Lesson 10: Location Lesson 10: Location SelectionSelection

ObjectivesObjectives

►List the elements of a good locationList the elements of a good location►Explain the pros and cons of locating Explain the pros and cons of locating

near a competitornear a competitor►Discuss the financial impact of buying, Discuss the financial impact of buying,

building, or leasingbuilding, or leasing►Calculate rent payments based on Calculate rent payments based on

different lease termsdifferent lease terms►Compare locations and choose the Compare locations and choose the

best site for a businessbest site for a business

1. Types of Locations1. Types of Locations

► Shopping CentersShopping Centers Group of retail businesses that are located together Group of retail businesses that are located together Usually owned by a company that leases the space Usually owned by a company that leases the space

to retailersto retailers Ie: Ie: MallsMalls – containment of stores serving a large – containment of stores serving a large

area that is usually in an enclosed building with an area that is usually in an enclosed building with an adjacent parking lotadjacent parking lot

High traffic flow, wide range of merchandise (drug stores to High traffic flow, wide range of merchandise (drug stores to specialty store), Climate controlledspecialty store), Climate controlled

Ie: Ie: Strip mallsStrip malls – a neighborhood space composed – a neighborhood space composed of a group of separate stores that are connected by of a group of separate stores that are connected by sidewalks and have parking lots in front of the sidewalks and have parking lots in front of the storesstores

Usually close to residential areas, rent is much cheaper than Usually close to residential areas, rent is much cheaper than a malla mall

►Business DistrictsBusiness Districts An unenclosed shopping area that has An unenclosed shopping area that has

evolved without a lot of planning and that evolved without a lot of planning and that features a variety of storesfeatures a variety of stores

Parking not provided, and if it is, it is Parking not provided, and if it is, it is limitedlimited

Ie: Main StreetIe: Main Street Leasing costs can vary greatlyLeasing costs can vary greatly

►Freestanding LocationsFreestanding Locations A store that is unattached to other storesA store that is unattached to other stores

►Large buildings and abundant parkingLarge buildings and abundant parking►Usually inhibited by large retailersUsually inhibited by large retailers►Advantage – no direct competitionAdvantage – no direct competition►Disadvantage – must be able to draw Disadvantage – must be able to draw

customers without the help of other storescustomers without the help of other stores►Ie: Sam’s Club, Home Depot, Lowe’sIe: Sam’s Club, Home Depot, Lowe’s

2. Elements of a Good 2. Elements of a Good LocationLocation

► Trade AreaTrade Area a business’s geographic surroundings will provide most of a business’s geographic surroundings will provide most of

the customersthe customers *MOST IMPORTANT CRITERION*MOST IMPORTANT CRITERION Locate yourself near your target marketLocate yourself near your target market

► Competitive EnvironmentCompetitive Environment Describes the proximity of competitive businessesDescribes the proximity of competitive businesses SOMESOME nearby competition is good (gives customers a nearby competition is good (gives customers a

choice)choice)► TrafficTraffic

The number of people who go by a store location during a The number of people who go by a store location during a given timegiven time

More traffic = more potential customersMore traffic = more potential customers

►ConvenienceConvenience Keep it easy for customers to get in and Keep it easy for customers to get in and

out ofout of Keep parking close and plentifulKeep parking close and plentiful Visibility – is it easy for the customers to Visibility – is it easy for the customers to

see your store?see your store?►Additional FactorsAdditional Factors

Availability of workersAvailability of workers Local zoning laws for the type of businessLocal zoning laws for the type of business Possibilities of expansion of the locationPossibilities of expansion of the location

4. Competing or Complementing 4. Competing or Complementing BusinessesBusinesses

► Competitive businessCompetitive business – one that sells the – one that sells the same or comparable merchandisesame or comparable merchandise Competitors can help attract customersCompetitors can help attract customers May not be enough customers to keep all stores in May not be enough customers to keep all stores in

businessbusiness

► Complementary businessComplementary business – one that sells – one that sells merchandise that is related to, but not the merchandise that is related to, but not the same as, an area business’s goodssame as, an area business’s goods Ie: furniture store & home decorating store, Ie: furniture store & home decorating store,

wedding dress shop & tuxedo rental, Borders & wedding dress shop & tuxedo rental, Borders & StarbucksStarbucks

5. Buy, Build, or Lease?5. Buy, Build, or Lease?

►Buying space or building your own storeBuying space or building your own store Requires capital and suitable locations may be Requires capital and suitable locations may be

difficult to finddifficult to find

► LeaseLease – a contract between a landlord and a – a contract between a landlord and a tenant for use of a property for a specified tenant for use of a property for a specified amount of time in exchange for a specified amount of time in exchange for a specified amount of rentamount of rent Will state: amount of rent, length of lease, services Will state: amount of rent, length of lease, services

the landlord will provide, provisions for renewing the the landlord will provide, provisions for renewing the leaselease

May be the ONLY option in many casesMay be the ONLY option in many cases

6. Types of Leases6. Types of Leases

► Fixed-Rate LeaseFixed-Rate Lease Lease that charges the tenant a specific amount of rent Lease that charges the tenant a specific amount of rent

each montheach month► Advantageous for the retailers / business owners b/c rent Advantageous for the retailers / business owners b/c rent

doesn’t changedoesn’t change► Not commonly usedNot commonly used

► Percentage LeasePercentage Lease Lease that bases the rent on a % of sales generated in Lease that bases the rent on a % of sales generated in

the spacethe space► Used least oftenUsed least often► Ie: 4% on sales up to $100k, 3% on sales over $100k, plus Ie: 4% on sales up to $100k, 3% on sales over $100k, plus

a maintenance feea maintenance fee► Triple Net (NNN) LeaseTriple Net (NNN) Lease

Lease that charges the tenant rent plus the three Lease that charges the tenant rent plus the three operating costs of the rented propertyoperating costs of the rented property► Insurance, maintenance and utilities, property taxesInsurance, maintenance and utilities, property taxes

7. Changing Business 7. Changing Business EnvironmentsEnvironments

►Business environment forecasts Business environment forecasts whether the location under whether the location under consideration is likely to experience consideration is likely to experience economic growth or suffer an economic growth or suffer an economic downturneconomic downturn Examine:Examine:

►DemographicsDemographics►Employment rates of the areaEmployment rates of the area

8. Key Math Concepts8. Key Math Concepts

►Amount of a Percentage Lease = Amount of a Percentage Lease = Change % to a decimal and multiply by Change % to a decimal and multiply by

your salesyour sales

►Annual Amount of a Fixed-Rate Lease = Annual Amount of a Fixed-Rate Lease =

Monthly Rent X 12Monthly Rent X 12►Amount for the Length of a LeaseAmount for the Length of a Lease

Annual Rent X # Years in Annual Rent X # Years in LeaseLease