The Importance of Location in Retailing - Essay Example

Choosing the perfect location for your business is not easy. Choosing a location is more of a science by itself. It's one of the most important decisions you will make when setting up a retail business. While I hardly know the science of picking a location... here some great advice I was given by my friend who semi-heads a multinational chain of in my city. Big chain companies spend tons of money researching the best locations. Piggy-back off their research. If you see a Starbucks, a Gap and a Target going in to a location... chance are that's going to be a great place. They've picked it for a reason and chosen to invest there. I guess the simple way of saying it would be... Follow the Leaders. For what it's worth... It depends upon the type of business and your hours of operation but the first thing to look when choosing a location is what the neighborhood looks like during your peak business hours. Who else is doing business? What is the foot traffic in that location during all times of the day and season's in the year? Then I would look at how your customers will get to that location. Is it public transportation and if so, are there multiple paths near your location? If not, is there sufficient parking. Then after looking at those factors, see who else is around you and how long they have been there. Do their services compliment or compete with yours? I hope this is helpful. Beth And yet, many business owners don't do comprehensive analysis of a location before choosing it. The study of demographics can help to avoid leasing in a busy area only to find that your shop is empty because the type of shoppers the area attracts are not interested in what you are offering. There are many factors to consider. After all, you may end up being locked into a long-term lease, so the result of an inappropriate choice can be financially ruinous. First, you must look at your market as a whole. Are businesses, offering similar services or products in that area, making money? Look at the competitors who are making a success of their business to find out what you can learn from them. You must also ask yourself if you can deliver a similar level of service or a similar product at a competitive price because if you can't, you will not succeed. To some degree, you must also be able to assess from current trends, how your market is going to develop in the future so that you won't get left behind. You must also figure out who your potential customers are so you can set yourself up in an area that has the largest concentration of your target market, or in an area that will draw that target market. Rather than generalizing your market with a label such as 'professional woman', break that group down into sub-groups by age, car ownership, income, marital status, dependants, and so on, so you can more easily identify which socio-economic bracket the majority of your potential customers are in. You can then choose a location that will naturally attract those target customers. Research Once you have identified a 'right' area, you must then gather as many facts as you can about the area and its inhabitants. By assessing the demographic make-up of an area you can see at a glance what proportion of the community fits into your idea of who is likely to visit the store. Examine the number of competitors as well as the people who live in this area. A company that helps retailers identifies optimum locations; points out those businesses too often choose their location for the wrong reasons, without any regard to its potential. "Often, people see a shop, fall in love with it, and think it would be a good place to set up without giving due thought to what figures the shop is likely to return, or without looking at the competition or retail mix of the area." The competition must be factored into any decision you make on a location, as an area is only going to be able to sustain so many hairdressers or newsagents before reaching saturation point, and, of course, the more competition there is nearby, the more it eats into your potential profits. Even if after reviewing the competition you decide that there is still money to be made, don't decide there and then. To further define your area, look at the retail mix. Is there a common thread running through the other outlets in the area? For example, if you are trading in the central business district (CBD), it is unlikely that bulky items will sell well, as customers are likely to have to lug such items much further to their car than they would outside the CBD shopping centre. This is one of the reasons why most furniture retailers locate out of the town centre. Three Options For retail businesses, there are essentially three types of location - the CBD, the strip location, and the shopping centre. Each has merits and negative aspects, and it is important to examine how they stack up against what you need in order to run your business successfully. - Central business district. The initial appeal of a CBD is obvious, i.e., the large concentration of people. When looking to locate in the CBD, this must be counter-balanced by the fact that your opening hours are usually restricted, and large parts of the CBD tend to be empty at night, which creates safety concerns. There are also likely to be lulls in trade during the day outside the peaks of the morning, evening and lunchtime rush hours. Such areas are popular during weekends and holidays, which goes some way to compensating for weekday lulls and night-time inactivity. - Strip location. These are generally the main focal point of their catchments area. They tend to feature a small supermarket, newsagent, post office, hairdresser and take-away food outlets. Because of the footfall these types of shops generate, other retailers, such as clothing outlets, bookshops and jewelers, can set up in areas where they could not otherwise operate as a stand-alone concern. There are several things to look out for when assessing the merits of a particular strip. Is it easily accessible? Is there adequate car parking? Will the other outlets complement or compete with you? Does the strip look prosperous? Does the strip look like it has been revamped in recent times, or is it in need of refurbishment? Other things to look out for include empty units - are there a number of them and how long have they been empty? Find out if there are any road development plans, as a new road can take business away from the area. It's a good idea to locate your business on either end of the strip location as this gives your business greater