Lesson 10: Location Selection

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

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

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

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

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

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

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

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

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

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

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