Why do similar businesses cluster together?

[Cat_Fight]

@matt_mcl

This also happens a lot with small businesses. For example, there are a huge number of antique stores on Notre-Dame Ouest in Little Burgundy, and Plaza Saint-Hubert in the Petite-Patrie is well-known for being the exclusive province of wedding dress stores, of all things. I guess it’s because once people realize that’s where you go to go antiquing/wedding dress shopping, that’s where it makes sense for new antiques stores/wedding dress stores to set up, because people will often be going from store to store to browse or comparison shop.

This was going to be my guess. Not sure about chain stores, but antique stores are known for this, and are of course less likely to have exactly the same merchandise as their competitors – so whichever store draws people in, the satellites will likely benefit.

[Pyper]

This seems to happen a lot in Los Angeles with small businesses. In Little Ethiopia, there is a street with a whole row of bakeries specializing in elaborate cakes. In West L.A., there is a block with six or seven large nurseries, most of them side by side.

But the strangest of all is that in Santa Monica, there are two British groceries directly across the street from each other! I understand increasing footfall by having similar businesses cluster together, but who needs two stores selling Flake and Marmite ten feet apart?

[Boyo_Jim]

You should wander around Manhattan for a while. There is a ‘district’ for everything – jewelry, furs, electronics, everything. That was the first place I really noticed this phenomena, and I never seen anywhere else where it’s so evident.

[EvilTOJ]

@elmwood

Ikea will not locate in a community with strict zoning regulations, no matter how good the location or market may be, because they insist on a blue building (many cities and towns limit the use of primary colors) and a high-rise sign (a rapidly growing number of cities and towns in the US have very strict sign regulations). Ikea almost opened a store in Denver a decade ago, but Denver’s suburbs have among the strictest architectural design and signage regulations in the United States. They finally found a location in Centennial, where a special zoning district was created just for Ikea.

In Portland even though the city said they can have the building, they told them their sign was too high and too big. Ikea said they’d put up a smaller sign. When the building was built, they put up the original sign. Portland said to take it down. Ikea said OK. Months later it’s still up. Portland fined them for violating zoning laws. Ikea doesn’t care they’re still leaving it up. As far as I know it’s still like that, I haven’t bothered to look.

[Beware_of_Doug]

@Boyo_Jim

You should wander around Manhattan for a while. There is a ‘district’ for everything – jewelry, furs, electronics, everything. That was the first place I really noticed this phenomena, and I never seen anywhere else where it’s so evident.

It’s been reinforced over many generations by ethnic patterns in trade and employment. If people from certain places get an “in” on certain lines of work, they just naturally tend to cluster.

[Wallenstein]

In my town we seem to get a lot of laundrettes situated by religious bookshops.

I guess it makes sense though…

… after all, cleanliness is next to godliness

[Mops]

@Mangetout

Yes - assuming there is some variety between them, they collectively offer the consumer a venue in which they can browse a wider range of choices than in a single store - footfall in the area will increase because people will go there to shop around, and increased footfall can mean increased sales for all of the stores.

That’s my impression in some cases. For example, our city (pop. 85k) has one large downtown clothing store where there is a reasonably variety of reasonably smart clothing (plus a lot of small shops where it’s hit or miss if they have anything suitable)

The next city (pop. 110k) has at least three large stores (that I know of). So people from our town (I among them) often drive over instead of looking locally.

When a property next to the store in our city was to be developed, the management of that store said they’d like for the city to attract a competing large clothes store - they reckoned more people overall would come to shop in both, with more business for the incumbent business too.

[BigT]

But the gas station example doesn’t make sense for the variety argument. The only reason I can think of to get gas from the more expensive station is if the less expensive station is already full.

Now, if the gas station is more than a gas station, then it starts to make a little more sense. The more expensive gas stations can have other attractions inside.

[Boyo_Jim]

For me, it’s which way I’m headed at the time I need gas. I won’t drive aound the block or wait to cut across traffic to get to a station on my left, just because it’s a penny a gallon cheaper. I’ll pull into the most convenient location.

I might jump through a few extra hoops if the station has a convenience store attached, and I need something like a gallon of milk as well as the gas.

[Ponch8]

There are literally 6 or 7 Oriental rug stores within a half mile of where I live. It’s not like customers are knocking down the doors to buy these rugs either. I figure that they’re probably a front for some drug ring or terrorist group.

[DivineComedienne]

@BigT

But the gas station example doesn’t make sense for the variety argument. The only reason I can think of to get gas from the more expensive station is if the less expensive station is already full.

Now, if the gas station is more than a gas station, then it starts to make a little more sense. The more expensive gas stations can have other attractions inside.

I have only lived here for about 8 years, so I’m not sure which of the three gas stations got there first. The three stations are decorated in Red, Blue, and Green respectively. Red and Green are on the same side of the northbound street (State highway, but only one lane each way), Blue is on the other southbound side.

Red gas station is always charging a penny more than the other two (I think Blue and Green watch whatever Red charges and go down a penny, and Red has probably given up trying to compete). Red is the cleanest and most professional-looking, but charges different prices for cash vs. credit purchases. They also have the most pleasant attendants that clean your windshield (yes, in NJ we can’t pump our own gas).

Green gas station has a liquor store attached to it, which always strikes me as funny (talk about mixing drinking and driving!). I guess they also sell lottery tickets and cigarettes, but I have never gone inside.