visibility. Alternatively, if there is a supermarket in the strip, this is usually the main focal point of the area, so it is good to be positioned next to it to capitalize on the passing trade it generates. Many experts suggest the supermarket is also a good place to look to determine the viability of the strip. "A good indication of the supermarket’s turnover is the number of active checkouts, but also examines the sell-by dates on products. Since the oldest product is normally at the front, it is often easy to estimate the through-put of customers and hence the drawing power of the strip location." - Shopping centers. As with the other potential locations we have looked at, locating in a shopping centre has both good points and bad. The most obvious plus is the sheer volume of customers they attract. The marketing power you enjoy is also that much greater with the combined resources of the center’s units. Negative aspects can be high rents, restrictions imposed on the unit by the centre management, centre opening hours that may be insufficient for your needs, or your business may get lost in the vastness of the centre. When considering locating in a shopping centre it is essential, as with locating in a strip, to assess the level of trade the centre attracts. Is the centre the biggest draw in its catchments area, or is there a bigger and better centre nearby? Again, the number of vacant shops, and the length of time they have remained vacant, provides a useful indicator of the center’s retail health. The position of your unit within the centre can be pivotal to its success. Dead-end corridors and other areas outside the main stream should be avoided. Ideal spots include units close to anchor stores and areas that enjoy a heavy through-traffic of customers. Second Best Don't settle for second best. While some may argue that the lower turnover generated from a poor location can be offset against the lower rent, what you are actually doing is leaving the prime position open to a competitor who will take business away from you. Identify shops that complement yours and appeal to the same demographic so you can benefit from footfall. A prime example of how this tactic works is with real estate agents. It is no coincidence that real estate agents tend to locate near each other. They benefit from each other's traffic, as people will tend to visit each agent if there are several positioned in the same street. And if anyone knows about positioning it are real estate agents! Whether you are a moonlight entrepreneur or full-time, at some time real estate issues will become important to you. The success or failure of most retail businesses will hinge on the owner's selectivity and judgment in picking the right location. An initial step in business is to decide where you will live and where your business will be located. You may have the opportunity to relocate to an area where you would really enjoy living and working. Each retail and commercial business has its own criteria. For example, a donut shop should be located on the "going-to-work" side of the street. On the other hand, a liquor store should be on the side of the street with traffic going home from work. The selection of your first location will have an overwhelming impact on your chances for success. Select the appropriate type of center (mall, strip, mini). Some business do best in a large center but some, like Mini-Marts, video stores and Laundromats, do better in much smaller centers. Others do well locate on the street front, such as florist, nursery or antique stores. Demographic data will provide you information about the neighborhood. It will inform you about the population, the number of households, estimated population by race, age and income level within a one, two or five-mile radius. Shopping centers are distinctly different from downtown and local business strips. The shopping center building is pre-planned as a merchandising unit for interplay among tenants. Its site is deliberately selected by the developer for easy access to pull customers from a trade area. It has on-site parking as a common feature of the layout. The amount of parking space is directly related to the retail area. Customers like the shopping center's convenience. They drive in, park and walk to their destination in relative safety and speed. Some shopping centers provide weather protection, and most provide an atmosphere created for shopping comfort. For the customer, the shopping center has great appeal. Developers and owners of shopping centers look for successful retailers. If you are considering a shopping center for a first-store venture, you may have trouble. Your financial backing and merchandising experience may be unproven to the developer. Your challenge is convincing the developer that the new store has a reasonable chance of success and will help the tenant mix. Whether or not a small retailer can get into a particular shopping center depends on the market and management. A small shopping center may need only one children's shoe store, for example, while a regional center may expect enough business for two or more. Darrell T., a licensed dealer of Thomas Kinkade artwork, thinks the main reason the Seattle mall leasing agents allowed him in without prior retail experience is because the artist his gallery exclusively represents has a great reputation--and because of the product line the gallery carries. To finance a center, the developer needs major leases from companies with strong credit ratings. The developer's own lenders favor tenant rosters that include the triple-A ratings of national chains. However, local merchants with good business records and proven understanding of the market have a good chance of being considered by a shopping center developer. So if you or your store manager has a good reputation and track record in retailing in the area, you may be able to make a strong case for acceptance into the center you want. In examining any shopping center location, get answers to questions such as these: Are its shoppers your prospective customers? Would the center offer the best sales volume potential for your kind of merchandise or service? Can you benefit enough from the center's access to a market? If yes, can you produce the appeal that will make the center's customers come to your store? Can you deal with the competition of other stores? How much space do you need and where do you want it? Naturally, the amount of space you want will determine your rent. Many merchants need to rethink their space requirements when locating in a shopping center. Rents are typically