There are a lot of factors affecting retail location that you should be aware of and it can make or break your business.
A proper site selection can not only reduce your overall risk but also help generate your desired revenue.
However, you should understand that many micro and macroeconomic factors affect a retail location. Even big corporations face store closures due to these factors, which we’ll go through in a minute.
This article will help you tackle these factors affecting retail location and find the ideal location for your business.
Things to Check Before Opening a Retail Store
Before we get into the factors affecting retail location itself, you should be clear on a few things:
- The product you’re going to sell,
- Your Unique Selling Proposition (USP),
- Your target audience,
- The presence of competing and complimenting brands.
To break it down simply, your product ultimately defines your target audience. Your USP can be used to market your product better and acquire new customers.
For instance, if you’re planning to open a luxury brand, you should target a location based on household income, spending capacity, etc.
So, understanding your product and who it appeals to allows you to identify locations where your target audience lives, works, and shops.
Then you should know your budget and business goals to decide on which type of retail format you can choose.
This approach ensures that your retail store is positioned in an area that aligns with the target group and maximizes customer engagement and sales potential.
How Location Can Affect Your Retail Business?
The retail location you choose will define your business’s future. So, success and location are correlated when it comes to retail.
The best location can bring in,
- High foot traffic,
- Right customers,
- Desired revenue.
It also defines the operational cost you will be handling. For example, if you open a store in Tier-I cities, you can attract foot traffic but also have to deal with the premium rent you’ll be spending.
A prime location can increase the likelihood of reaching newer audiences every day, leading to brand visibility. Conversely, if you open in a less crowded area, the rent will be lower, and so will the sales.
To increase the sales and the profit it brings, you have to find a location that suits your budget and at the same time can meet your business goals.
Ideally, the location should have,
- High foot traffic,
- Has complementary brands,
- Your target group.
At GeoIQ we can help you find an ideal location backed by data using our location AI platform.
Our platform provides various datasets such as:
- Foot traffic – Hourly monthly and Weekly,
- Demographics – Age, Income, Spending capacity,
- The average rent of a location,
- Risk assessments – Cannibalization, Number of store closures in a location & more.
10 Key Factors Affecting Retail Location
Foot Traffic
The first and foremost factor that affects retail location is the foot traffic. You can’t sell your product if there aren’t enough people to buy it.
High foot traffic areas, such as busy streets, malls, or commercial centers, offer higher potential sales opportunities.
With our platform, you can gather hourly, daily, and weekly foot traffic trends in a location at street level.
However, this doesn’t mean you should open your business in such a location right away. Several other factors affect a retail location – like the peak times of the foot traffic and quality of the overall foot traffic.
For instance, a high footfall number wouldn’t matter much if your target group is not part of it. Here’s where demographics come into play.
Demographics and Target Audience
Understanding the demographics of the location you’re trying to target is paramount, such as:
- Age & gender,
- The income of the households,
- Affluence scores in the area and,
- Lifestyle.
These factors affect retail store locations in a game-changing way. As we mentioned before, you should assess your product and its ideal customer profile before opening a store.
If you can pinpoint a location with high footfall and an ideal target audience, the probability of success increases drastically. With our platform, you can do just that with ease.
Moreover, if you know where your shoppers are coming you can run geofencing marketing campaigns on a street level or refine any other marketing strategies to optimize for maximum ROI.
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Rental, Property, and Operational Expenses
The rental and property expenses you will be dealing with will account for most of your operational expenses. This is especially true in Tier-I cities. This can be one of the deal-breaking factors affecting retail location for you.
As you may know, high-footfall locations usually have high rental expenses that you should deal with and it can strain your profit margin. You need to balance the potential revenue benefits of a prime location with the operational costs.
For a better understanding of how much you’ll make as a retailer, calculate the profit margin of your retail after taking all these operational expenses into account.
Even if you feel like the rent is high, you can still make a significant profit if you pick the right location. Analyze the location, demographics, and spending capacity to understand the location better.
Our location AI platform helps you analyze all these and give you a predicted revenue range in a given location at a granular level.
Market Saturation and Competition Density
Having competition in the location is a strong indication that demand for such a product is there.
On the contrary, it can eat your market share by a significant margin if the Total Addressable Market is scarce. Many retailers overlook, thinking they can capture the competitor’s market but it’s a prominent factor affecting retail location.
Ideally, you should choose a location where there are competitors but also enough foot traffic and a target group so you can enter the market confidently.
By doing so, even if you are not able to capture the competitor’s market share, you can still expect sales given the demand is high for your product.
You can avoid locations with low demand for your product by leveraging various location datasets such as footfall, demographics, etc.
Cannibalization
Cannibalization happens when a new store location reduces sales or customers from an existing store of the same brand.
Cannibalization is one of the major factors affecting store location. Every retailer, from small businesses to giant players, could face this issue if they are looking to expand their retail footprint.
