Properties & Leasing

8 little-known factors to consider when finding the right location for your small business

Posted by: Josh Weinkranz Josh Weinkranz
on April 30, 2012

“Location, location, location” is the classic rule for real estate business success. And for small business owners, it’s often the #1 factor that influences your ability to catapult your business to its full potential.

It might sound easy enough. But choosing the right location for your business is one of the most challenging and confusing decisions for entrepreneurs to make. Most small business owners realize the obvious: Open your business where your customers live. That said, however, there are several not-so-obvious rules for finding the optimal location for your small business. Here are eight lesser-known factors to consider:

1. Demographics are in the details.

Like I mentioned, most small business owners know their products should suit the needs and demographics of the area’s population. For example, if your boutique sells high-end designer handbags, you should locate your business in an affluent area. However, there are several other considerations beyond this that many small business owners don’t take into account.

One is daily population fluctuations. A restaurant that needs a strong lunch business in addition to its normal dinner business should be located in an area where there are many places of employment, rather than in the middle of a bedroom community.

In addition, know how far customers typically travel to come to the shopping center. Many shopping centers (especially those with a supermarket anchor) pull customers from a one- to three-mile radius. However, shopping centers with a big-box anchor or destination store (Costco, Target, etc.) typically pull customers from much farther.

This is important to understand because the type of business and the products you sell have to mesh with the customers that the shopping center draws. Typically, people will not want to drive more than three miles to get their dry cleaning. So if you locate your dry cleaner next to a Costco, which draws customers from a larger distance, you probably won’t benefit much from their foot traffic.

2. Co-tenancy: Who’s your neighbor?

Look for a shopping center with a tenant mix that attracts customers similar to yours, and that complements your business. Place extra weight on whom the anchor tenants draw, because these businesses typically pull in the majority of the center’s customer base.

So say you’re a nail salon owner, catering mainly to women who often get manicures while doing other errands. Your business would do well next to businesses where customers take care of daily activities, such as a supermarket and gym. To contrast, a nail salon probably would not perform as well next to a Home Depot, which attracts many contractors who are on the job — usually male — who would not be stopping for a manicure.

In addition, seek co-tenants with similar operating hours as your business. You don’t want to be in a shopping center where most of the tenants close at 6 p.m. while your business is open until 10 p.m., because there will be significantly less traffic in the evening.

3. Keep your eyes on the size.

You should determine as precisely as possible how much square footage you need to support the types of products, fixtures and levels of inventory you need. And I emphasize precision. If the space is too large for your requirements, you will be paying unnecessary rent and utilities on the extra square footage. If it’s too small, you might not have enough room to fixture your store and stock your shelves with the right product mix your customers want.

For instance, a small business owner might only require 15 feet of store frontage. But the owner finds a location with 20 feet of frontage and another with 10 feet, and thinks that will be close enough. But “close enough” doesn’t always work if you have a specific layout you need to accommodate. A typical shop space is 100 feet deep, so an extra five feet of frontage will equate to an extra 500 square feet of space. At $30 per square foot gross (including maintenance and taxes), this extra five feet of frontage will cost you another $15,000 per year, or $1,250 per month.

Alternatively, the loss of five feet from the width of a store can mean the loss of an entire aisle of fixtures, and as a result, possibly hundreds of product SKUs as well. This can reduce foot traffic because the store can’t carry all the products shoppers want and expect to find. Working with an architect and space planner can help you optimize your layout and determine exactly how much space you need for your business.

4. Think inside the rectangle.

Much like space, the shape of the store is also important. Some tenants, say a medical office, can be more flexible with shape than other tenants that might have specific layout requirements. Generally, however, most small business locations are rectangular in shape. This is the case for the majority of the small business locations in Kimco’s portfolio, because they’re situated in neighborhood and community shopping centers.

Most small business owners can’t go wrong by moving into the industry’s average-shaped space — 80 to 100 feet long, and anywhere from 15 to 75 feet wide. This is the sweet spot, because it typically enables owners to use the space well and facilitate good traffic flow. Beware of sites that are too narrow, as this can create issues with fixture spacing (as discussed above).

Another often-overlooked factor is column spacing. This can make or break the layout because the columns will dictate where fixtures can and cannot be placed. A column that’s two or three feet from the side wall, for instance, can get in the way of your fixtures and create dead space. Walk through the site, noting its shape and column spacing. Obtain an architect’s layout to help you plan whether and how your layout requirements would work in the location.

5. Visibility forecast.

Many small business owners think they need to find a location with large signage capability and high street visibility. While visible signage is always a good thing, it is not crucial for all types of businesses. Locations with good street visibility typically have higher rents than the space inside the shopping center, so you want to be sure you need this visibility. To decide what’s right for you, we recommend identifying whether your business offers impulse buys or functions as a destination store.

An impulse business is one in which customers see the shop and decide to go in on a whim. Coffee retailers, fast food restaurants, and some clothing stores are impulse businesses. As a result, impulse tenants should have high visibility from the street, and be located in high-traffic areas so customers can easily swing into the parking lot and get what they want. Seek end caps and outparcels in shopping centers.

Destination tenants, on the other hand, can be located farther back in the shopping center. These businesses are commonly grocery stores, doctors’ offices, professional services offices, and hair salons. They require less street visibility because customers usually already have the businesses on their to-do lists or have appointments to go to them.

6. Parking: lot or little.

Your location should have the right amount of parking you need to support your customer flow. For example, if you have a small residential real estate office or a pack-and-ship store, you won’t need a lot of parking. This is because you probably either have just a few customers at a time, or customers typically spend only 10-15 minutes in your business, quickly opening up the parking spot for the next customer.

Health clubs and sit-down restaurants, on the other hand, typically need a lot more parking. Their customers can spend an hour or more in the space, preventing quick parking turnover for adjacent tenants.

It’s important to have the right amount of parking for your business, but to also be aware of the businesses next to you that will utilize the same parking. A pack-and-ship store will not do well next to a health club because the parking field during certain hours will be full and have little turnover. It’s important to locate next to complementary uses and parking demands.

7. Corral the competition.

Map out your competitors’ locations in the area. Determine how close you want to be to your competition. Usually, locating near your competitors will enable you to benefit from their marketing efforts which draw customers to the area. Many business owners find competition is a boon for business, causing you to continuously improve your offerings to sharpen your competitive edge.

On the other hand, some owners would rather fill an unmet need in a community by locating their business far away from their competitors. In either case, be sure you understand the level of demand for your trade or products in the area. Can the demand support the addition of your business?

8. Numbers count.

What are all the expenses associated with operating out of a potential location? Many business owners overlook some of these costs, which can add up to a lengthy list: Rent, utilities, taxes, maintenance, and salaries are just some to consider.

It’s important to have a business plan, take the time to go through it, and identify and calculate all the cost factors of your business. If necessary, seek the advice of a professional accountant, who can help with your business financials, or a professional real estate broker, who can help you find the right location for your business.

So, to sum it up, start with “location, location, location,” then drill down through these eight maxims. The more of these you hit on the head, the better you’ll ensure your business success. It’s also a good idea to list these factors according to your priorities, and identify what you can and can’t compromise on. That can help you focus your search and lead you to the best location for your small business.

If you’re interested in a space at any Kimco shopping center, our leasing associates are always available to help you find the right location. If you have any questions or other guidelines to add, feel free to leave a comment below.

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