1. Lesson 10: Location Selection

2. Objectives List the elements of a good location
Explain the pros and cons of locating near a competitor
Discuss the financial impact of buying, building, or leasing
Calculate rent payments based on different lease terms
Compare locations and choose the best site for a business

3. 1. Types of Locations Shopping Centers
Group of retail businesses that are located together
Usually owned by a company that leases the space to retailers
Ie: Malls – containment of stores serving a large area that is usually in an enclosed building with an adjacent parking lot
High traffic flow, wide range of merchandise (drug stores to specialty store), Climate controlled
Ie: Strip malls – a neighborhood space composed of a group of separate stores that are connected by sidewalks and have parking lots in front of the stores
Usually close to residential areas, rent is much cheaper than a mall

4. Business Districts
An unenclosed shopping area that has evolved without a lot of planning and that features a variety of stores
Parking not provided, and if it is, it is limited
Ie: Main Street
Leasing costs can vary greatly

5. Freestanding Locations
A store that is unattached to other stores
Large buildings and abundant parking
Usually inhibited by large retailers
Advantage – no direct competition
Disadvantage – must be able to draw customers without the help of other stores
Ie: Sam’s Club, Home Depot, Lowe’s

6. 2. Elements of a Good Location
Trade Area
a business’s geographic surroundings will provide most of the customers
*MOST IMPORTANT CRITERION
Locate yourself near your target market
Competitive Environment
Describes the proximity of competitive businesses
SOME nearby competition is good (gives customers a choice)
Traffic
The number of people who go by a store location during a given time
More traffic = more potential customers

7. Convenience Additional Factors
Keep it easy for customers to get in and out of
Keep parking close and plentiful
Visibility – is it easy for the customers to see your store?
Additional Factors
Availability of workers
Local zoning laws for the type of business
Possibilities of expansion of the location

8. 4. Competing or Complementing Businesses
Competitive business – one that sells the same or comparable merchandise
Competitors can help attract customers
May not be enough customers to keep all stores in business
Complementary business – one that sells merchandise that is related to, but not the same as, an area business’s goods
Ie: furniture store & home decorating store, wedding dress shop & tuxedo rental, Borders & Starbucks

9. 5. Buy, Build, or Lease? Buying space or building your own store
Requires capital and suitable locations may be difficult to find
Lease – a contract between a landlord and a tenant for use of a property for a specified amount of time in exchange for a specified amount of rent
Will state: amount of rent, length of lease, services the landlord will provide, provisions for renewing the lease
May be the ONLY option in many cases

10. 6. Types of Leases Fixed-Rate Lease Percentage Lease
Lease that charges the tenant a specific amount of rent each month
Advantageous for the retailers / business owners b/c rent doesn’t change
Not commonly used
Percentage Lease
Lease that bases the rent on a % of sales generated in the space
Used least often
Ie: 4% on sales up to $100k, 3% on sales over $100k, plus a maintenance fee
Triple Net (NNN) Lease
Lease that charges the tenant rent plus the three operating costs of the rented property
Insurance, maintenance and utilities, property taxes

11. 7. Changing Business Environments
Business environment forecasts whether the location under consideration is likely to experience economic growth or suffer an economic downturn
Examine:
Demographics
Employment rates of the area

12. 8. Key Math Concepts Amount of a Percentage Lease =
Change % to a decimal and multiply by your sales
Annual Amount of a Fixed-Rate Lease =
Monthly Rent X 12
Amount for the Length of a Lease
Annual Rent X # Years in Lease