Small Business Site Selection Plan:
By Bruce Gabrielson
This term paper will focus on the steps involved in making a plant-location decision for a small retail and light manufacturing outlet in Southern California. The business activity selected for study is the surfboard industry. Even though surfboards are unique to coastal areas, the business is highly competitive, and represents an activity that covers a broad range of the topics discussed in this course.
The basic problem under consideration is where and how to establish a foothold in the surfboard market place. Long-term problems will not be addressed herein since this author considers a ten-year life span normal for a particular manufacturer. Also, short-term production overloads are easily handled by piece part, work at established manufacturing facilities on a reduced profit margin basis.
Since surfboards are mostly custom made market oriented products of high fragility, only locations along the coast (within 10 miles) will be considered.
The first decision to be made prior to site investigation is to select a name for the company. The surfboard name, as with most market oriented products, is best remembered with minimal advertising if it has relevance to the industry and can capitalize on something well known to the public. Choosing a recognized athlete's name is often tried. However, unless it's the shop owner's own name, serious consequences will result if the competitor switches to another manufacturer. In addition, names are only good while in the competitive limelight, A much more sensible approach is to have a design model, named for a particular individual.
For this study, the name Wave Trek was selected. Space voyages and spaceships (Star Trek) are very identifiable with the surfing public. The tube of a wave is often referred to as inner space. Therefore, the acceptance and popularity of this particular name is nearly assured.
To determine a prime site (shop) location, more information on marketability and related data are necessary. A series of questions were asked to retail outlet owners in five separated locations. In general, most retail outlets are located near the ocean, with support glassing and shaping operations a few miles inland. Glassing operations are independent of individual board manufacturers in about half the cases examined. Average profit on a $175 board is $70 if the shaping and glassing are-perf6rmed by an outside manufacturing operation. Shaping runs about $20 per board, while glassing costs an average of $70. Blanks are about $10 each in larger quantities (100+). Materials to glass a board cost about $25, while fin costs can vary from $5 to $20.
After paying labor costs, this author estimated that a profit of only $20 per board is realized by a glassing facility. This is considered unprofitable for a small-scale operation. Therefore, in the beginning at least, glassing will be performed by an outside manufacturer. The sites investigated included Redondo Beach, Oxnard Shores, Carlsbad, Huntington Beach, Newport Beach and Laguna Beach, Each locations is supported by nearby glassing operations, and each is located in what are considered popular surfing areas. A total of 10 manufacturers were interviewed, with each owner or manager asked to rank the different areas including their own from most to least or best to worse. It is expected that anyone wanting to establish a business might know his field well enough to answer these same questions without a survey. An opportunity was available to this author to get more accurate information. Since sound business decisions should be based on hard data when possible, a survey was considered the best means of obtaining the necessary information.
The following rankings resulted from discussions with each manufacturer to the following questions:
1. Where is the largest market and exposure to be found? Ranked most to least:
Note: Maximum exposure will negate the need for major advertising costs.
2. What are your building rental costs in this area and how do they compare with other areas? Ranked lowest to highest:
3. What is the availability of good location shops to rent. Ranked most to fewest:
4. What is the availability of help (shapers, sales)? Ranked most to fewest:
5. What is the availability of high quality or recognized help? Ranked most to fewest:
*Newport shops draw from Huntington Beach
6. Rate the community backing foe this industry. Ranked best to worse:
7. How do you rate your taxes, difficulty in obtaining licenses, fire permits, etc? Ranked hardest to easiest:
Note: All cities were close but Newport and South Bay required the most effort to secure.
8. Are there any financial inducements to locate in a particular city.
9. Distance to production site and turn around time on orders. Since boards are fragile by nature, increased handling increases the chances for accident. In addition, areas which allow some manufacturing (shaping) at the retail outlet increase the profit margin as well as offering the customers the chance to see their board custom shaped, a preferred situation. Rank as least trouble to most:
*Depending on building, some manufacturing is allowed.
**Not only is manufacturing allowed, but for a higher price one total glassing and shaping manufacture is located within the retail area.
10. Assuming management or owners are oriented towards the best surfing areas over other factors, management preference would rank the areas as follows:
By giving a score of from 6 to 1 for each ranking, Huntington Beach slightly edges Out Ventura as the prime location. However, from the viewpoint of business costs, the savings in advertising through increased exposure, and the number of sales as explained below, significantly point to Huntington Beach as the prime location.
When considering competition for the market, it is important to note that a smaller percentage of a much larger market is more profitable. The following estimate is based on the average number of boards sold during a typical summer week. The average is given for all shops considered. -Rating by volume was not considered accurate enough to be assigned a score, but it does indicate the size of the market at each location. This is especially important if one considers the large number of manufacturers in both Huntington and the South Bay area. It should also be noted that few shops outside these two areas are able to exist on surfboard sales alone.
Since Huntington Beach is determined as the prime business location, some further investigation is warranted. The retail outlets initially questioned were considered average by this author, both in sales and quality. Eleven surfboard shoos are located in the beach area, with the most popular claiming to sell over 40 boards per week all year around. A very popular, well known surfer is a partner and works in this shop, David Neuuhiwa, David is the best known of the recognized area surfers, and it is considered unrealistic to assume sales would be near the 40 board level unless someone as popular would promote them. Therefore, one of the lesser known, but still popular local stars would need to be hired as a promoter and salesperson for an average 20 boards per week volume to be achieved.
There are several competitors with rankings who are readily available in the Huntington Beach area. Some of these people also have manufacturing skills such as shaping, glassing, or sanding. Since shaping is considered a critical skill, and since Huntington Beach allows shaping in retail surfboard shops under certain conditions, a good shaper with a competitive ranking Is a necessary requirement to immediately capture an above average share of the Huntington Beach market.
If expected sales are 20 boards per week, an inventory of 25 boards will be sufficient. It is expected that at least half of the boards sold each week will be custom made to specific dimensions. This is the consensus of most dealers interviewed. Within the shop, boards are displayed on end or in stands. A 20' by 30' room is large enough to hold 25 boards plus have a counter. A small room of at least 101 by 15' is required for shaping.
Therefore, a 25' by 50' floor space shop could easily handle the expected business volume, assuming shaped boards are sent out to tie glassed. There are several shops available for rent that are at least this size in the downtown Huntington Beach area.
For the average 20 boards per week, four boards per day for five days must be shaped. Average time for a board is 1 hour. Primetime for surfing is before 10 A.M. in the mornings, while sales usually take place between 10 A.M. and 2 P.M. Weekends are the best sales days, There-ore, the optimum solution for the sales, manufacturing, and site selection to establish a surfboard company is as follows: