The Neighborhood Matters When Selecting a Profitable Retail Location

Those charged with selecting a new location for their store, restaurant, or other type of retail company have a big job in front of them. After all, the stakes are high when making a decision like this. Making the wrong choice could mean the loss of hundreds of thousands of dollars or more over the course of the next 5-10 years.

Unfortunately, in an all-too-typical scenario, the decision for a new site is based on a limited view of the relevant factors. That is, most or all of the emphasis can get placed on “on-site” factors such as the attractiveness of the building, the types and number of nearby stores, and ease of accessibility from major roads. While these on-site factors no doubt play an important role in determining future location success, focusing solely on them is a huge mistake because it leaves out the most important criterion: the neighborhood. Meaning: analyzing WHO lives or works nearby your proposed location.

After all, the success of a retail or restaurant venture must rely on the local population as a large portion of its customer base in order to survive and thrive. Being near to a major highway or freeway is almost never enough to make the business a success.

The challenge is that most businesses who take into account neighborhood factors limit their analysis to single-dimensional factors, such as total population count or average income of nearby households. Using these variables is a start, but it still falls short of the mark. For, it is not just how many people live in the area that matters – it is the types of people who live within a reasonable radius (e.g., 2-5 miles) from your proposed location that determines success or failure.

The analysis of the “type” of people in the area can and should go well beyond simple demographic variables and should take into account factors such as:

* psychographics: attitudes, opinion and perceptions
* behaviors: the things they typically spend their time doing
* life stage: how old they are and whether they have kids living at home
* education, ethnicity
* own vs. rent a home
* etc.

When engaging in site selection, it is important to compare variables like these across several candidate locations within your target trade area. Once you have combined the resulting variables together with the proper relative weighting, you can develop a scoring system for each location. Finally, you can rank them from most-to-least desirable.

With a scored and ranked list of potential locations in hand, start by choosing the top 5-10 locations. Now, all you have to do is drive those locations to analyze on-site factors (see above) in order to make your final decision.