Chapter 14 Choosing The Right Location and Layout

3. Outline the basic location options for retail and service businesses.

Retail and service businesses have six basic location options: central business districts [CBDs]; neighborhoods; shopping centers and malls; near competitors; inside large retail stores; outlying areas; and at home.

Although some business owners avoid locations near direct competitors, others see locating near rivals as an advantage. For instance, restaurateurs know that successful restaurants attract other restaurants, which, in turn, attract more customers.

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Internet Access--Speedy and reliable Internet access is an increasingly important factor in the location decision. Fast Internet access is essential for high-tech companies and those that engage in e-commerce.

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Layout-- the logical arrangement of the physical facilities in a business that contributes to efficient operations, increased productivity, and higher sales.

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Some of key issues to explore include the laws, regulations, and taxes that govern businesses and any incentives or investment credits the state may offer to businesses that locate there.

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Empowerment zones offer businesses tax breaks on the investments they make within zone boundaries.

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The goal of a manufacturer's layout is to create a smooth, efficient work flow. Three basic options exist: product layout, process layout, and fixed position layout. Two key considerations are worker productivity and materials handling costs.

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A final characteristic of a good location is visibility. Highly visible locations simply make it easy for customers to find a business and make purchases. A site that lacks visibility puts a company at a major disadvantage before it ever opens its door for business.

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Business incubator--an organization that combines low-cost, flexible rental space with a multitude of support services for its small business residents.

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Clusters--geographic concentrations of interconnected companies, specialized suppliers, and service providers that are present in a region.

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Empowerment zone--an area designated as economically disadvantaged in which businesses receive tax breaks on the investments they make within zone boundaries.

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If customers cannot find convenient and safe parking, they are not likely to stop in the area. Many downtown areas have lost customers because of inadequate parking.

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If physically locating near customers is vital to a company's success, then an entrepreneur's goal is to find a site that makes it most convenient for his or her target customers to do business with the company!

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Other factors entrepreneurs should consider when choosing a location include proximity to markets, proximity to raw materials, wage rates, quantity and quality of the labor supply, general business climate, tax rates, Internet access, and total operating costs.

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Piecing together an effective layout is not a haphazard process. Ergonomics, the science of adapting work and the work environment to complement employee's strengths and to suit customers' needs, is an integral part of a successful design.

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Proximity to Markets locating close to markets they plan to serve is extremely critical to manufacturers, especially when the cost of transporting finished goods is high relative to their value. Locating near customers is necessary to remain competitive.

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Proximity to Needed Raw Materials if a business requires raw materials that are difficult or expensive to transport, it may require a location near the source of those raw materials.

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The key to finding a suitable location is identifying the characteristics that can give a company a competitive edge and then searching out potential sites that meet those criteria.

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The location decision process resembles an inverted pyramid. The first level of the decision is the broadest, requiring an entrepreneur to select a particular region of the country

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The result is that an owner is forced to make a costly move to a new location within the first few years of operation.

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There are seven basic areas where retail and service business owners can locate: the central business district [CBD]; neighborhoods; shopping centers and malls; near competitors; inside large retail stores; outlying areas; and at home.

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Wage Rates--Existing and anticipated wage rates provide another measure for comparison among states. Wages can sometimes vary from one state or region to another, significantly affecting a company's cost of doing business.

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Wage rate differentials within geographic regions can be even more drastic. When reviewing wage rates, entrepreneurs must be sure to measure the wage rates for jobs that relate to their particular industries or companies.

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5. Describe the criteria used to analyze the layout and design considerations of a building, including the Americans with Disabilities Act.

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According to a study of the importance of location on recruiting employees conducted by the Human Capital Institute, the three most important factors in attracting talent are job opportunities, a clean and safe community, and an affordable cost of living.

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As a rule, the larger the store, the greater its selection, and the better its service, the broader is its trading area. Businesses that offer a narrow selection of products and services tend to have smaller trading areas.

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Currently, seven states impose no income tax on their residents, but state governments always impose taxes of some sort on businesses and individuals.

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Demographic statistics are available from a wide variety of sources, but government agencies such as the Census Bureau have a wealth of detailed data that can guide an entrepreneur in her location decision.

