The Trade Area
The Trade Area is the region from which the entrepreneur expects to draw customers. The type of business will largely determine the size of the trade area. For example, if a business sells general merchandise that can be found almost anywhere, the trade area is much smaller; customers will not travel great distances to purchase common goods. Yet a speciality outlet – for example, a clothing boutique with unusual apparel – may draw people from other communities as well.
Once the location within the community is identified, the trade area can be calculated. With a map of the community, designate the site for the business, and place the point of a compass on the proposed site and draw a circle whose radius represents the distance people are expected to be willing to drive to reach the site. Within the circle is the trade area, which can be studied in more detail.
Using a census tract map, identify census tracts within the trade area, and look at the census data to determine how many people reside within the boundaries of the trade area. The demographic information will also describe these people in terms of level of education, income level, the average number of children, and so forth.
Competition and character
Once the trade area is established, the competition can also be identified. One way to do this is to drive or walk through the area (assuming it is not too large) and spot competing businesses. Note their size and number, and gauge how busy they are at various times of the day by observing their packing lots or actually entering the business.
If competitors are located in shopping malls or strip centres, look for clusters of stores that are similar to the new venture and have low vacancy rates. Then look at the stores near the proposed site to check for compatibility. Often, locating near a competitor is a wise choice because it encourages comparison shopping. Observe the character of the area. Does it appear to be successful and well maintained? Remember that the character of the area will have an important impact on the business.
It is important to identify the routes customers might take to reach a proposed site: highways, streets, and public transportation routes. If a site is difficult to locate and hard to reach, potential customers will not expend the effort to find it. Also check the parking situation.
Most communities require provision for a sufficient amount of parking space for new construction, through either parking lots or garages; however, in some older areas, street parking is the only available option. If parking is hard to find or too expensive, customers will avoid going to the business. A foot and car traffic count for the proposed site will determine how busy the area is. Remember, retail businesses typically rely heavily on traffic for customers. A traffic count is easily accomplished by observing and tallying the customers going by and into the business.