This blog was lifted from my website Ed’s AV Handbook.com. It addresses the challenging subject of how to choose a retail location. This is a 9 step process that defines trade area boundaries, locates its trading areas, describes its demographics, and selects a brick-n-mortar home. But before we proceed let’s confirm three definitions for clarity.
1. Trade Area – the total geographical area in which your customers reside.
2. Trading Areas – locations within a trade area where the action of trading takes place.
3. Location – the address you select to trade in a trading area.
Step 1 Trade area map
Print a map of your prospective trade area with streets, major geographical features, and census tracts. Select this link to U.S. Census.
Step 2 Trade area barriers
A barrier placed between a customer and a retail location impedes their travel. People are inclined to avoid barriers. They tend to drive to a location on their side of a barrier, even if a convenient bridge or underpass is present. Highlight natural or man made barriers within the trade area that impede travel to trading areas; this includes rivers, freeways, rail-road tracks, airports, mountains/hills, etc.
Step 3 Local routes
Seek and highlight popular local routes within the trade area to churches, schools, local government, post office, grocery stores, competitors, malls, commuter highways, hospitals, ball parks, and other key destinations.
Step 4 Center focus
Select a feasible prospective location situated on a local route between your customer prospects and the competition.
Step 5 Circular mapping
Return to your trade area map. Draw a series of circles (feasible location at the center) with radii of 1 mile, 2 miles, 5 miles, 10 miles, 15 miles, 20 miles, and more if desired.
Step 6 Data spreadsheet
Return to the U.S. Census at https://www.census.gov/2010census/popmap/.
Search for — and create a spreadsheet list of — the trade area census tract data within the circled area as follows:
a. List trade area census tract numbers in the first column.
b. Add the following demographic headings:
– # of households,
– your targeted income groups
– your targeted age groups
– if relevant – your targeted gender
c. Insert the census tract data for each demographic.
Step 7 The guesstimate
Add this column heading “%” to the spreadsheet. Inspect the census tracts within each region created and bounded by the ‘circles’. Given the trade area barriers, your local route knowledge, and distance from the proposed location – guesstimate the % of households that will choose to travel from each census tract toward the proposed location versus competitors in the opposite direction. Insert your guesstimate into its ‘%’ spreadsheet column.
Step 8 The factored summation
Return to the spreadsheet. Add an extra column next to each demographic. Multiply each census tract demographic by the results of step 7. Enter each result into its extra data column.
– (population) x (Step 7 results)
– (# households) x (Step 7 results)
– (income group) x (Step 7 results)
– (age group) x (Step 7 results)
– (gender) x (Step 7 results)
Sum each ‘extra’ demographic column. The totals of each ‘extra’ column are your exclusive trade area demographics.
We’re almost home
The boundaries of your trade area are drawn. Its trading areas and local routes have been identified. You have a clear demographic sketch of your customers. Now choose a home location.
Step 9 Head them off at the pass
Next to committing money to the business, choosing a retail location may be your most taxing business decision. In addition to its indoor practical functions, a retail location via its store front can also become your most productive promotional tool.
The best locations are positioned between customers and significant competitors. In effect, their store front signage ‘heads them off at the pass’. This better location will cost more than alternatives. But it will deliver a competitive edge that alternatives can only offset with increased promotional expenditures; a cost typically much higher than the difference between a lower cost location and a better location.
Now, create an annual profit & loss forecast. Its operating expenses will include your budget for rent/mortgage. But be prepared to entertain the idea of reallocating budgeted promotional funds to your rent or mortgage.
Enlist the guidance of a seasoned local Realtor who knows the local travel paths of the trade area. As a rule, they are the gray haired agents at a rear desk in a real estate office. Present the agent with a list of your qualifying needs and wants. Include your budget for rent or purchase.
A good real estate agent is a sufficient. But also speak to other retailers in the trade area. Take drives from different points within the trade area to the proposed location. If your inquiries confirm your trade area data, and the location is within budget, secure the location with a lease or a purchase.