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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.
2
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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Chapter 14, Page 225
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
Copyright © 2019 Pearson Education, Inc.
Chapter 14, Page 227
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.
Copyright © 2019 Pearson Education, Inc.
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
