Can a Grand Opening Without a Sign Directly Cause Loss of Revenue?

On August 18, 1995, a Best Buy store was set to open in San Antonio. By contract, the store was to receive two double-faced pylon signs that faced I-470 by June 1. One 297-sq.-ft. sign did become fully operational the day before the grand opening. The second, 207-sq.-ft. sign, however, didn’t become operational until September 4. Contractually, Best Buy was deprived of one sign for 78 days and the other sign for 96 days. Best Buy hired an appraiser to assess the damages.

Of particular note, the value of the signs had nothing to do with the cost of their fabrication or installation. Instead, their value was based on their communicative and visibility function. In such cases, three property-valuation methods are warranted:

  • Market comparison
  • Income capitalization
  • Cost of replacement

For this particular case, the latter two methods were used.

Cost of Replacement

Traffic Audit Bureau (TAB) numbers, which measure the average number of cars (and people) who would pass the signs daily, state that 99,000 people would see the signs. Thus, the two signs “missed” 15.4 and 19 million “exposures,” or roughly 3 million exposures a month, by not being erected in time. According to a licensed appraiser’s “market comparison,” achieving similar exposure would require one mid-week newspaper insert (200,000 exposures @ $7,258) and one Sunday newspaper ad (345,000 exposures @ $12,520), plus a saturation of TV exposure (2.5 million exposures @ $16,926). This totals $36,704 per face or $146,816 per month for all of the signs. By prorating this one-month cost over the 78- and 96-day delays, the replacement cost becomes $424,767.

Income Capitalization

For this approach, 120 Best Buy customers were surveyed over a two-week period. Thirty customers (25%) said they first became aware of the store because of the sign. Another 38 (32%) said the signs were “useful in locating the store.” Only 22 (18%) said they didn’t use the signs to find the store. The other 30 people didn’t answer the question. This suggests 25% of the store’s business was directly attributable to the signs. Historically, a sign’s direct impact on a business’ sales ranges from 10-50%, with QSRs (quick-service restaurants) at the high end.

In its first year of operation, the Best Buy store averaged $308,687 in monthly sales. If the 25% figure is used, the Best Buy signs generated $77,172 in monthly sales the first year. For the 78- and 96-day periods, then $224,000 was directly attributable to the signs.

Best Buy paid monthly rent of $34,626 (approximately 75 cents per square foot), or $1,154.20 daily. Local industrial buildings that don’t need signs paid approximately 40 cents per square foot. So a signless building would pay approximately $620.27 daily, or $533.94 less daily. Again, using the 25% figure, rent directly related to the signs would be $133.49 daily. Thus, for the 19 days, a rebate of $2,536 in rent would be due.

Estimated total damages were calculated at $227,536. Although the case was settled out of court, Best Buy did receive compensation in the form of rebated rent for less than the assessed damages. Terms were not officially announced.

But clearly, the value of the signs, even for just a 2.5-month period, exceeded $200,000.

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