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Service Location: Where Shops and Warehouses Go

A service such as a shop, clinic, bank or warehouse needs a good place. The best place has enough customers inside the distance people will travel (range), costs a fair rent, is easy to reach by road or rail, and is not too crowded with rivals. Warehouses and logistics hubs choose cheap land beside highways, ports and railways. When roads, cities and online shopping change, the best places change too.

🎬 Step-by-step story

  1. Look at a small town from above. Each dot is a home. Homes are packed near the middle and thin at the edges. All these families need shops.
  2. People walk only a short way to buy things. Draw a circle around the shop: this is its range. Homes inside the circle can be customers.
  3. A shop needs a minimum number of customers to earn enough. At the edge there are too few homes in the circle, so this shop loses money.
  4. Move the shop to the middle. More homes are inside the circle, so more customers. But land in the middle costs more, so the rent is high.
  5. A rival shop opens nearby. Each home goes to the nearer shop, so the customers are shared. This is why similar shops often open side by side.
  6. Now a warehouse. It sends goods to shops by truck. Put it beside the highway: land is cheap and trucks move fast. Play with all the sliders.

Tip: drag the 3D scene to turn it. Use two fingers to zoom.

🤔 Common doubts, cleared

What does the circle around the shop mean?

It shows the range: homes inside it are close enough to walk to the shop. In the 3D they turn green.

Why can a shop lose money even if it is a good shop?

A good shop still needs enough customers. If too few homes are in range, it falls below the threshold, as the shop at the edge shows.

If the middle is best, why not put every shop there?

The middle has the highest rent and the most rivals. The shop owner has to balance customers against rent.

Do rival shops always harm each other?

They share the customers, so each gets fewer. But for goods people compare, a cluster of shops pulls in more buyers overall.

Why do warehouses sit on the edge of a city?

Customers do not visit them. They need cheap land and fast roads, which the edge beside a highway gives.

What happens if the warehouse is placed inside the town?

The truck trip gets shorter, but land costs more and the trucks add to traffic jams. Tick the box in the 3D to compare.

What is a service and why does its place matter?

A service helps people but does not make a thing. Shops, clinics, banks, schools, delivery companies and warehouses are services.

Most services need customers to come to them, or need to reach customers quickly. So the place decides if they earn money or close.

In the 3D, each dot is a home. Watch how the best shop place changes when we change one thing at a time.

Customers: range and threshold

Range is the farthest distance people will travel for a service. A milk shop has a short range (a few hundred metres). A big hospital or a furniture mall has a long range (many kilometres).

Threshold is the smallest number of customers a service needs to earn enough to stay open. A tiny shop needs few customers. A big supermarket needs many.

Rule: a service can survive only if the number of people inside its range is at least its threshold. In step 2 the circle held too few homes, so the shop lost money.

Rent, roads and rivals

Land cost (rent). Places with many customers, such as the town centre, have costly land. A shop owner trades more customers for more rent.

Access. Shops do well where roads, bus stops or stations bring people. A shop on a crossroad can be reached from four directions.

Competition. A rival takes some of your customers. Yet shops that sell things people compare, such as clothes, mobile phones or cars, often group together in one market street. Buyers like to compare, so a cluster pulls in more people for everyone.

Shops that sell daily needs, such as milk and vegetables, spread out so that each one has its own homes nearby.

Logistics: warehouses, ports and distribution centres

Logistics means moving and storing goods so they reach shops and homes on time. A warehouse keeps goods. A distribution centre sorts them and sends them out.

Customers do not visit warehouses. So they need not be near homes. They look for three things:

This is why many warehouses stand on the edge of a city beside a ring road. Goods for the whole city arrive and leave without driving through crowded streets. Food that spoils needs a cold store, so such places also need steady electricity.

How service locations change

Try it

In the 3D, drag the Walking range slider and count green homes. Then drag Shop position to the edge and back to the middle. Find the place where the shop earns enough. Then tick Rival shop and see the customers split. At home: stand at your nearest shop and count how many homes are within a 5 minute walk. Would a second tea stall fit here?

Key formulas and definitions

Worked examples

1. A tiny vegetable shop needs 14 homes inside its range. In a village, a circle around a lane holds 9 homes. Will the shop do well? What can the owner do?

9 is less than the threshold of 14, so the shop will earn too little. The owner can move to a place with more homes (like a lane near the crossroad), or sell more kinds of daily goods so that each home buys more, or wait until more homes are built.

2. Why do mobile phone shops stand together in one market, but milk booths are spread across all colonies?

People compare prices and models of phones before buying, so they like a market where many phone shops stand side by side. Each shop gains because the market pulls in more buyers. Milk is bought every day close to home, so buyers will not walk far. Each booth needs its own homes nearby, so booths spread out.

3. A company builds a warehouse to supply a big city. Option A: in the old centre, rent very high, every truck is stuck in traffic. Option B: on the ring road beside the highway, rent low, free-flowing roads. Which should it choose and why? Give one risk of B.

Option B. A warehouse needs space and fast roads, not walk-in customers. Low rent and a highway junction cut the cost and time of every trip. A risk of B: if the ring road is blocked or the highway fees rise, deliveries to the far side of the city could be slow, so the company may add small local hubs later.

Common mistakes

Practice quiz

1. The farthest distance people will travel to use a service is its:
2. Which service usually needs the LONGEST range?
3. Why are warehouses often built beside a highway on the edge of a city?
4. Why do clothes shops often group in one market street?
5. A new metro station opens in a quiet area. What is most likely to happen?

Practice: answer these yourself

Type or choose your answer, then press Check. Use a hint if you are stuck; the full solution appears after you answer.

Frequently asked questions

What are the factors affecting the location of services?

Customers in range (threshold), rent or land cost, access by road, rail or other transport, competition, and for logistics, cheap land with fast highway, rail, port or airport links.

What is the difference between range and threshold?

Range is a distance: how far people will travel to a service. Threshold is a number: how many customers the service needs to earn enough.

Why are warehouses built near highways and ports?

Because goods come in and go out by truck, train and ship. Cheap land and fast links keep the cost and time of every trip low.

Where this is taught

China高一Comp.2 Ch.3 Industry location

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