Business Location

For many businesses, location is one of the most consequential decisions made at start-up. The right location can provide a constant flow of customers, access to skilled workers, and low transport costs. The wrong location can make any of those things difficult or impossible — and changing location later is expensive and disruptive.

The Edexcel specification identifies three broad factors that shape location decisions:

1. Proximity — how close the business is to its market, labour supply, raw materials, and competitors.
2. Nature of the business activity — what the business actually does shapes where it needs to be.
3. The impact of the internet — e-commerce and digital sales have fundamentally changed the location calculus for many businesses.

Not all three factors are equally important for every business. A quarry must be where the stone is; a law firm can operate from many city centres; an online retailer may not need customer-facing premises at all. Understanding which factors dominate in a given context is the analytical skill examiners test.

Key term — location decision: the process of choosing where a business will operate, weighing factors such as cost, access to customers and workers, and the nature of what the business does.

Proximity to the market — being close to customers reduces delivery costs and increases footfall for retail and food businesses. A restaurant or hairdresser depends on passing trade and needs to be in a location customers will actually visit. A GP practice or dentist locates in a residential area for the same reason.

Proximity to labour — businesses that need specialist or large numbers of workers must locate where those workers live and are willing to travel. Film production companies cluster in London partly because that is where the crew, casting agents, and facilities are concentrated.

Proximity to raw materials — businesses that process heavy or bulky materials locate near their source to reduce transport costs. Historically, steel mills were built near coalfields and iron ore deposits. Today, a brickworks, a flour mill, or a timber yard still follows the same logic.

Proximity to competitors — counter-intuitively, some businesses benefit from locating near competitors. Car dealerships often cluster on the same road; jewellery shops congregate in specific districts. Customers comparison-shopping travel to where multiple options exist — and the whole cluster benefits from the additional footfall. This is called agglomeration.

Worked example — a new artisan bakery: The owner is choosing between Unit A (a side street with cheap rent, away from the high street) and Unit B (a more expensive unit on the main pedestrian shopping street). For a bakery selling directly to the public, proximity to the market — passing customers — is the dominant factor. Unit B's higher rent may be justified by significantly higher daily footfall and impulse purchases.

The type of business activity determines which location factors are most critical — and sometimes removes the choice entirely.

Retail and hospitality (shops, cafés, restaurants, salons) must be accessible to customers. Footfall, visibility, and ease of parking or public transport access are paramount. A coffee shop on a deserted industrial estate would fail regardless of how good its coffee was.

Manufacturing and production businesses prioritise transport links, space, and raw material access over customer-facing footfall. They often locate in industrial estates or out-of-town sites where land is cheaper and large vehicles can operate easily.

Professional services (solicitors, accountants, architects) may need to be close to their clients but also benefit from being in business districts with other professional firms — clients expect a professional address.

Online businesses may not require customer-facing premises at all (see the next slide), but still need suitable space for fulfilment (warehouses), and may want good broadband infrastructure and transport links for deliveries.

Exam tip: when a question gives you a specific business type, always identify which location factors are most relevant to that type. A software company and a fish and chip shop have almost nothing in common in terms of location requirements.

Business type	Most important location factors
Retail shop	Proximity to market (footfall), visible frontage, transport links
Restaurant / café	Proximity to market, parking or transit access, nearby complementary businesses
Manufacturing	Transport links, space, proximity to materials, cheap land
Professional services	Business district credibility, client accessibility
Online retail	Broadband quality, warehouse space, courier access — not customer proximity

The internet has fundamentally changed the relationship between businesses and location. Before e-commerce, a business serving customers nationwide needed either a physical presence in multiple locations or expensive catalogue and telephone ordering systems. Now, a single warehouse on a low-cost site can serve the whole country.

E-commerce businesses sell their products or services online and may not need customer-facing premises at all. Key location considerations shift:

• Warehouse and fulfilment space: must be accessible to courier networks; industrial units near motorway junctions are preferable.
• Cost: without needing a prime high street address, businesses can locate where land is cheap.
• Broadband and technology infrastructure: a reliable, fast internet connection is essential.

Fixed premises businesses still need physical locations that suit their customer base. However, even these businesses increasingly use the internet to supplement sales — a local bakery might take orders via Instagram; a gym sells memberships online.

Worked example — comparing two businesses:

Online clothing retailer (e.g. ASOS-style start-up): The founder can operate from a warehouse in a low-cost location outside a major city — customers will never visit. Location is determined by courier access and rent cost, not footfall. E-commerce removes the link between customer geography and business location almost entirely.

Local bakery (bricks and mortar): Customers must physically visit. Location is determined by footfall, visibility, and proximity to the local market. Moving online could allow mail-order cake sales, but the walk-in trade that generates most daily revenue still requires a specific physical location.

Key term — e-commerce: buying and selling goods or services over the internet, allowing businesses to reach customers without the need for customer-facing premises.

Scenario: Gemma is starting a business selling handmade jewellery. She has two options: open a small shop in the town centre, or sell exclusively through an online store.

Fixed shop (town centre):

• Costs: high rent, rates, utilities, shop fit-out
• Benefits: passing customer footfall, immediate brand visibility, ability to let customers handle and try on pieces
• Risk: if footfall declines (e.g. another lockdown, new out-of-town shopping centre), revenue collapses with it

Online store only:

• Costs: website development, photography, postage, packaging
• Benefits: national (or global) customer reach, much lower overheads, flexible hours
• Risk: harder to stand out online; customers cannot touch or try the jewellery; dependent on search rankings or social media reach

Which to choose? On a 6-mark justify question, examiners want you to weigh both options and conclude. For a start-up with limited capital, the lower overhead of an online-first approach may be more sustainable — Gemma could always open a physical presence later when the brand is established. However, if her target customers are local and discovery is mainly by passing trade, a town-centre unit may be worth the extra cost. The right answer depends on which argument is better linked to the context given.

Factor	What it means	Example of how it affects the decision
Proximity to market	How close the business is to customers	A coffee shop must be where customers walk; an e-retailer does not
Proximity to labour	Access to the right skills and workforce	A tech start-up may choose a city with a large graduate population
Proximity to materials	Transport costs for raw inputs	A sawmill locates near forests to avoid moving heavy logs long distances
Proximity to competitors	Clustering can attract customers	Car dealerships and estate agents often group on the same street
Nature of the business	What the business does changes what matters	A manufacturing business needs space and transport links, not footfall
Internet / e-commerce	Online selling reduces location constraints	An online retailer needs a warehouse near a motorway, not a high street

Common exam mistakes

1. Treating location as equally important for all businesses

A question about a mobile dog-groomer needs a different answer from one about a supermarket. Always identify which factor dominates for the specific business in the question.

2. Forgetting that e-commerce changes the equation

If the business can sell online, location constraints change substantially. Always address whether the business is online, physical, or both.

3. Stating a factor without explaining the impact

"The business needs to be near the market" scores 1 mark. "The café needs to be on a busy high street because most customers will visit on impulse during their lunch break, so footfall on that specific street directly drives daily revenue" scores the analysis mark.