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Choosing Locations for Stores or Restaurants

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  • 0:02 Finding a New Site
  • 0:50 Geography
  • 1:59 Property &…
  • 3:15 Desirability & Government
  • 4:40 Restaurants
  • 5:29 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Choosing a potential business location is just as important as knowing how to operate that business in the first place! In this lesson, we look at some strategies to successfully analyze a good location for a new business.

Finding a New Site

You've had a pretty good career as a commercial real estate agent. However, the recent turndown in economic activity has meant that there are plenty of properties available, but not many people buying. Therefore, you were pretty surprised to hear a former client of yours set up an appointment.

It turns out that since his company sells goods at a lower price, all of this economic slowdown has been a real boon to his business. As such, you get to talking about what he is looking for in a potential new site for a store. However, your client is clueless. While gifted at selling things cheaper than the competition, he really doesn't get how much thought must go into the establishment of a new site for any business. Luckily, you have just the information that he needs in order to make the best possible decisions for his business now and in the future.

Geography

First and foremost, since you're talking about a new store, geography matters. Your client has a store in a solid middle-class neighborhood and is looking to duplicate his success. It turns out that there are several great options, but they all differ. Site A is in a posh neighborhood downtown, Site B is in a rural town without many people stopping for anything but gas, and Site C is in a town in the next county that is very similar in composition to the existing site.

It seems your client has his eyes set on Site A in the posh neighborhood. After all, since the people who live there are rich, he figures they'll spend more. However, you know that's not true. You explain that wealthy people who aren't worried about saving money may not care about saving 35 cents on a bottle of laundry detergent. Instead, stick with what works: go with Site C, which is most similar to what he's got now.

Site C has other advantages as well. It is along a major trucking route, which means that it is easy to restock shelves from new shipments. Also, Site C has plenty of neighboring businesses, meaning that there is other traffic in the area.

Property and Environmental Concerns

Site C offers advantages in addition to its location. Because there are a lot of neighboring businesses around Site C, there are a lot of parking spots in the area. That means more people can come to shop. Further, the property already is set up to be a store. Site A is currently an office, while Site B is currently a small diner. It already has large doors for accepting inventory and has plenty of little restaurants nearby to help draw even more people into the store.

Your client is not convinced yet. It seems that he still thinks that posh Site A is best. You don't agree with his reasoning, so you feel it's time to bring up the environmental concerns, or those concerns about environmental practice that could affect a business.

The downtown association has placed limits on the types of trucks that can provide deliveries in Site A's neighborhood, including restricting how long those trucks can remain downtown. They are tired of having heavy pollution in the early morning hours when many people are out jogging. Also, there is some discussion of a congestion charge to limit the amount of people who can drive to the site. Needless to say, this would limit the number of people who would shop there. Begrudgingly, the business owner begins to see why you don't think Site A is a good idea.

Desirability and Government

Your client notices that he loves small towns and wants to go with Site B as his second choice. Apparently, he's insistent on any but the one you think is best. Luckily, you have answers for Site B as well. It turns out that there is a reason no one ever stops there. The small town has a poorly regulated industrial park that releases stinky fumes at all hours of the day. People literally avoid the place because it stinks. In other words, Site B is not desirable since people just don't want to go there.

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