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Zoning--A system that divides a city or county into small cells or districts to control the use of land, buildings, and sites.

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Some states and cities are more "small business friendly" than others. For instance, FSB magazine recently names Manchester, New Hampshire, one of the best locations for small businesses, citing its well-educated workforce and receptivity of small companies as major assets.

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1.Explain the stages in the location decision-- choosing the region, the state, the city, and the final site The location decision is one of the most important decisions an entrepreneur will make, given its long-term effects on the company.

An entrepreneur should look at the choice as a series of increasingly narrow decisions: Which region of the country? Which state? Which city? Which site? Choosing the right location requires an entrepreneur to evaluate potential sites with her target customers in mind.

Business Climate--What is the state's overall attitude toward your kind of business? Has it passed laws that impose restrictions on the way a company can operate?

Are there "blue laws" that prohibit certain business activity on Sundays? Does the state offer small business support programs or financial assistance to entrepreneurs?

In some cases, an entrepreneur may appeal to the local zoning commission to rezone a site or to grant a VARIANCE [a special exception to a zoning ordinance], but this is risky and could be devastating if the board disallows the variance.

As the number of home-based businesses has increased in the last several years, more entrepreneurs have found themselves at odds with zoning commissions.

Choosing a home location has certain disadvantages, however. Interruptions are more frequent, the refrigerator is all too handy, work is always just a few steps away, and isolation can be a problem. Another difficulty facing some home-based entrepreneurs involves zoning laws.

As their businesses grow and become more successful, entrepreneurs' neighbors often begin to complain about the increased traffic, noise, and disruptions from deliveries, employees, and customers who drive through their residential neighborhoods to conduct business.

Entrepreneurs who choose their locations wisely--with their customers' preferences and their companies' needs in mind--can establish an important competitive advantage over rivals who choose their locations haphazardly.

Because the availability of qualified workers, tax rates, quality of infrastructure, traffic patterns, quality of life, and many other factors vary from one site to another, the location decision is an important one that can influence the growth rate and the ultimate success of a company.

The central business district [CBD] is the traditional center of town--the downtown concentration of businesses established early in the development of most towns and cities. Entrepreneurs derive several advantages from a downtown location.

Because the business is centrally located, it attracts customers from the entire trading area of the city. In addition, a small business usually benefits from the customer traffic generated by the other stores in the district.

Entrepreneurs should know more about the cities in which their businesses are located than do the people who live there.

By analyzing population and other demographic data, an entrepreneur can examine a city in detail, and the location decision becomes more than just an educated guess, or, worse,a shot in the dark.

Studying the trends and the demographics of a city, including population size and density, growth trends, family size, age breakdowns, education, income levels, job categories, gender, religion, race, and nationality, gives an entrepreneur the facts she needs to make an informed location decisions.

COMPETITION--For some retailers, it makes sense to locate near competitors because similar businesses located near one another may serve to increase traffic flow at all. This location strategy works well for products for which customers are most likely to comparison shop.

Labor Supply Needs-- For many businesses, especially technology-driven companies, one of the most important characteristics of a potential location is the composition of the local workforce.

Entrepreneurs must consider two factors when analyzing the labor supply in a potential location: the number of workers available in the area and their levels of education, training, adaptability, and experience.

Labor Supply Needs--For many businesses, especially technology-driven companies, one of the most important characteristics of a potential location is the composition of the local workforce.

Entrepreneurs must consider two factors when analyzing the labor supply in a potential location: the number of workers available in the area and their levels of education, training, adaptability, and experience.

The transportation networks are the highways, and public service routes that presently exit or are planned. If customers find it convenient to get to a location, the store's trading area is reduced.

Entrepreneurs should verify that the transportation system works smoothly and is free of barrier that might prevent customers from reaching their shopping destinations.

Total Operating Costs--When scouting a state in which to locate a company, an entrepreneur must consider the total cost of operating a business.

For instance, a state may offer low utility rates, but its labor costs and tax rates may be among the highest in the nation. To select the ideal location, entrepreneurs must consider the impact of a state's total cost of operation on their business ventures.

The secret to selecting the ideal location lies in knowing the factors that are most important to a company's success and then finding a location that satisfies as many of them as possible, particularly those that are most critical.