Cannibalization often happens in franchises, where inexperienced owners may choose locations where the same brand is within a drivable distance. You can utilize our location intelligence platform to know where the active stores are and at what distance to avoid such cannibalizations.
If you’re considering a high-trade area, predictive analytics can help you foresee how much revenue you can generate in a particular location using various datasets.
Accessibility and Points of Interest (POI)
Stores located on main roads, near interjections and Points of Interest (POI) can attract high footfall. POIs such as universities, offices, shopping malls, or entertainment venues can boost foot traffic.
For instance, a coffee shop near offices and colleges results in higher footfall. However, the target audience is entirely different in both of these cases.
So, whatever business you choose, you should make sure that your store and its audience align well with a particular location’s target audience as a whole.
Proximity to Public Transports
As we said accessibility is a paramount factor affecting retail location.
Being close to public transport hubs like bus stops, metro stations, and train stations can boost foot traffic significantly.
This makes your store accessible to a broader range of audience, including those who use public transport.
Moreover, this will benefit especially if you’re targeting Tier-I cities as many professionals rely on metro stations and other public modes for daily commutes.
Parking and Convenience
Parking
Parking is a severe problem in India. In suburban and urban areas where customers often drive, parking availability can be a deciding factor.
Once you open your store in a location that can attract high footfall, you should be able to accommodate the people too. So, always ensure that there’s enough room for parking for your visitors.
Lack of it can lead to losing potential new customers, also the existing ones if it becomes a problem over time. This is one of the major factors affecting retail location.
Convenience Factors: ATMs, Accessibility for Disabled People & More.
Apart from the mentioned, you should also choose a location where there are ATMs, mobile network access, accessibility for disabled people, etc. These are essential convenience factors that can influence the retail location and the purchasing decisions of your target group as well.
So, make sure you assess these three things before considering a location:
- Availability of parking facility,
- Safety and
- Convenience.
Urban Development and Future Growth
Be it a small, medium, or even a large-scale retail business, it’s vital to assess the growth of the area currently and in the future.
In the current timeline, the location should have a proper infrastructure and facilities. While doing so, always ensure that the location does have your target group.
To make sure the location is suitable in the long run, understand the location’s upcoming infrastructure projects like new malls, residential developments, or business districts.
You can grasp an idea of this by staying updated on the current trends and other macroeconomic factors happening in the location.
Local Economic Conditions
The demographics of an area can also be influenced by various factors such as employment rates, disposable income, and overall economic stability.
A location in a thriving area is more likely to get more sales compared to a location in an economically depressed area. It would help if you also looked into how the economic situation will be in the coming years.
However, these may or may not be controlled depending on the nature of the factor you’ll be looking at.
Zoning Laws and Legal Compliance
Zoning laws and regulations are crucial factors affecting store location. Every city has its own zoning laws as to how the land is used for retail space.
For instance, some zones may be designated strictly for residential use, while others might allow for mixed-use development that includes retail businesses. Always ensure the retail business and the choice of retail you are looking to open are compliant with the law.
Zoning laws in retail can impose restrictions on various aspects that can directly affect retail location, such as:
- Type of Business Operations
- Opening Hours
- Building Codes and Signage Restrictions
- Permits and Licensing Requirements
- Environmental and Noise Regulations
So, make sure the location you pick aligns with the laws as well as your retail business model.
Other Macro-economic Factors Affecting Retail Location
When choosing a retail location it’s important to look beyond the immediate factors that we just discussed and consider broader macro-economic factors that can affect retail store location.
These factors are shaped by regional, national, and international trends that can affect consumer behavior, operational costs, and much more depending on the type of retail.
Some of the key macroeconomic factors affecting store location can be:
- Inflation Rates and Purchasing Power,
- Interest Rates and Financing Costs,
- Taxation Policies,
- Employment Rates and Wage Levels,
- Currency Exchange Rates and International Trade.
While businesses cannot control these elements, they can adopt strategies to adapt to these conditions.
For instance, retailers in high-inflation areas can concentrate on providing value-oriented goods and services that cater to customers who are more cost-conscious. Similarly, to lessen the burden of upfront costs, you can look into flexible financing solutions or leasing agreements in areas with high interest rates.
These are some of the macroeconomic factors that can affect retail location which you may or may not have full control on.
How Location Data Can Help You?
Leveraging location data can help you tackle many factors affecting retail location that we just went through.
Our location AI platform provides valuable insights such as:
- Foot traffic,
- Demographic,
- Revenue prediction,
- Competition density,
- Spending capacity, and more.
Understanding these will help you make a better decision and also tackle the factors affecting retail location, ensuring the location aligns with your business goals.
Conclusion
A retail store’s success is directly correlated with the location and various other factors that we went through.
The competition in the retail sector is growing rapidly and it is wise to utilize location data to ensure you tackle the factors influencing retail location.
Always remember to plan your finances carefully, taking into account all operational expenses and other potential risks.
By combining strategic planning with location intelligence, you can position your retail business better for sustained growth in years to come.