Blue gas station is the dirtiest-looking one, and the least busy. They sell gas at the same price for cash or credit, and have the surliest attendants. They have a soda machine inside the building, and sell a dozen roses for $9.99 (how many can they sell in a day to make it profitable? Is there really that much of a demand for men to impulsively buy gas-scented roses to bring home to the little woman? I always wonder about this).

I don’t see a major benefit to having three stations on the same corner, but there must be enough business to go around, or someone would close up shop.

[Todderbob]

@elmwood

National chain drug stores will ALWAYS locate in a freestanding building on a corner lot, and almost always at a corner with a traffic signal. If the chance at a better location emerges, they’ll take it, even if it means abandoning a successful location a block or two away that was built just a few years earlier.

Id like to point out that this should be ALMOST always, not always.

For instance, there’s a wall greens on route 1 in college park Maryland which is in a strip center, there’s also a CVS (I think) in a mall in Greensboro north carolina.* almost* always.

[kaylasdad99]

@Hallucinex

This was the first thing that came to my mind on opening the thread. If you’re selling the sort of thing that people aren’t buying everyday, when they do buy such items they’re likely to think “where do people go to buy <x>?” and go there first - so that’s where you want your store to be.

For instance, in Cypress Creek an aspiring hammock retailer would be crazy to try locating onywhere outside the Hammock District.

[elmwood]

@DivineComedienne

I don’t see a major benefit to having three stations on the same corner, but there must be enough business to go around, or someone would close up shop.

There are some major problems with redeveloping older gas station sites, the biggest being brownfield remediation due to leaking or poorly insulated tanks. That’s often why you’ll see former gas stations that have been empty forever surrounded by an otherwise prospering business district, or old gas stations holding on; the value of the real estate underneath won’t make up for the remediation costs.

[Sateryn76]

@kaylasdad99

For instance, in Cypress Creek an aspiring hammock retailer would be crazy to try locating onywhere outside the Hammock District.

I need a business hammock!

[KneadToKnow]

@elmwood

National chain drug stores will ALWAYS locate in a freestanding building on a corner lot, and almost always at a corner with a traffic signal. If the chance at a better location emerges, they’ll take it, even if it means abandoning a successful location a block or two away that was built just a few years earlier.

@Todderbob

For instance, there’s a wall greens on route 1 in college park Maryland which is in a strip center, there’s also a CVS (I think) in a mall in Greensboro north carolina.* almost* always.

I pass a Walgreen’s every day that’s part of a strip. No question whatsoever that this is not an ALWAYS situation.

[Boyo_Jim]

Sure, but there are so many Walgreens that some day there will be an all-Walgreens Mall.

[Tim_T-Bonham.net]

@Shalmanese

This is actually an active field of research in economics, whether it’s more advantageous for businesses to cluster together or be evenly dispersed. Here’s an NPR Story about it.

I can confirm this from personal experience. Where there is a Home Depot located right across from a Lowes, I tend to go there – assuming that if I don’t find what I need at one store, I have a chance of finding it at the other, with no need to drive somewhere else.

Same way, when going out for a quick lunch, heading for the block where there are several fast food places together give us more choices – when we get there, we can decide which one is least busy, what we are hungry for today, etc. Again, without having to drive off somewhere else.

[thirdname]

@Shagnasty

It does get weird sometimes especially with places like Duncan Donuts and Starbucks. There is a joke in the movie Best in Show about how it took the really obnoxious Type A yuppie couple a long time to meet because he was always noticing him from the Starbucks across the street because she went into the other one and vice versa. They kept switching to the other Starbucks at the same time to try to hook up and messed it up for a while.

One of my local grocery stores did some various remodeling and they added a Starbucks counter (with some tables) in the front of the store, even though there was already a full-blown Starbucks 100 yards away at the other end of the shopping center.

ETA: regarding yuppies and excessive Starbucks branches, watch this video to the end: http://www.youtube.com/watch?v=4T1RMuoQnKo He didn’t get all of them.

[MsRobyn]

You’re all forgetting about traffic and access.

For example, I’m not going to go out of my way to buy gas. If there are three or four gas stations at the same intersection, it’s not a big deal to pull in, fill up, and go than it would be to have to make a turn to cross the street.

Starbucks uses some of the same logic. Coffee is generally an impulse purchase, and most people won’t go out of their way to get a cup. So Starbucks makes it more convenient by offering locations on both sides of the street. No matter which one you go into, they’ll get your money. In fact, there is a shopping center with a free-standing Starbucks and one inside the Target. People won’t go into Target to get coffee, so they go to the free-standing Starbucks. People who are shopping at Target will go to the one inside the store.

Some people will also plan their purchases around what kinds of credit cards they have. If I have a Sunoco credit card, I probably won’t be buying gas at Sheetz. If I have a Lowe’s card, there is probably little reason to go to Home Depot. And since many cards now come with loyalty incentives like discounts on gas, I’m more likely to use my card than I am to pay cash.

In the case of pharmacies, most people choose them because they know that a pharmacy accepts their insurance plan and stocks what they need. For example, I know that relatively few pharmacies take my insurance. (I have Tricare.) I use a locally-owned pharmacy because a) I know they take Tricare, and b) they stock the generic form of my medication, which saves me a crapton of money. (Three bucks for generic versus 60 for brand-name.)