 WORK ENVIRONMENT: Retailers have hired Grant Thrall to calculate where their competitors are considering building in an effort to beat them to the next hot spot. |
Thrall, 58, a professor at the University of Florida, is one of the founding fathers of a burgeoning field known as business geography. Business geography begins with the raw materials of traditional demographics and the more detailed field of psychographics, which carves the populace into as many as 65 slivers considerably more precise than broad age and income categories like "25-34" or "$20,000 to $40,000." In the parlance of psychographics, the "7B" who just walked by is a "young, frequent mover," a category encompassing young, white, low-earning males who move a lot -- often from one mobile home to another. Business geographers integrate the psychographic data with geographic information systems (GIS) software, a high-tech marriage of spreadsheets and maps, to produce remarkably specific pictures of economic behavior, from statewide to regional to local to neighborhood.
Retailers, homebuilders and other industries can learn precisely who their customers are -- for example, whether they're appealing to "young, frequent movers" or the "laptops and lattes" psychographic -- affluent singles renting in major metro areas. Old categories like race, age and income don't matter much, says Thrall. A daycare chain, for example, may want to locate in places where young, working-class families live. "We don't care about things like race anymore," he says. "You take a black yuppie or a white yuppie and they're both going to be driving a BMW."
For business geographers, noodling the psychographics and demographics is just the first step in helping companies figure out where they should -- or shouldn't -- locate to attract those customers. How far are a video store's customers willing to drive? Is a bank more likely to attract customers if it's in a shopping center that also has a grocery?
The data is specific down to the ZIP-plus-four -- almost individual home -- level and incorporates layers of other information. A business choosing, for example, among three potential sites can order up maps that show for each: Zoning; average home sale prices and volumes; the soils, watersheds and flood zones; the land-pricing levels; existing traffic counts as well as future planned highway improvements; and even the quality of the schools.
Geospatial tools allow franchise companies to calculate whether a new location would cannibalize an existing one. They also help companies figure out their competitors: Thrall has been hired by Florida restaurant chains to "reverse-engineer" competitors' location patterns in an effort to try to beat them to the next hot spot.
The field isn't just a tool for retail chains and corporate giants. Even small companies are turning to business geography to help figure out where to open stores -- or which ones to close in a downturn. "They either hire me now, or they hire me later," says Thrall. One of Thrall's former graduate students, Paul Amos, is managing director of the Wharton Geospatial Initiative at the University of Pennsylvania, where he says he is helping spread Thrall's gospel to business students. "It's a way to help businesses make better decisions," says Amos. "To minimize risk on one hand and increase profitability on the other."
Thrall traces his interest in the field to his mother. In the 1960s, she was one of the first women executives to climb the ranks at General Electric on the West Coast. She was a marketing director responsible for making sure GE's retailers didn't locate too closely to one another. She tapped her high school son to help her pore over maps and databases in the evenings. "If there was such a thing as business geography when I went to college, I would have majored in it," says Thrall. There wasn't. But he came up with the next best thing: Following a master's degree in economics, Thrall earned a Ph.D. in geography and economics from the department of geography at Ohio State University.
Many geography departments were once found in business schools, which began to slough them off to liberal arts colleges in the 1950s. Thrall has always been a bit of an outsider in UF's geography department; one administrator there derided his 2002 book, "Business Geography and New Real Estate Market Analysis," as "unintellectual." Thrall figures he will have the last laugh. He's made enough money in real estate investments and consulting that he lives in a mini-mansion in a Gainesville neighborhood that is home to more of the university's coaches than its professors.
Retail Predictions
 Thrall feeds data into his computer to come up with a map showing appropriate "hot spots" around the state. |
Thrall feeds data into his computer to come up with a map showing shopping "hot spots" around the state.When business geographer Grant Thrall looks at Florida over the coming year, he doesn't see retail growth slowing despite damaging hurricanes and wavering consumer confidence. The devastating 2004 hurricane season had virtually no effect on Florida's 2005 population growth. And population is what drives retail. Florida grew by more than 400,000 people in 2005 -- one of the largest increases in the state's history, despite the 2004 hurricane foursome (see "Against the Wind", April 2006, Around the State-Statewide). Larger retailers, as well as smaller ones hurt by hurricane deductibles and the minimum wage hike, Thrall predicts, will become increasingly savvy about tapping their consumer base.
The map above shows Thrall's predictions for statewide retail sales increases in dollars for a five-year period beginning January 2005. Thrall would do the same sort of analysis for a client -- but would predict revenue on smaller and smaller grids, even at block-level. The peaks show retail "hot spots." Once a business owner or manager narrows down prospective sites within the hot spots, he or she can request more specific data.
Business owners can increasingly do this sort of modeling on their own, as more and more governments put data online. The Florida High Tech Corridor Council, for example, is considering putting up a geospatial portal that provides maps, analysis and data to help lure businesses to central Florida.
BUSINESS GEOGRAPHY:
Crunching the Numbers
Major retailers and other big companies employ business geographers in a number of ways, including making day-to-day strategic decisions at GIS "war rooms" that some companies operate. Red Lobster has to figure out, for example, how much frozen shrimp to send to its Kansas stores, while Publix finds guidance on exactly which neighborhoods to target when it mails its coupons.
Helping a retail business pick a site for a store -- a big part of business geographers' work -- involves a number of steps that illustrate how they gather and integrate data:
 ELIMINATING THE GUESS WORK: Thrall says his revenue projections have a 3.5% margin of error. "It is rocket science." |
Segmenting customers:
Back in the 1930s, the professionals who were not yet called business geographers would stand in parking lots interviewing customers to see who they were and how far they drove to get to a store. Today, business geographers rely on "lifestyle segmentation profile" software and databases by companies such as ESRI (esri.com) and MapInfo (mapinfo.com) to profile consumers based on their addresses. While there are up to 65 consumer segments, the majority of a company's customers will fall into three. Understanding who shops in top-performing stores helps a company locate new stores in sites where they're most likely to succeed.
Calculating trade area, customer density and "distance decay":
Business geographers use computer algorithms to map a trade area that encompasses 80% of a store's customer base. They calculate the rate at which consumer demand falls off as either distance or drive-time to the store increases. They use this information to calculate the quantity of customers, by lifestyle segment, who'd be likely to go to a given site and how much they'd likely spend there.
Calculating competitive supply:
The old-fashioned way to count potential competitors uses a phone book. More modern methods rely on geospatial databases of every business in the U.S. classified by industry code and including financial and employee information. Mapped databases showing all businesses in the permitting pipeline are also available.
Creating a "geospatial database":
The business geographer puts all the data gathered above into geographic information systems (GIS) software. GIS incorporates the features of a spreadsheet into a map. It can answer geographic questions such as: "How many actual or potential customers are within a five-minute drive from the store?" "How many businesses are near the proposed store, and what is the total count of their employees?"
Forecasting revenue:
A business geographer uses the geospatial database and statistical software programs to create mathematical models to predict how a prospective location will perform, down to specific revenue. Tap an address into a laptop, and a program will produce a count of expected customers, along with their projected spending. Business geographer Grant Thrall says revenue projections are accurate to a 3.5% margin of error. "It is rocket science," he says. "It's the equivalent of a laser-guided bomb landing on the front step of its target. Today we are laser-targeting the best sites for stores and shopping centers."