Analyzing Retail Trading Area

What you’ll learn to do: Explain the significance of selecting a store location

Retail trading areas can be primary, secondary or fringe. We will discuss each and determine ways to identify the trading areas for a new or expanding retail establishment.

A trading area is the geographic area from where you draw your customers. There are three types of trading areas that are important to note:

1. Primary Trading Area. Where the store is exactly located.
2. Secondary Trading Area. The shopping center or area where the store is located.
3. Fringe Trading Area. The city or town where the store is located.

You can picture these three areas as follows:

Your store is in the center of the primary area. Most of your customers will come from this smaller area as well. As you expand out, fewer and fewer customers will be coming to you. This is especially true if, for example, you are a small convenience store or drugstore. If, on the other hand, you are planning to open a Trader Joe’s, Marshall’s or T.J. Maxx, you may get your draw from a wider area. So, if you are planning to open a small, local retail store, you need to make sure that the area immediately surrounding your location has:

1. Enough consumers. Are there enough people living in the area, with access to your retail space to create sales for your product or service?
2. Enough money to spend. Spending potential index- compares the local average expenditure by product to the national average amount spent.
3. A need for the product or service you are bringing to the area. Is there a market for your product? Here is where the census review, GIS services and other analysis processes will help determine if your market exists!
4. Competition in the trading are. Using the internet as a tool, review sites like Yelp, use the map function and note who is located in your geographic area. It is also possible to use directories published by trade associations, the local chamber of commerce, municipal and city government or Chain Store Guide (published by CSG Information Services) to see who the competition might be.

So, again, analysis is the crucial component. Even with analysis, there is a possibility that a business may not work. As an example, a yoga teacher opened a studio in  a small town where no other studios existed. It seemed like a perfect opportunity to tap an untapped market right? Well, the problem was, there were not enough people in the market for yoga classes. So what happened? The studio was open for a few years, marketing heavily to the local area, but ended up shutting their doors when they couldn’t create enough sales to be profitable.

Comparing Location Benefits

There are multiple location options available to retailers. Downtown areas, enclosed malls, strip malls, stand alone or online. Where you locate depends on your product or service and where people looking for the product or service shop!

We went through the process for deciding if an area was suited to your business, now let’s look at what the options are.

Where are you going to locate your business? A mall? Main Street? Or off the beaten path somewhere? Each potential area has pros and cons to consider! Let’s take a look at some of these spaces.

Unplanned shopping areas, also called central business districts (CBD), are spaces that have simply developed over time. A downtown area in a small town, neighborhood districts, or strips along highways would be considered unplanned locations. These were not intentionally created as areas for retail to be located, but have morphed and developed into shopping spaces. These unplanned shopping spaces may be freestanding, isolated stores in rural locations too. Unplanned shopping areas have their pros and cons. Typically, they have developed out of need. They may have high pedestrian traffic or be located near public transportation. Unfortunately, they also have parking issues, security issues (each business would need their own), and a potentially high shoplifting rate.

These unplanned spaces have some of the coolest non-traditional spaces. A farm store that sells products from the farm in a rural location, or a restaurant that is off the beaten path. These fun little places that are most likely freestanding, potentially in isolated areas have several advantages. The cost of occupancy may be quite low. They are separate from competition and there may be few restrictions for them to operate. Parking can be pretty easy too. Unfortunately, these types of locations won’t get any foot traffic and there are no other stores drawing business to them. They need to stand out and have something worth travelling to get!

Planned shopping areas include malls, which were architecturally designed for shopping. Many have anchor stores, or large retail stores, with smaller stores between them. These locations can be strip malls, enclosed malls (like the Mall of America), or any other intentionally created space for retail. Typically, these places are owned by a property development firm, with many tenants, shared common spaces. These planned spaces typically have high visibility and customer traffic. Once shoppers come in, they walk around, right? Parking is usually in a lot format, so lots of space to park, but the cost of occupancy in these planned areas can be high. This can be offset with greater sales, due to the additional foot traffic, but it is definitely something to consider.