For instance, one of the most important location factors for high-tech companies is the availability of a skilled labor force, and their choice of location reflects this.

2. Describe the location criteria for retail and service businesses.

For retailers, the location decision is especially crucial. Retailers must consider the size of the trade area, the volume of customer traffic, number of parking spots, availability of room for expansion, and the visibility of a site.

A building must be large enough to accommodate a business's daily operations comfortably. If it is too small at the outset of operations, efficiency will suffer. A space must have enough room for customers' movement, inventory, displays, storage, work areas, offices, and restrooms.

Haphazard layouts undermine employee productivity and create organizational chaos. Too many small business owners start their operations in locations that are already overcrowded or lack the capacity for expansion.

STAT-USA is a service of the United States Department of Commerce that offers financial, employment, and economic data about the United States as well as trade data for the United States and for the Europe.

Here entrepreneurs can locate everything from the latest consumer price index and the number of housing starts to leads for global trading partners and tips on conducting business in practically any country in the world.

The American with Disabilities Act [ADA], passed in July 1990, requires practically all businesses to make their facilities available to physically challenged customers and employees.

In addition, the law requires business with 15 or more employees to accommodate physically challenged candidates in their hiring practices.

If not, how much will it cost to bring it up to standard?]; signs [Are they legible, well-located, and easy to see?]; interior [Does the interior design contribute to our ability to make sales?

Is it ergonomically designed?]; and lights and fixtures [Is the lightning adequate for the tasks workers will be performing? What is the estimated cost of lightning?].

Trading area shape and size also are influenced by physical and psychological barriers that may exist. Physical barriers may be parks, rivers, lakes, or any other natural or man-made obstruction that hinders customer's access to the area.

Locating on one side of a large park may reduce the number of customers who will drive around it to get to a store. Psychological barriers include areas that have a reputation for crime and illegal activities.

Every business has its own unique set of criteria for an ideal location. A manufacturer's prime consideration may be access to raw materials, suppliers, labor, transportation, and customers.

Service firms need to access to customers but can generally survive in lower-rent properties. A retailer's prime consideration is sufficient customer traffic.

Although property taxes are higher in Manchester than in surrounding areas, their impact is offset by no sales or income taxes and reasonable real estate prices. Accessible highways and an expanded airport provide important pieces of business infrastructure.

Small companies such as Oasys Technology, a business that make enhanced vision systems for aircraft pilots, have discovered that Manchester's quality of life, small town charm with big city amenities, and easy access to the area's natural beauty make it easy to attract skilled workers.

4. Explain the site selection process for manufacturers. A manufacturer's location decision is strongly influenced by local zoning ordinances.

Some areas offer industrial parks designed specifically to attract manufacturers. Two crucial factors for most manufacturers are the reliability [and the cost of transporting] raw materials and the quality and quantity of available labor.

Of course, an entrepreneur wants to know how many qualified people are available in the area to do the work required in the business. However, unemployment and labor cost statistics can be misleading if a company needs people with particular qualifications.

Some states have attempted to attract industry with the promise of cheap labor. Unfortunately, businesses locating there found exactly what the term implied-unskilled, low-wage labor that is ill-suited for performing the work the companies needed.

Population Trends--Analyzing over time the lists of "best cities for business" compiled annually by many magazines reveals one consistent trend:

Successful small companies in a city tend to track the city's population growth. In other words, more potential customers mean that a small business has a better chance of success.

One of the best measures of the level of saturation in an area is the index of retail saturation [IRS], which takes into account both the number of customers and the intensity of competition in a trading area.

The Index of Retail Saturation is a measure of the potential sales per square foot of store space for a given product within a specific trading area. It is the ratio of a trading area's sales potential for a particular product or service to its sales capacity: IRS= C x RE/ RF

One of the first stops entrepreneurs should make when conducting a regional evaluation is the U.S. Census Bureau .Excellent sources of basic demographic and population data include the U.S. Statistical Abstract and the County and City Data Book.

The U.S. Statistical Abstract provides entrepreneurs looking for the right location with a multitude of helpful information, ranging from basic population characteristics and projections to poverty rates and energy consumption.

For example, an entrepreneur who is planning to launch a convenience store should know that generating a sufficient volume of sales requires a population of at least 500 to 1,000 people who live within a one-mile radius of the outlet; he or she should choose the location accordingly.

