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Guidelines for aStore-location Strategy StudyWILLIAM APPLEBAUM

The large Investments inmodern store facilities andthe long lease commitmentsmake it necessary for retail-ing firms and for shopping-center developers to employstore-location research.In this article the authorp resen ts 16 f un da m en ta lsteps or guidelines, distilledfrom 35 years of experience,for planning and executingcomprehensive store - loca-tion studies. These guidelinesare of interest not only tomarketing research special-ists, but also to business ad-ministrators who must makestore-location expansion de-cisions.

Journal o] Marketing, Vol. 30 (October,1966), pp. 42-46.

T^HE EARLIEST attempts to employ "research" in evaluat-- and choosing store sites go back about a half a century ago. Sithen, thank s largely to the intere st of re tail chain-store firm s shopping-center developers, this subject has been receiving increing attention in the United States and abroad. A significant liteture dealing with store-location research has already emerged.The retailing firms that employ store-location research in thexpansion planning expect basically two things from the resear1. An evaluation of specific sites as to th eir sales potential athe probability of a store's long-range success at the site2. A store-location strategy plan or model that undertakes select, from among the location alternatives in a given ggraphic area, those locations that will produce for the fan optimum share of market potential, a minimum hazafor futu re sales erosion, and a maximum retu rn on toinvestment over the lease period.The 16 fundamental steps discussed in this article apply situations where a firm (1) seeks to improve or expand its markcoverage in an area where it is already represen ted; (2) propoto open stores in a new territory; and (3) considers an acquisitioIn any of these situations, the investigator will have to exercijudgment as to how much to cover under each suggested step.

See, for example:William Applebaum and Saul B. Cohen, "The Dynamics of StoTrading Areas and Market Equilibrium," Annals of the Assotion of American Geograpticrs. VoL 51 (March, 1961) pp. 73-1Particularly useful for long-range strategy planning.Brian J. L. Berry and Allen Pred, Centra} Place Studies: A Bibography of Theory and Applications (Philadelphia: Regional Sence Research Institute, 1961). A Supplement Through 1964.published in 1965. The most complete bibliography of its kind.Harold M. Mayer and Clyde F. Kohn, Readings in Urban Geogra(Chica go: The U niversity of Chicago Pre ss, 195 9). Some of treading.s are useful for store-location research.Richard L. Nelson, The Selection of Retail Locations (New YorF. W. Dodge, 1958). A book by a pra ctitio ner with some inteesting insights.

Store Location and Development Studies (Worcester, Massachsetts: Clark University, 1961). A collection of seven basic papeby different authors.Store Location Research for the Food Industry (New York: Ntional-American Wholesale Grocers' Association, around 1960Proceedings of a seminar on supermarket site evaluation and loction strategy, edited by Saul B. Cohen. Useful for techniques ansource data."Store Location Strategy" in New Directions in Marketing (Chcago : Am erican M arket ing Assoc iation, 1965 pp. 241-294). Acollection of six instructive papers on concepts and techniques.William Applebaum, "Methods for Determining Store Trade AreaMarket Penetration, and Potential Sales," Joumal of Marketing Rsearch, Vol. 3 (May, 1966), pp. 127-141.

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Guidelines for a Store-location Strategy Study 43A store-location stra teg y study should be under-taken before an analysis is made of specific sitesin the study a rea. T he bro ader strateg y study willindicate Where sites should be sought to fit intothe company's plans for th e futu re.

Evaluat ing an Area in Which Fi rmIs Already Represented

Following are the 16 steps or guidelines for thestudy of an area in which a firm is already rep-resented.1. Define the Objective.A store-location strategy study cannot be under-taken without a knowledge of a firm's businesspolicies. These policies include type and size ofstore desired, merchandise mix, merchandisingappeals, and customer services to be provided.Assuming that these policies are known to theInvestigator, then he must be given a preciselydefined study objective, such as: To determine possibilities for improvement ofpresent store facilities and development ofnew stores in the Atlanta Division. To anticipa te and plan a 5-year program forstore expansion opportunities in GreaterChicago. To ascertain the prospects for establishing a

successful branch in Nebraska.' To evaluate the facilities and customer ac-ceptance of an existing firm that is beingconsidered for acquisition.When the precise objective has been stated, it!s necessary to spell out in sufficient detail th e scopeof the study so that a written plan can be formu-lated; and also so that estimates can be made ofthe skills, cost, and time required to make the study.