There are a variety of planned shopping areas including:

1. Omnicenters are large planned centers that may include a variety of retail formats in a single shopping location. Usually put in larger population areas, they are intended to meet the needs of cross-shopping consumers.
2. Lifestyle centers are located in upscale areas and have specialty chain stores, restaurants and even theatres.
3. Outlet centers are another form of planned shopping area. Originally, these locations were used to sell damaged, discontinued or surplus merchandise, but they are now selling product made by retailers specifically for the outlet stores. These products may be of a lower quality than sold at their regular retail outlets.
4. Mixed use developments may have shopping, restaurants, hotels and residential space all within one planned space. People can live, work and eat in a proximal area.

So whether you do all of your analysis and end up in a planned or unplanned space, each will have benefits and negatives. It will depend on what your product or service is, your price point and a variety of other demographics to determine the best location for your business.

Evaluating Site Characteristics

The site for a new business or an additional business location can be the difference between a successful start and an unsuccessful one. Making sure to take into account all of the aspects of selecting the correct site is extremely important. We have talked about ways to collect the data, from the U.S. Census to GIS methods. Let’s summarize the important factors to consider when selecting a perfect location.

You have decided to open a new business, or a new location for your existing business. Several sites are available. How do you choose just the right one? We have talked about how to get the needed data, so now let’s summarize the really important aspects of location. You have, I am sure, heard the old saying, that the success of a business is all about “location, location, location,” and that is absolutely true!

Entrepreneur Magazine has an excellent list of things to look at before picking a retail location.

Some of the items in this list can be part of a good review of census data. Some of these need to be done in person, walking the area! Let’s take a look:

1. Your style of operation. If you are going to start an upscale steak house in a neighborhood filled with dollar stores and fast food restaurants, you may want to rethink  your choice. Your style doesn’t match the area! There may be reasons that no one has started a fancy restaurant there yet!
2. Demographics. We have discussed this one in detail, but let’s take another look. Who are your customers, how important is it to be close to your business and is the economic base of the location stable? If you plan to start a business in an area where there is one primary industry, it may be difficult to operate if that industry has a downturn.
3. Foot traffic. Can people get to your door? How many people pass by on foot each day? This one will vary based on your type of business, but it is definitely important to consider!
4. Accessibility and parking. The most awesome business may struggle if there is not enough parking or your customers can’t access it easily. A daycare center on the second floor of a building with no elevator, or a fitness center for senior citizens without handicapped accessibility might be examples of this problem. Make sure your target market can easily get to you!
5. Competition. So here is an issue that may be good or bad. If there are several restaurants in a particular area that are always busy and overflowing, it may be good to add another! Ah, but if there are already several barbershops that are not busy, it may not be good to hang out your shingle in that neighborhood. Who is the competition, how busy are they, and is there room for another similar business?
6. Proximity to other business and services. May also be good or bad. As in number 5, competition may enhance your business or damage it. It may also be good to open a complimentary business to those already in the area. For example a drop-in child care center next to a fitness center or spa might be very popular and needed!
7. The image and history of the site. A good history of successful businesses in a spot might be amazing! But what if the space you have chosen has had 5 different restaurants in as many years? Was it the location? The food? Poor management? It could have been ANY of these things, and you should delve deep to find out!
8. Ordinances. Sometimes to get a space up to par is a challenge in a particular community or neighborhood. If you are interested in opening a coffee shop and would like to have outdoor seating and serve wine and beer, check with the town or city to insure that these things are options, and what the fees may be. A great location, isn’t great if you can’t do the things you need due to regulations, licensing and permit issues!! I recently had a conversation with a guy who bought a building to put small rental rooms into, but he found out it wasn’t permissible in this location! He now needs to find a buyer for a building that has limited uses. A few phone calls  may have averted this issue!
9. The condition of the building. It may be difficult to put a high tech computer store in a building with old wiring, or a laundromat in a building without sufficient water hook ups. Make sure that the building you are looking at will fit your needs from an infrastructure standpoint. Have it professionally inspected, and find out how much renovations may cost to make it work.
10. All the other costs. Utilities, insurance, janitorial service, refuse removal and parking fees can all add up! That building with a low lease cost may cost more than you could imagine once you add all of those costs in. Find out what is included in the lease, and research the other costs before you jump in!

So, there is a lot to consider when you think about picking a retail location!