Choosing the Right Location and Layout

Chapter 14

Location: A Source of Competitive Advantage

Choosing the region

Choosing the state

Proximity to markets

Proximity to raw materials

Wage rates

Location: A Source of Competitive Advantage

Labor supply

Business climate

Tax rates

Internet access

Total operating costs

Choosing the City

Population trends

Competition

Clusters

Compatibility with the community

Choosing the City

Local laws and regulations

Cost of utilities and public services

Incentives

Quality of life

Choosing the Site

Every business has its own unique set of criteria for an ideal location.

A manufacturer’s prime consideration may be access to raw materials, suppliers, labor, transportation, and customers.

Service firms need access to customers but can generally survive in lower-rent properties.

A retailer’s prime consideration is sufficient customer traffic.

Location Criteria for Retail and Service Businesses

Every retail and service business should determine the extent of its trading area, the region from which a business can expect to draw customers over a reasonable time span.

Retail compatibility describes the benefits a company receives by locating near other businesses that sell complementary products and services or that generate high volumes of foot traffic.

Location Criteria for Retail and Service Businesses

Degree of Competition

The size, location, and activity of competing businesses also influence the size of a company’s trading area. Market saturation is a problem for businesses in many industries, ranging from fast-food restaurants to convenience stores.

The Index of Retail Saturation

The index of retail saturation is a measure of the potential sales per square foot of store space for a given product within a specific trading area. It is the ratio of a trading area’s sales potential for a particular product or service to its sales capacity.

The Index of Retail Saturation

IRS = (C x RE) / RF

where

C = number of customers in the trading area

RE = retail expenditures, or the average expenditure per person ($#) for the product in the trading area

RF = retail facilities, or the total square feet of selling space allocated to the product in the trading area

Transportation Network

For many retail and service businesses, easy customer access from a smoothly flowing network of highways and roads is essential. If a location is inconvenient for customers to reach, a business located there will suffer from a diminished trading area and lower sales.

Physical and Psychological Barriers

Trading area shape and size also are influenced by physical and psychological barriers. Physical barriers may be parks, rivers, lakes, bridges, or any other natural or man-made obstruction that hinders customers’ access to the area. Psychological barriers include areas that have a reputation for crime and illegal activities.

Customer Traffic

To be successful, a business requires an ample volume of customer traffic going past its doors. The key success factor for many retail stores is a high-volume location with easy accessibility.

Adequate Parking - If customers cannot find convenient and safe parking, they are not likely to shop in the area.

Reputation - Sites in which businesses have failed repeatedly create negative impressions in customers’ minds; many people view the business as just another one that soon will be gone.

Visibility - Highly visible locations simply make it easy for customers to find a business and make purchases.

Location Options for Retail and Service Business

Central Business District - The central business district (CBD) is the traditional center of town – the downtown concentration of businesses established early in the development of most towns and cities.

Neighborhood Locations - Businesses that provide convenience as a major attraction for customers find that locating on a street or road just outside major residential areas provides the needed traffic counts essential for success.

Shopping Centers and Malls

Approximately 108,500 shopping centers and 1,000 traditional enclosed malls operate in the United States.

In a typical month, nearly 187 million adults visit malls or shopping centers, generating $2.25 trillion in annual sales, an amount that represents more than half of all retail sales in the United States.

Shopping Centers and Malls

Neighborhood shopping centers

Community shopping centers

Power centers

Theme or festival centers

Outlet centers

Lifestyle centers

Regional shopping malls

Superregional shopping malls

Proximity to Competitors

Near Competitors - One of the most important factors in choosing a retail or service location is the compatibility of nearby store with the retail or service customer. Locating near competitors might be a key factor for success in those businesses selling goods that customers shop for and compare on the basis of price, quality, color, and other factors.

Inside Large Retail Stores - Rather than compete against giant retailers, some small business owners are cooperating with them, locating their businesses inside the larger company’s stores.

Nontraditional Locations

Rather than select a location and try to draw customers to it, many small businesses are discovering where their customers already are and setting up locations there.

Many of these are nontraditional locations, such as airports, museums, office buildings, churches, casinos, college and university campuses, athletic arenas, and others, that offer high concentrations of potential customers.

Home-Based Businesses

One recent study from the Small Business Administration reports that 52 percent of all small companies are home based.

Many service companies do not have customers come to their places of business, so an expensive office location is unnecessary.

On the Road

Some entrepreneurs are finding that the best location is not a permanent location but a mobile business that takes products and services to its customers.

Veterinarians, dentists, restaurants, and others are outfitting mobile units and taking their businesses on the road.