Its all confusing. I think setting up location is most confusing part. I am 100% sure that many people leave the websites which require them register an account or any extra step before they can enter the website and see whats inside.
As I have suggested, a good alternative would be random stores, or manually picked stores and show them on home page. Once a user is on homepage he can choose his address.
Yes, popular location is very bad... it happened to me also many times that they choose a popular location and make an order. Than I had to call them. So i disabled them.