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Business · Making the business effective

Business location

Where a business locates can decide whether it succeeds. Owners weigh up how close they are to customers, workers, materials and competitors - and the internet means some businesses no longer need premises at all.

6 key terms
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Last Lesson

Answer from memory before the answers appear.

What is unlimited liability?
The owner is personally responsible for all the business's debts.
Which types of business have unlimited liability?
Sole traders and ordinary partnerships.
What is a franchisee?
The business that buys the right to trade under a franchisor's brand.
Give one disadvantage of franchising for the franchisee.
Fees, royalties, lack of independence, or damage from other franchisees.

Learning Objectives

1Explain the factors that influence where a business locates: proximity to the market, labour, materials and competitors.
2Explain how the importance of each factor depends on the type of business.
3Explain the impact of the internet and e-commerce on location decisions.
4Weigh up fixed premises against selling online.

Why Location Matters

The right location brings in customers and keeps costs down; the wrong one can sink a business.

Customers
A shop or café that customers cannot easily reach will struggle to make sales.
Costs
Rent, wages and delivery costs all depend on where the business is.
Hard to change
Moving is expensive and disruptive, so a new business needs to choose well the first time.
Different needs
A café, a factory and an online shop all need very different locations.

The Four Location Factors

Proximity to the market
Being close to customers. Vital for shops, cafés and services that customers visit.
Proximity to labour
Being close to enough workers with the right skills, at a wage the business can afford.
Proximity to materials
Being close to suppliers of raw materials, especially if they are heavy, bulky or perishable.
Proximity to competitors
Staying away from rivals to avoid competition - or locating near them where customers already go.

Proximity to the Market

How close the business is to its customers.

Footfall
The number of people walking past. High footfall on a busy high street brings in passing customers.
Services and shops
A hairdresser, café or corner shop must be where its customers live, work or travel.
The trade-off
Busy locations have the highest rents, so the extra sales must be worth the extra cost.
Delivery
Businesses that deliver to customers want to be close enough to keep delivery quick and cheap.

Where the Customers Are

For a café or a small shop, being where customers already walk past can matter more than anything else. But landlords know it too, so the busiest streets charge the highest rents.

Many people walking past small shops and a café on a busy town-centre street.

Proximity to Labour

How close the business is to the workers it needs.

Skilled workers
A business needing specialist skills - software developers, chefs, engineers - must be where those people live.
Wage costs
Wages are usually higher in big cities, especially London, and lower in other areas.
Enough workers
A business that needs many staff must be somewhere with enough people looking for work.
Less important for some
A sole trader working alone barely needs to think about it.

Proximity to Materials

How close the business is to its suppliers.

Heavy or bulky materials
Transporting them is expensive, so it makes sense to be near the supplier.
Perishable materials
Fresh food must be used quickly, so food producers may locate near farms or markets.
Reliable supply
Being close to suppliers means deliveries arrive quickly and reliably.
Example
A sawmill locates near forests; a farm shop is on the farm.

Proximity to Competitors

Near rivals, or far away from them?

Away from competitors
A business may choose an area with no rivals, so it gets all the local customers.
Near competitors
Some businesses gain from being close together, because customers come to that area to compare and choose - restaurants on a food street, or shops in a shopping centre.
Research first
A market map and a look at the local area show where competitors already are.
Example
A second fish and chip shop on the same small street would struggle; a new restaurant on a busy restaurant street might thrive.

E-commerce and Location

E-commerce means buying and selling goods and services online.

No shop needed
A business selling online can run from home, a small unit or a cheap warehouse instead of an expensive high-street shop.
Lower costs
Without a shop, rent and staff costs are much lower, so prices can be lower too.
A bigger market
An online business can sell to customers anywhere in the country, or the world, not just those nearby.
Location still matters
An online business still needs to be near good roads and delivery services, and near the workers who pack and send the orders.

Fixed Premises or Online?

Two ways to reach customers: a shop they walk into, or a website that sends the goods to them.

E-commerce: the business goes to the customers.

Fixed Premises or E-commerce?

Fixed premises

Customers can see, touch and try products before buying.
Face-to-face service builds loyalty.
Essential for services customers must visit, such as hairdressers and cafés.
But: high rent and staff costs, and only reaches local customers.
Limited opening hours.

E-commerce

Much lower costs - no expensive shop.
Can reach customers anywhere in the country or the world.
Open 24 hours a day.
But: customers cannot try products, and delivery costs and returns must be managed.
Strong online competition and the need to be found on search engines and social media.

Case study

Gymshark: From a Garage to the World

Gymshark was started in 2012 by Ben Francis, then a 19-year-old student, and his friend Lewis Morgan. They made and sold gym clothing online from Ben's parents' garage near Birmingham. Because the business sold only through its website, it did not need a shop on a high street: location mattered far less than it would have for a traditional clothing shop, and customers anywhere could buy from it. By selling online, a business run from a garage could reach customers all over the world.

2012 Gymshark started in a garage

Online Where it sold, with no high-street shop

Choose the Location

For each business, rank the four location factors from most to least important and explain your top choice: a sandwich shop; a bakery making bread for local cafés; a small software company; an online shop selling handmade jewellery.

1. Rank the four factors for each business.

2. Explain why the top factor matters most.

3. Say whether it needs fixed premises at all.

A good answer shows: A ranking for each business, with the most important factor explained using the type of business - customers for the sandwich shop, labour for the software company, delivery links for the online shop.

Can I...?

1Explain proximity to the market.
2Explain proximity to labour.
3Explain proximity to materials.
4Explain proximity to competitors.
5Explain how e-commerce affects location decisions.
6Compare fixed premises with selling online.

Summary & Exam Focus

Location factors: proximity to the market, labour, materials and competitors.
Which factor matters most depends on the type of business.
E-commerce lets businesses sell without expensive premises and reach customers anywhere.
Services that customers must visit still need fixed premises in the right place.

Exam focus

Explain one reason why the internet has reduced the importance of location for some businesses. (3 marks) (3 marks)

Name the business type in your answer - e-commerce changes location for a shop selling goods, not for a hairdresser whose customers must visit.

Key terms

The vocabulary this lesson expects you to use. Each one is linked from the first place it appears above.

Location: Where a business is based.
Proximity: How close something is.
Footfall: The number of people who walk past or into a business.
Labour: The workers a business employs.
E-commerce: Buying and selling goods and services online.
Fixed premises: A physical building a business operates from, such as a shop, office or factory.

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