978-0134741086 Chapter 14 Part 1

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CHAPTER 14. CHOOSING THE RIGHT LOCATION AND LAYOUT

Part 1: Learning Objectives

1. Explain the stages in the location decision: choosing the region, the state, the city, and

the specific site.

2. Describe the location criteria for retail and service businesses.

3. Outline the location options for retail and service businesses: central business districts,

neighborhoods, shopping centers and malls, near competitors, shared spaces, inside

large retail stores, nontraditional locations, at home, and on the road.

4. Explain the site selection process for manufacturers.

5. Describe the criteria used to analyze the layout and design considerations of a building,

including the Americans with Disabilities Act.

6. Explain the principles of effective layouts for retailers, service businesses, and

manufacturers.

Part 2: Class Instruction

Location: A Source of Competitive Advantage LO 1

The location for a business has far-reaching and often long-lasting effects on a company’s

future. Entrepreneurs who choose their locations wisely can establish an important

competitive advantage over rivals who choose their locations haphazardly. Location

should be based on the customers’ preferences and the small business’s needs.

The location decision is important to entrepreneurs and considers a series of analyses of

critical factors unique to each business. Tax rates, availability of qualified workers, the

quality of the infrastructure, traffic patterns, and other factors vary from one site to

another. Studies show that these factors can influence the growth rate and the ultimate

success of a business.

The first level decision requires an entrepreneur to select a particular region, then the right

state, the right city, and finally the right site within the city. The characteristics that make

for an ideal location vary dramatically from one company to another because of the nature

of their business.

Choosing the Region.

What region of the country has the characteristics necessary for a new business to

succeed? Above all, entrepreneurs must place their customers first when considering a

location, and facts and statistics are most important in this step. The best regions are

those experiencing substantial growth.

A wealth of regional information is available online through the U.S. Census Bureau’s site,

The State.

Each state has an economic development office to recruit new businesses. This

information may be biased, but still is an excellent source to understand more about what

the state has to offer a business. Key issues to explore include the laws, regulations, and

taxes that govern businesses, costs of operation, workforce availability, and incentives or

investment credits the state offers. This office may provide information including the

state’s:

 Proximity to markets

 Proximity to essential services and raw materials

 Wage rates

 Size and quality of labor force

 Business climate. Refer to Table 14.1, Most and Least Small-Business–

Friendly States.

 Tax rates. Refer to Figure 14.1, State Business Tax Climate Index.

 High speed Internet access. Refer to Figure 14.2 Internet Download Speeds

Refer to Table 14.3, Best and Worst States for Doing Business.

Choosing the City.

Successful small businesses within a city tend to track with population growth. The full

range of considerations for city selection include:

 Population trends. Refer to Table 14.4, States with the Most Top

Micropolitan Areas.

 Competition

 Clusters are geographic concentrations of interconnected companies,

specialized suppliers, and service providers that are present in a region.

 Compatibility with the community

 Local laws and regulations. Zoning laws are laws that divide a city or

county into small cells or districts to control the use of land, buildings, and

sites. Variance is a special exemption to a zoning ordinance.

 Appropriate infrastructure and utilities

 Incentives

 Quality of life

Choosing the Site.

Few decisions are as important for retailer and service firms as the choice of a location.

Because their success depends on a steady flow of customers, these businesses must locate

with their target customers’ convenience and preferences in mind. See Table 14.5, Top 20

Metropolitan Hot Spots for Start-Up Companies.

Consider using You Be the Consultant “Temporary Locations Can Be Just Great

for Business” at this point.

The following are important considerations for retail and service locations:

Trade Area Size.

A trading area is the region from which a business can expect to draw customers over a

reasonable time span. Retail stores choose locations based on whether customers will

seek them out as a destination, or if convenience is most important to customers.

The size, location, and activity of competing businesses also include the size of a

company’s trading area. Market saturation is a problem for businesses in many industries,

such as fast food restaurants and convenience stores.

Index of Retail Saturation.

Index of Retail Saturation is a measure of the potential sales per square foot of store

Reilly’s Law of Retail Gravitation.

This classic work in market analysis uses an analogy of gravity to estimate the

attractiveness of a particular business to potential customers. The formula and calculation

are shown in this chapter, and provides insight into customers’ perception of the location

as a “destination” and estimates the trade boundary between two market areas.

Transportation Network.

Retail and service businesses need easy customer access from a smoothly flowing network

of highways and roads. E-commerce businesses must consider accessibility to trucking

routes such as interstate highways and airports.

Physical and Psychological Barriers.

Physical barriers may be parks, rivers, lakes, bridges, or other natural or man-made

obstruction. Psychological barriers include areas that have a reputation for crime and

illegal activities.

Customer Traffic.

Perhaps the most important screening criteria is the number of potential customers passing

Reputation.

Like people, a site can have a bad reputation, such as a site that has had multiple business

failures.

Visibility.

Highly visible locations simply make it easy for customers to find the business.

Consider using You Be the Consultant: “Where Should Our Next Retail Store Be

Located?” at this point.

Location Options for Retail and Service Businesses LO 3

Retail and service locations have additional consideration to optimize their location

selection.