high, so space must be used efficiently. What amount of space will you need to handle the sales volume you expect to have? Be sure that it has adequate interior space for sufficient inventory, an area for an office, and possibly a receiving and shipping area. You should also consider the necessity for adequate space for expansion when business picks up. Your location in a center is important. Do you need to be in the main flow of customers as they pass between the stores with the greatest customer pull? Who will your neighbors be? What will their effect on your sales be? Galleries located in a prime spot within a mall do much better than those that are in an out-of-the-way location. Even though the malls are comparable, basically a 'C' location in an 'A' mall is not the same as an 'A' location in a 'B' mall," he says. "And location in the mall is quite possibly the most important factor--even more than the mall you are in--in my mind. As long as you are visible and can catch the shopper's eye, I think you'll do well wherever you go." What will rent really cost? In most no shopping center locations, rent is a fixed amount that has no relationship to sales volume. In a shopping center, the rent is usually stated as a minimum guaranteed rent per square foot of leased area against a percentage. Typically, this percentage is between 5 and 7 percent of gross sales, but it varies by type of business and other factors. This means that if the rent calculated by the percentage of sales is higher than the guaranteed rent, you pay the higher amount. If it is lower than the guaranteed rent, then you pay the guaranteed rent amount. But this guarantee is not the end. In addition, you may have to pay dues to the center's merchants' association. You may also have to pay for maintenance of common areas. Therefore, you must think of "total rent" when considering what you can afford to pay. Can you draw enough sales to cover the true rent of being in a center? Don't forget that you still have to design and finish out your space. You pay for light fixtures, counters, shelves, painting, floor coverings, and installing your own heating and cooling units. Some landlords provide a cost allowance toward completion of your retail space. This "tenant allowance" is for storefronts, ceiling treatment and wall coverings. The allowance is a percentage of their cost and is spelled out in a dollar amount in the lease. Some developers will help you plan storefronts, exterior signs and interior color schemes. They provide this service to ensure storefronts that add to the center's image rather than detract from it. About 80 percent of enclosed and regional shopping malls have temporary tenants in US and in my country Pakistan too, which include kiosks and carts. Rent for in-line stores is about four times the rent for carts and kiosks. Once you've decided what kind of space you want, where, and how long you need it, it's time to consult a lawyer to discuss what specific issues you need to address in order to negotiate the best lease for your business. Core points to review carefully are occupancy date, chargeable floor space, which renovations or tenant improvements the landlord will do or pay for, services to be provided, liability, and renewal or termination terms. Once you're close to reaching an agreement with the real estate broker, leasing agent or landlord, your attorney can make sure that everything is in writing to clearly define each party's obligations. Retail space is usually rented on what's called a "net lease" basis, meaning that you arrange for most of its services. Unless your premises are tied to the building's mechanical systems, the costs for most services--such as heating and air-conditioning--are your responsibility. The breadth of your use clause (the specific use intended for the space) will affect your ability to assign your lease or sublet the premises. The broader the definition, the better. If you've leased the space to sell ski equipment, for example, and business lags because of a lack of snowfall, you want to have the option of opening a juice bar instead. In addition, it's a good idea to get a restrictive covenant to prevent the landlord from leasing space in the same building or nearby to a business that competes with you. How far this provision extends will depend on the type of area you're located in. In a city, it might be a few blocks, whereas in the suburbs, it could be a few miles. With shopping center leases, you are customarily charged for maintenance of common areas and for the mall's marketing efforts. Find out what the mall's plans are for any structural alterations or remodeling, resurfacing the parking lots, or replacing the roof. These can be devastating assessments for a young business. Requirements for hours and days of operation, employee parking restrictions, participation in community service events, gift certificate and loyalty programs, and storefront appearance may not fit into your business plan or capabilities. Make sure you will be capable of conforming to these requirements. Although a great location may not guarantee success, a bad location will almost always guarantee failure. A new retail business needs to be where the customers are. You want a location with a reasonable degree of security, access to public transportation for your customers and employees, adequate parking for commercial as well as personal vehicles, room for an office, and that all-important sales space. Where you locate will determine the hours you keep, who your clientele is, and what types of promotions you do. Also, where you set up shop will impact how long it will take you to grow. Luckily, you have lots of options. Despite the benefits of running a business from home--low overhead, no commute, and technology options that make it easy to project a professional image--a retail business is one of the few business that is difficult to run from home. This is largely due to a conflict between needing customers to come to your place of business and the penalties of having a stream of clients visiting your home. Most residential zoning excludes retail, so your neighbors can report you to city or county officials if your business creates noticeable traffic, noise or parking problems. Some communities prohibit commercial vehicles or cars and trucks with signs on them from parking on the street. One option for retailers who want to work out of their living room is to sell their goods and services from booths or tables at craft fairs, in cooperative booth space at emporiums or expositions, by mail order, or at flea markets. You can