When a Competitor Is Willing to Outbid You for the Best Locations

Sometimes the hardest part of site selection isn't finding the right location. It's watching a competitor get there first because they're willing to pay a rent that doesn't make sense for anyone operating a normal, disciplined model.

We've worked with a client whose direct competitor — a much better-capitalized brand in the same category — has been willing to pay close to double what our client's economics can support, just to lock down the best-known, highest-traffic centers in a market. In more than one instance, that competitor opened a location a year or more ahead of our client simply because they moved faster and outbid on rent. They're in nearly every premier center our client would love to be in. Our client isn't in most of them.

Our client wants to compete for that same visibility and market share. But they also have real unit economics, and there's a ceiling on what rent their model can actually support before a lease stops making sense, no matter how much they want the location.

Here's the math that makes the tension concrete. Say the competitor is paying roughly $10,000 more a month than our client's ceiling for a comparable location. Using the same rule of thumb — every $1,000 in extra rent needs about $10,000 in extra monthly sales to justify it — that gap alone represents about $100,000 a month in additional sales the client would need to generate just to break even on the premium, or roughly $3,400 a day. If the average transaction nets $10 in margin, that's somewhere around 340 additional customers a day, every day, just to cover the rent difference.

That's the real question a brand has to answer honestly before chasing a competitor into a location: are you confident you can generate that kind of incremental volume, or are you paying for the location because the competitor is there and it feels like you have to be too?

Sometimes the disciplined answer is to hold your economics, take the next-best location, and let the competitor overpay for the marquee spot. It's not the exciting answer. But chasing a rent number that doesn't pencil rarely ends well, even when the location is genuinely great. The brands that do best long-term are usually the ones being patient about a handful of real A locations rather than stretching to keep pace with a competitor's rent tolerance.

Trying to figure out where the line is between competing for visibility and overpaying for it? Contact us and we can help you think through it.