You have been thinking about buying a franchise or buying a business which is a retail store. It may be the best concept around but it is located in a good location? Many franchises have picked the wrong location. Even McDonald’s has closed stores. Not every location is a great location. Sometimes the environment changes, something happens in the area and your location which used to be a good location is no longer. If you were in a plaza with a Walmart store and the Walmart store decided to move to a new location down the street, do you really think the old plaza will maintain that type of traffic? Unlikely.
When looking at a franchise, find out what locations are available. Sometimes franchises want to be in a specific geographic location however if they do not have visibility, they may have low traffic. I am aware of a well known fast food franchisor who wanted to be in a high density area where other fast food locations were situated. The problem was they picked the only location available which was down an industrial road, half a mile away from the prime area. The traffic down the industrial road was primarily truckers and the traffic was only on a weekday.
Fast food locations need high volumes of traffic. Fast food is an impulse buy, it is not always a destination location. As a result, people drive to where they see many fast food places and pick one location to to go. If you are down the street, no one will see you. Location, location location is key for any real estate transaction.
Some franchisors have stated that they have never closed a location. The reason being is that they sell a franchise, get the franchisee to pay for the leaseholds, franchise fee etc, go bankrupt and the franchisor takes over the location. They have no cost for the location therefore their costs are low. Sometimes they sell the same location again and again and make more money, the only one succeeding is the franchisor.
My comments below also relate to a business for sale, not just for a franchise. If the type of business which you are about to purchase is dependent on traffic from customers, then you need to ensure you have the right location and the right type of customers. You can have traffic but not the right type of customers. I have seen a country store located in a high traffic plaza where there was a buffet chinese restaurant, bowling alley and second hand store. The customers were not synergistic and no one went to the country store. Needless to say, it die not survive.
Unless you are a destination location where people will drive out of the way to find you, location, location, location and the right type of customers is extremely important in your decision to buy that business or franchise.