Finding the right location for your small business may seem as simple as finding a place you can afford. Whether it’s a kiosk, storefront, mall store, high-profile flagship, or suburban stand-alone, not every location is suitable for every business. But before you make a commitment, make sure you are aware of the advantages and disadvantages of leasing one type of location over another.
Where you settle down, your proximity to other stores, and the demographic of nearby shoppers can determine how well your product or service sells, but the lease you sign will determine how much you actually profit.
Before signing a lease, find out the mall developer or landlord’s “occupancy cost to sales ratio, says Barry Wright, a commercial real estate broker at Newmark Knight Frank. The OCR is usually the aggregate cost of rent plus expenses for all tenants of a certain size divided by the total sales of those tenants. The OCR helps developers decide how much to charge each tenant for rent. If the area’s OCR is high then you might not be able to sell enough merchandise to afford the occupancy costs.
“Occupancy cost ratios vary for each property type and merchandising category. High-margin retailers, such as jewelry stores in regional malls, can have ratios in excess of 20%,” says Faith Hope Consolo, a retail broker at Prudential Douglas Elliman Real Estate in New York.
Exposure is also an important standard by which to measure a possible location. Most businesses require high exposure to foot and vehicle traffic, but there are some businesses where location is not as important, and traffic can be drummed up through word of mouth and the brand’s reputation. Ask yourself who are your customers and what will lead them into your store. Based on that answer, find out if you will be able to generate sales and maintain healthy profit margin at this location? Finally, find out if the zoning for the area permits your type of business.