Why should retailers use analytics

Location analysis: Find the right location for retail

Location analysis: This is how founders choose a good company location

In most industries, the company's location is crucial to the success of a company. This is especially true in retail. Founders should therefore do a thorough location analysis before renting a retail space.

The success of a company depends on many factors. In addition to financial bottlenecks and personnel problems, around nine percent of all startups fail because they choose the wrong location. This was the result of a study by the market research company CB Insights, which has been analyzing why founders fail since 2014. Even if the choice of location is not your most important success factor, you should deal with this topic seriously. The optimal location has a significant influence on your sales and earnings.

Determine your target audience

Founders should know their target group and their habits exactly, otherwise opening a shop can quickly backfire. An example: Mr. Meier rents a shop space on the first floor of an office and commercial building and sells his organic food with an opening discount of 30 percent compared to the usual market conditions. At first, business is good, but a few weeks after the store opens, customer traffic drops significantly. In a customer survey, he found that many customers had visited his shop because of the heavily discounted entry-level offers and that most customers stayed away because of the lack of parking spaces and the unfavorable location on the first floor of the office and commercial building. The example shows that the founder did not deal intensively enough with his target group and the company location.

Entrepreneurs avoid this mistake by defining their target audience as precisely as possible. Sometimes it is not enough to know that the business idea is interesting for “families”. Sometimes it is beneficial to know that the idea is particularly popular with “families with children of primary school age”. Instead of “men”, the description “male adults between 30 and 40 years of age with a condominium and an income of 60,000 euros or more” is more suitable. The more precisely you narrow down the target group, the more likely your planning will match the later actual figures.

Important considerations around the target audience

1. Customer groups: Do you sell your products to private customers (B2C), to companies (B2B) or to both target groups?

2. Demographic characteristics: Can your buyers be narrowed down by place of residence, age, gender, marital status and household size?

3. Socio-economic perspective: What influence do the level of education, occupation and average earnings have on the purchasing behavior of your customers?

4. Psychographic characteristics: What effects do lifestyle, values, motivation, purchasing range and media usage have on your customers' purchasing decisions?

5. Accessibility: At which locations can you best reach your customers?

It is worthwhile to carefully analyze your own target group before renting a shop.

What prices and services does the competition offer?

Once you have defined the target group and are clear about the best locations to reach them, you should keep an eye on your competitors. Find out who is offering the same or similar products and services. Are there a few competitors with a large market share or are many small competitors sharing the market? Do the competitors offer the same product range or only part of your range? Under what conditions do the competitors offer the products and what additional benefits do they use to explain the price differences? What are the strengths and weaknesses of the competition? Also take into account Internet providers that do not have a local location, such as Amazon.

The more a company location is shaped by competition in the same product segment, the more the potentially achievable turnover reaches its limits. Think about how much competition your retail business can handle and, if necessary, cross highly competitive locations off your list.

What are the factors to consider when analyzing the location of a retail store?

After you have defined your target group and analyzed the competition, you can move on to the location analysis. The location factors differ considerably depending on the industry. The following location factors usually play a major role in retail:

  • Size of the catchment area
  • Purchasing power of the district or region
  • Good location for walk-in customers
  • Parking facilities
  • Accessibility by public transport
  • competition
  • Attraction of the location
  • Rental price amount

In a macro view, entrepreneurs should first look at the differences in the region or city in which they want to settle. If the image of the district or neighborhood does not match your products, you should not offer them there. When choosing a location, also include public funding that may be available in a neighboring state. Factors such as trade tax rates, purchasing power and rental and energy costs also differ depending on the region.

In addition, good accessibility plays a decisive role. Find out if there are other stores near your potential business location that have products that are complementary to your range and that have many customers. Unless you set up your business in an infrequent side street, you will benefit from the footfall in the neighboring business.

In addition, the choice of the location of your retail store depends on the types of purchase decisions that are relevant to your range of products. A distinction is made between the following:

1. Intuitive-emotional purchases: The customer spontaneously decides to buy in the store, without having planned the purchase and without a time-consuming comparison in advance. This is often the case with sweets, for example. Here it is a good idea to rent a shop that promises a lot of walk-in customers.

2. Emotional and rational purchases: Emotionality and rationality are more likely to occur in high-quality and high-priced products such as cars, real estate and travel. Both emotional aspects and rational reasons lead to a purchase decision.

3. Custom purchases: Customary purchases are planned purchases where the customer does not make a price or quality comparison in advance. This is usually the case with everyday products such as toothpaste. In this case, too, a shop with a lot of walk-in customers is ideal.

This is how the location analysis works

Many location factors are important for retail - but not all of them equally. For this reason, it is important to weight the individual location factors with a value between 1 (unimportant) and 3 (very important). You should then evaluate the quality of the individual location factors for each location that comes into question. A point scale from 1 (bad) to 9 (excellent) is used for this.

Then multiply the evaluation points by the weighting of the location factor and add up all points. The location with the highest score should be your favorite. In this example it is location A that receives 33 points. Location B is less suitable with only 19 points.

Find the perfect commercial property

Once the ideal location for your retail business has been found, you can start looking for a suitable store. Several factors play a role here:

  • location
  • Store size
  • Good transport connection
  • Equipment suitable for the requirements of employees and customers
  • Financial possibilities

Renovation work quickly drives up costs. The floor plan should therefore fit as far as possible so that no major structural changes are necessary. In your rental or lease agreement, take into account whether and to what extent an expansion of your business or the subletting of individual rooms is possible. If your company develops differently than planned, you will be grateful for the flexibility in the rental agreement. It is often worthwhile to have the contract checked by a specialist.

As an alternative to the classic choice of location, you can also rent a coworking space in a business start-up center. Coworking spaces specialize in young entrepreneurs and offer an excellent infrastructure for founders.

If you want to open a shop, you have to think about a lot in advance. But with a good location and a suitable commercial property, you set important pillars for your business success.