Central Business District.

This refers to the traditional center of town, or downtown. Advantages for a business

include: attract customers from the entire trading area; customers traffic generated by the

other stores in the district; and possible revitalization efforts made by cities.

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Disadvantages include: potential intense competition, high rental rates, traffic congestion,

and inadequate parking.

Neighborhood Locations.

Locating near major residential areas provide convenience to customers, potentially lower

operating costs such as rent, and close contact with customers.

Shopping Centers and Malls.

There are nine types of shopping centers: strip shopping centers, neighborhood shopping

centers, community shopping centers, power centers, theme or festival centers outlet

centers, lifestyle centers, regional shopping malls, and superregional shopping malls.

shopping based on price, quality, color, and other factors. However, clustering too many

businesses of a single type into a small area ultimately erodes their sales once saturation

occurs.

Shared Spaces.

Coworking is a situation in which two or more small companies share the same space.

volume of customer traffic drawn to the large store.

Nontraditional Locations.

Examples include locating in airports, museums, office buildings, churches, casinos,

college and university campuses, athletic arenas and other areas that offer high

concentrations of potential customers.

Mobile businesses take products and services to their customers when opportunities are

the greatest. Mobile entrepreneurs, such as veterinarians, dentists, restaurant food trucks

and dog groomers, incur the expense of setting up their mobile businesses, finding suitable

parking spaces in big-traffic areas, complaints from nearby owners of businesses, and

securing the necessary permits to operate.

The Location Decision for Manufacturers LO 4

The location decision for manufactures is equally important for very different reasons.

Suitable manufacturing plant sites are limited by zoning regulations, utility and

transportation needs, proximity to raw materials, and other special requirements.

Foreign Trade Zones.

Small manufacturers who seek to export should consider a foreign trade zone which is a

specially designated area in or near a U.S. customs port of entry that allows resident

companies to import materials and components from foreign countries; assemble, process,

a multitude of support services for its small business residents. An incubator’s goal is to

nurture young companies during the volatile start-up period and help the business survive

until they are strong enough to go out on their own.

Layout and Design Considerations LO 5

Once an entrepreneur chooses the best location for his or her business, the next issue to

address is designing the proper layout for the space to maximize sales (retail) or

productivity (manufacturing or service). Layout is the logical arrangement of the physical

facilities in a business that contributes to efficient operations, increased productivity, and

higher sales. An effective and efficient layout can produce dramatic improvements in a

company’s operating effectiveness, efficiency and overall performance. An attractive

effective layout can help with employee recruiting efforts, reduce absenteeism, and

improve employee productivity. See Figure 14.4, Work Space Design Characteristics in

the United States (part a) and Globally (part b).

Size and Adaptability.

A building must offer adequate space and be adaptable enough to accommodate a

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from private offices towards communal tables or desks that workers share and can

rearrange easily to suit the task at hand.

Construction and Appearance.

An expert should look over a building before buying and leasing the property to insure it is

of sound construction. The building should also recognize the importance of creating a

proper image. The store’s window display and in-store displays can be powerful selling

anything that creates obstacles.

The Americans with Disabilities Act.

The Americans with Disabilities Act (ADA) is a federal law that requires practically all

businesses to make their facilities available to physically challenged customers and

employees. Approximately 12.6 percent of people in the United States are disabled. Most

tool for reaching potential customers. It should be large enough for passersby to read

from a distance, and have a short, simple and clear message. It must be legible during the

day and night, have proper illumination, contrasting colors and simple typeface, and have

regular maintenance. Before investing in a sign, the entrepreneur should investigate the

community’s sign ordinance.

decide to never return to a restaurant because of dirty restrooms.

Ergonomics is the science of adapting work and the work environment to complement

employees’ strengths and to suit customers’ needs. An ergonomically designed workplace

can improve workers’ productivity significantly and reduce days lost due to injuries and

accidents.

Chapter 14, Page 228

sales.

Sight, Sound, Scent and Lighting.

Retailers can increase sales by sending important subconscious signals to customers using

sight, sound, scent, and lighting. Offering free samples of fresh food increase sales, as

customers are willing to pay more for products they can see, touch, taste, or try.

 Sight – use colors and visual cues in interior designs to support brand and image.

and comfort, and citrus scents tend to be energizing and invigorating. Bakeries

use fans to push the smell of fresh–baked breads and sweets.

 Lighting – good lighting allows employees to work at maximum efficiency, and

conveys an image to customers that the business is trustworthy. Natural light can

also influence sales

Layout: Maximizing Revenues, Increasing Efficiency,

or Reducing Cost LO 6

Layout for Retailers.

The layout for retailers is the arrangement of merchandise and displays in a store. It

focuses on understanding a company’s target customers and crafting every element of a

they may buy on impulse. Some locations inside a store are superior to others, so prime

selling space should be reserved for products that carry the highest markups.

Layout in a retail store evolves from a clear understanding of customers’ buying habits.

For example, women are reluctant to enter narrow aisles in a store, as narrow aisles force

customers to jostle past one another. Displaying items that complement each other boosts