The one element common to all three types of businesses is the need to locate where customers want to do business.

Business incubators are locations that offer flexible, low-cost rental space to their tenants as well as business and consulting services.

Their goal is to nurture small companies until they are ready to "graduate" into the business community. Many government agencies and universities offer incubator locations.

Rather than compete against giant retailers, some small business owners are cooperating with them, locating their businesses inside the larger company's stores.

These small companies offer products that the large retailers do not and benefit from the large volume of customer traffic the large stores attract.

The relocation decision was made to ensure that the small company has access to the capital, strategic partners, and resources necessary to solidify its position in a fast-growing market.

This is a strategic move designed to leverage Buffalo's research assets and to take advantage of the professional services the region provide to biotech companies.

The population Reference Bureau provides a detailed breakdown of the most relevant data collected from the most recent census reports. The DataFinder is a database that includes 244 variables for the United States and 132 variables for 210 other nations.

This site also include helpful articles that discuss the implications of the changing demographic and economic profile of the nation's [and the world's] population, such as the impact of aging baby boomers on business and the composition of the U.S. workforce.

Perhaps the most important screening criterion for a potential retail [and often for a service] location is the number of potential customers passing by the site during business hours.

To be successful, a business must be able to generate sufficient sales to surpass its break-even point, and that requires an ample volume of customer traffic going past its door. The key success factor for many retail stores is a high-volume location with easy accessibility.

Locating near competitors has its limits, however. Clustering too many businesses of a single type into a small area ultimately will erode their sales once the market reaches the saturation point.

When an area becomes saturated with competitors, the shops cannibalize sales from one another, making it difficult for any of them to be successful.

Many factors, including a diversified economic base of both large and small companies, access to a significant population of private investors interested in investing in promising small companies,

and several state and local government support systems such as the New Hampshire Business Resource Center than offer entrepreneurial assistance and advice, make Manchester, once a crumbling factory town, a desirable location for entrepreneurs.

A foreign trade zone is a specially designated area in or near a U.S. customs port of entry that allows resident companies to import materials and components from foreign countries;

assemble, process, manufacture, or package them; and them ship the finished product while either reducing or eliminating tariffs and duties.

Foreign Trade Zone--a specially designated area in or near a United States customs port of entry that allows resident companies to import materials and components from foreign countries;

assemble, process, manufacture, or package them; and then ship the finished product back out while either reducing or eliminating tariffs and duties.

When evaluating the suitability of a particular building, an entrepreneur should consider several factors: size [Is it large enough to accommodate the business with some room for growth?];

construction and external appearance [is the building structurally sound and does it create the right impression for the business?]; entrances [Are they inviting?]; legal issues [Does the building comply with the Americans with Disabilities Act?

6. Explain the principles of effective layouts for retailers, service businesses, and manufacturers. Layout for retail stores and service businesses depends on the owner's understanding of her customers' buying habits. Retailers have three basic layout options from which to choose:

grid, free-form, and boutique. Some areas of a retail store generate more sales per square foot and therefore are more valuable.

Shoppers tend to be drawn to clusters of related businesses. That's one reason shopping malls and outlet shopping centers are popular destinations for shoppers and are attractive locations for retailers. The concentration

of businesses pulls customers from a larger trading area than a single free-standing business does. Retail Compatibility describes the benefits a company receives by locating near other businesses that sell complementary products and services or generate high volumes of foot traffic.

The size, location, and activity of competing businesses also influence the size of a company's trading area. If a business will be the first of its kind in a location, its trading area might be quite extensive. However, if the area already has eight or ten nearby

stores that directly compete with a business, its trading area might be very small because the market is saturated with competitors. Market saturation is a problem for businesses in many industries, ranging from fast-food restaurants to convenience stores.

Tax Rates--Another important factor that entrepreneurs must consider when screening states for potential locations is the tax burden why impose on businesses and individuals. Does the state impose a corporate income tax? How heavy are the state's property, income, and sales

taxes? Income taxes may be the most obvious tax that states impose on both business and individuals, but entrepreneurs also must evaluate the impact of payroll taxes, sales taxes, property taxes, inventory taxes, and specialized taxes on the cost of their operations.