Should Your Business Be in a High-Traffic Area?

Are you thinking of starting a coffee shop or a small retail store? Chances are you’ve heard of the mantra “location, location, location” – which means that your location can make or break your business.

Does this mean that you should always aim to locate your business in a high traffic location? Well, not necessarily. Here are some things to consider:

1 – Will your cash flow support it?

High traffic areas mean high rental fees. Can you afford it? Expect to pay premium rates for leasing space in a high-traffic area. Given the high cost, are you sure that your revenues can handle the high lease cost of the space and still leave you with a sizable profit and cash flow? The last thing you want is to be in business solely to pay your landlord.

2- Are you ready for competition?

High traffic areas typically attract A1 businesses such as banks, big restaurant chains and fast foods, top fashion retailers, among others. This means more competition for your business, many of whom will be big businesses. There is also a high likelihood that your direct competitors will be there.

You need to consider how having a direct competitor near you can affect your business. Some industries benefit from having the same businesses together – e.g. food businesses in a food court at a mall, where customers know as the place to go if they want to eat. However, some businesses are negatively impacted by having competitors nearby.

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If you feel that you can compete for head-on with your direct competitor and you can afford the rent, make the decision whether you want to open in an area with high customer traffic, but very near to one or more close competitors. The alternative is to find areas with lower foot traffic but without a competitor in place.

3 – High traffic does not necessarily mean high turnover

Just because your business is in a high traffic area does not mean that people are actually going to come inside your store. You will find that majority of the people are in a hurry and they are more focused on getting what they need – instead of trying out other businesses in the high traffic area. You may end up paying premium rent for traffic that does not convert.

If you are operating a destination business such as a coffee shop where people will go specifically to enjoy your coffee, it may be more prudent to operate in lesser traffic location where rent is lower but still enjoys decent foot traffic.

4 – Importance of parking

High traffic area means lots of cars. Does this high traffic location have adequate parking? Is your store on the side of the street where traffic flows? If your customers have to spend a great deal of time maneuvering their cars just to reach the parking lot, and then spend a long time looking for parking, they may never even want to go to your business.

5 – Can you handle the terms of the lease?

The foot traffic may be heavy, but will your business benefit from the terms of the lease? Consider carefully the terms of leasing the commercial space and how it impacts your business.

Aside from making sure that you can afford the space, consider the length of the lease. If the lease locks you in a long-term agreement, say 5-to-10 years, think where your business will be in that period of time. Your business may grow big that space may no longer work for you. Also check if the lease agreement prevents the landlord from leasing space to a direct competitor, or whether you will be allowed to put up a sign that is visible from the street to attract bigger foot traffic.

There are many variables in choosing the right location for your business. Be sure to run your numbers to check if you can really afford the commercial space, look at the agreement, check out the competitor, among other factors. Your goal should be to find just the right location to make your business sustainable and successful.