also sell retail on the internet. The best retail location combines visibility, affordability and lease terms you can live with. Brick-and-mortar retailers need to be where the action is, so deciding where to put your business is every bit as important as the business you decide to go into. Take the time to analyze the areas that appeal to you. There are three phases of choosing a location for your retail business: selection of a city, choice of an area or type of location within a city, and identification of a specific site. In choosing a city, investigate Size of the city's trading area Population and population trends Total purchasing power and who has it Total retail trade potential for different lines of trade Number and size of competition Quality and aggressiveness of competition Once you have a general idea of what city you like, choose an area or type of location within a city by evaluating these: Customer attraction power, the nature of competition, Availability of access routes to the stores, zoning regulations, Geographic direction of the city's expansion, General appearance of the area, Sales and traffic growth prospects of the trade area, Demographics of neighborhoods These are factors in narrowing down your site choices: Traffic flow, Complementary nature of neighboring stores, Adequacy of parking, Vulnerability to competition, Cost of the site Directly related to the appearance of a retail location is the reputation of the landlord. Unfortunately, some retail landlords actually hinder the operation of their tenants' businesses. In fact, the landlord may be largely responsible for the demise of the premises and retailers' failure. For instance, some landlords restrict the placement and size of signs, forego or ignore needed maintenance and repairs, or rent adjacent retail spaces to incompatible or directly competing businesses. Sometimes landlords lack the funds to maintain their properties. Rather than continuing to invest in their holdings and support their tenants, they try to squeeze out whatever they can get. In addition to speaking with current tenants, talk to previous tenants of the location you have in mind. They can give you helpful information. Find out what businesses they were in and why they left. Did they fail or just move? What support or hindrances did the landlord provide? Would they rent from this landlord again? Your town's zoning commission can give you the latest mapping of the retail location and surrounding areas that you are considering. Here are some questions to think about: Are there restrictions that will limit your operations? Will construction or changes in city traffic or new highways present barriers to your store? Will any competitive advantages you currently find at the location you're considering be diminished by zoning changes that will be advantageous for competitors or even allow new competitors to enter your trade area? I wish to say that when in a business it is necessary to note that the more the shop is a metropolitan area the more its clients will be flocking to it and the more it will be subdued at a corner of the city the lesser will its customers will be. One of the most dangerous times in the life of a small retail business is when the owner must relocate because the business is growing and the existing facility is no longer adequate. This is a nice problem to have, but choosing the wrong new location can kill the growing business. Retail locations must have high visibility and easy accessibility to succeed. There are many criteria to consider when choosing a new location. Too often, business owners make assumptions about the new location without taking Time to do the necessary research to evaluate the decision. The following discussion includes some of the most important location considerations for a retail business Choose a High Density Area that is seems obvious, but many times business owners assume a location is right and that there are plenty of potential customers without actually Looking at the numbers. Take time to research the area and find out the actual population of the area and the make-up of the population. Choose a Growing Area – In addition to knowing the population of an area, be sure to research the growth that is taking place, in terms of both Residential population and number of business establishments. Look for new construction of subdivisions, office buildings, shopping centers, etc. Consider Customer Convenience – The flow of customers into, throughout, and out of your store should be easy and convenient for the customers. Without proper planning, it is easy to design your location for the convenience of owners, store operations, and employees without taking customer satisfaction into consideration. Consider the Parking Situation– Not only should there be plenty of parking for your customers, it should be convenient and safe. Customers tend To want to park very close by your entrance and are concerned about remote and poorly lit parking areas. Also, be sure the parking lot is level, smooth, with well marked spaces and arrows indicating flow of vehicles. Make sure customers have plenty of room to park and to maneuver. Beware of Curves – Locating on a Curve can make it difficult for approaching vehicles to see your business from very far off. By the time they see your business, it may be difficult and even dangerous for them to stop and turn into your location. This is particularly true of locations on the inside of curves. And once they have passed you, they are unlikely to turn around and come back due to the inconvenience. Relocating a retail business takes planning, patience, time and money. Make the wrong decision about a new location and you risk wasting money and losing customers. But retail relocation isn’t just about site selection, it’s about creating targeted marketing and valuing your customers. It can offer your business a chance to grow, expand its customer base and invigorate your staff. With the right planning, most growing pains can be avoided, and your store can retain existing customers while attracting new ones. Best example to evaluate on my point is the Harrods departmental store in the heart of London renowned for its unique centrality in locality. Harrods prime store hosts various celebrities from heads of states to artistes to the common man from all the corners of the world whereas meager stores in US, UK, or in my country Pakistan even is only know to the people who are residents in its adjoining locality, basically saying that location makes the major difference in making a name for a commercial stores. Read More