The Three Vital Factors That Affect Choice Of Retail Location

Location is the most important consideration in setting up a retail store. You can make many mistakes in business that are not fatal, but having a poor location is usually a blunder so costly that most entrepreneurs fail to recover. Due to the prime importance of getting a good location, there are small entrepreneurs who have spent large sums of cash and effort in finding the best site.

Unfortunately, some of the advice given is applicable only to large chains or franchises. Those putting up their own stores need to make some changes to the traditional rules since their situation is different. Blindly following what works for dominant firms is a recipe for disaster.

There are three factors that entrepreneurs must take into account: his smaller resources, lack of brand recognition, and personal situation. I will discuss how these must be accounted for when looking for your ideal location.

Limited resources

We often hear that we should get the best location possible. The best is usually defined as, first, having the most number of pedestrians or vehicular traffic; second, being highly visible; and third, it is nearest to the target market. However, the best location is almost always the most expensive and unaffordable for a start-up.

Often, the cost of leasing the best location is even bigger than the capital of the entire business. Simple math alone would show that very few ventures could afford such a place. But when you look around, you will see that many businesses actually thrive even in so-called “secondary sites”. In fact, most businesses could only afford secondary locations.

Lack of brand recognition

Even if an entrepreneur had sufficient capital, a new business does not have the same pulling power as a well-known brand. We had a terrible experience with this problem. Around two decades ago, there was a wonderful site vacated by a large drugstore chain. During that time, our family had a small drugstore chain and we excitedly took over the place. Except for a fresh coat of paint and a new signage, we were a virtual clone of the previous store. We knew their past sales history and we decided not to tamper with what was successful.

To our great surprise, our sales did not even reach a third of the revenue of the previous tenant. Things did not improve, and we were forced to close the shop after several months. Most people just do not trust an unknown company. Even if you get a prime site, it is highly unlikely that you could make as much sales as a well-known company. One of the very few exceptions to this rule is if you could get a location where there are no competitors around. The worst situation is if you are in a destination site like Boracay and there is a multinational chain competing with you. In this case, since the market is mostly tourists, they would patronize the familiar brand unless you are selling local food that they wish to try.

Personal circumstances

A major consideration rarely factored in by large companies is the suitability of the location to the owner’s personal circumstances. This is because in chain stores, the store manager is rarely the owner.

If the owner is also the manager, you may have different priorities. The proximity of the store site from your home becomes more important. It is also critical that you are not easily cut off by flooding. You would probably be more sensitive to the peace and order situation in the neighborhood and the need for a nearby bank. The need for acceptable food establishments in the vicinity cannot be ignored, too. There are many more factors that are not even mentioned or just treated as minor issues if it were a chain store looking for a site, but if it is you who will be staying there, it is inevitable that they become a big deal.

There are a lot of books on how to find the best location for your business. Most of them contain excellent advice that is extremely useful. Unfortunately, some of the suggestions are from the point of view of a large organization, which may not be practical for small entrepreneurs looking to start their own store. It is up to the business owner to adopt the strategies applicable to his situation.

*Originally published by the Manila Bulletin. C-4, Sunday, May 5, 2013. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.