventory? This is because they got lured in by the siren song of high revenues.
A prime and unfortunate example of over-expanding in Philadelphia is Cella Luxuria, a local luxury furniture chain. In this author's opinion, Cella sold a very good, albeit niche product, and had a few store locations to their name (and would've been an ideal client for SSC!). But, as Cella added a second location, they added 8,000 square feet of floorspace without effectively increasing their market size; and in their previous expansion adjacent to their existing location, they picked up 12,000 square feet of floor space that they had to fill with inventory.
The location at 12th & Chestnut wasn't any significant distance away from their location on South Street. People living in Society Hill or Queen Village aren't that much more likely to venture to a place on South St vs Midtown. This is opposed to, say, opening a store in Manayunk or Chestnut Hill. Such an expansion would have opened up reasonably sized, rather affluent markets whose customers are less likely to travel into Center City to furniture shop. By opening the new store so close, they were cannibalizing their market.
Lastly, 12,000 square feet at 12th and Chestnut is not cheap on a month to month basis, and while South Street isn't 18th & Walnut, those 8,000 square feet weren't free either. High style furniture doesn't move quickly like clothing or food or other high turnover items. After all, people typically don't change their couch every day. So, it's a hard business when you have high fixed costs (inventory, overhead) and need strong cash flow (sales) to make things work. If the business had to borrow cash to finance the inventory and those couches/tables didn't sell through at the needed margins, that would have put tremendous strain on the company.
It's only an educated guess, but adding more inventory (cash out up front), and floor space (cash out each month), without significantly increasing their market reach (i.e no significant increase in potential customers) led to an imbalance of expenditure and revenue, and forced them to close their doors at all 3 locations less than 2 years after expanding to South Street. Whether it be stadiums or restaurant seating - buying more space than you need always comes with hidden costs that can destroy a company's profitability over time. It's always better (and more fiscally prudent) to "outgrow" a space than to "grow into it."
Please come back next week when I explore the third and final myth in the series: "Why the 'best deal' isn't often the best deal. "
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