What Are Key Decision Factors for Determining the Best Retail Store Locations?

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Retail store locations are largely determined by profit potential.
Retail store locations are largely determined by profit potential. (Image: Jupiterimages/Brand X Pictures/Getty Images)

Choosing the optimal location for a retail store involves planning, data gathering, research and analysis. A large organization looking to expand its retail operations will likely put thousands, if not millions, of dollars at risk. Smaller-sized businesses will need to consider competition level if renting space within a major shopping center. Key factors that most business leaders consider, when choosing a retail location, include local demographics, foot traffic potential, competitor activity and costs.

Local Demographics

Choosing a location for a retail store involves gathering information about demographics ,such as population, income distribution, education level and possibly community lifestyle preferences. The business needs to ensure that the location has the type of consumer who would purchase its products. For example, a high end clothing retailer might not have the best success if it puts a store location in a geographic area whose average annual income is less than the national average. The business also needs to consider potential market saturation if it has numerous store locations within a certain mile radius.

Potential Foot Traffic

As one of the most important factors in selecting a retail store location, potential foot traffic has the power to make or break a store's profitability. Considerations such as major highways, community centers, hospitals, schools, recreational facilities, parks, churches and major shopping districts all come into play. A business needs to be visible to the right consumer and attract his attention. Furthermore, a store's location needs to be able to attract enough consumers that make up its target market.

Competitor Activity

Locating near major competition could prove to be beneficial. A smaller business might benefit from the marketing and advertising perks that a larger corporation has spent to drive foot traffic. Once customers are near the location, they become aware of other stores and services provided by alternate suppliers. Being in close proximity to the competition might also ensure that a business is effectively reaching the target consumer. It also encourages the development of a competitive advantage and market positioning.

Costs

Government tax incentives and regulations, as well as leasing and property improvement costs, factor into the decision of where to locate a retail store. Some options may come with higher monthly leasing costs, such as a shopping center. These type of locations usually charge higher rent for the increased visibility and foot traffic, in addition to common area maintenance charges. Lease options may include allowances for start-up renovations in order to entice businesses to agree to occupy the space. Local governments may provide tax breaks and incentives to large corporations that express interest in opening up a retail location that will ultimately lead to more jobs for their citizens.

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