2. Analyze the Economic Base.The economy of the study area plays a majorrole in the lon g-ran ge oppo rtunities for the in-terested firm. Therefore, it is essenial to obtainpertinent available information about the economicbase of the areasuch as its economic activities;employment characteristics and stability; pastti-ends and future prospects.

3. Study the Population and Its Characteristics.People are customerspresent or potential. There-fore, it is essential to find out how many people are

in the study are a, wh ere they live, their socio-economic and age characteristics, their levels of

tribution and other characteristics of the popula-tion.24. Ascertain the Environmental Conditions.Information should be compiled, especially onmaps, about the environmental conditions of thestudy areaincluding terrain features, road net-work, land uses, retail business centers, zoningregulations, projected highway changes, and sig-nificant climatic factors that affect customers andbusiness operations.

5. Make an Inventory of Competition.Competition means all those retail establishmentsthat compete for the same type of business. Sincecompetition exists everywhereexcept temporarilyin newly developing subdivisions, or where kept outby zoning or some other restrictionsand sincecompetition is dynamic, the study of competitionrequires a field survey.For some studies it may be sufficient to surveyonly the more significant competing establishments,while for other studies all competition should beincluded. The survey should produce informationabout the physical characteristics and type of loca-tion of each surveyed reta iling facility (st or e) , themerchandise offered for sale, the customer servicesthe store provides, and a reasonably good estimateof the store's sales.In so far as practical, maps should be constructed

that portray the information about the charac-teristics of the retailing facilities of competition.6. Appraise Competition.Information is needed about each important com-petitor in the area. This should include: historicdata about each firm; its financial strength; anappraisal of its executive management and storepersonnel; and a survey (check) of its pricing-See William Applebaum and Eiloon Schell, Market-ing Maps for Store Location Stiidirs (Chicago: SuperMarket Institute, 196.5).

ABOUT THE AUTHOR. Wi l l iam App le -baum is a part-time Lecturer on FoodDistribution and Comparative Marketingat the Harv ard Business School. He isalso a marketing consultant at home andabroad.

He did his undergraduate work at theUniversity of Minnesota and graduatework at the University of Cincinnati andthe University of Minnesota. He servedin various capacities during a long busi-ness career with The Kroger Company and with Stop & Shop, Inc.Mr. Applebaum has published extensively in the fields ofmarketing research, economic geography, food distribution, andbusiness manage ment. His work has earned for him citations

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44 Journal of Marketing, October, structure. The appraisal should give due considera-tion to the inventory of store-facilities data, andshould estimate each important; competitor 's shareof market.

7. Study Consum er Attitudes.A consumer survey should be conducted in thearea, to ascertain consumer attitudes concerningimportant competing retai lers .Such a survey should seek to discover the relativeconsumer acceptance i,"image") of your own com-pany and each important competitor, and any re-cent shifts in consumer attitudes. The survey shouldbe designed to bring out differences, if any, inconsumer attitudes among different socioeconomicgroups within the s tudy area.

8 . Study Your O wn Company's Market Coverageattd Penetration.If a company already has its own stores in thearea, then the trade areas, market penetration, andcustomer-sliopping habits of these stores should bedetermined hy the customer-spotting technique. Thisrequires that s tore customers be interviewed, andthen the data obtained processed and "spotted" orlocated on maps to delineate trade areas and marketpenetrat ion.The results of this s tudy will provide basic datafo r :

Evaluating present sales performance of eachstore in relation to market potential. Delineating areas of underpenetration. Estimating the effects of new location moveson existing company stores.

9. Analyze Your O wn Stores' PerformanceThe sales and profits record of each companystore in the area need analysis, including a de-tailed examination of recent s tore-operating state-ments. Also to be considered are such factors aspresent investment in each store, rent and leaseterms, store-manager changes, and special effortsthat have been made to promote the store.These findings should be evaluated in relationto all the other pertinent information secured underthe preceding steps in this outline. This leads, then,to an appraisal of the present performance of each

store in relation to market potentials .10 . Appraise Your Own Store Facilities andLocations.

When the work on steps 1 throug h 9 has beencompleted, the store-location strategy study shouldbe directed toward appraising the adequacy of eachof the company's store facilities as well as possiblelocations for the short run and the long run.Concepts should be formulated for possible store-location moves (such as enlarging, relocating, clos-ing) for those stores that are obsolete or unsatis-

facto rily located (or which w ill become so innea rer fut ure ) and for stores whose leases expire soon. At this point these concepts are tetive, subject to reappraisal after the completionstep 13.11. Study Areas of Under-pen etration.

The customer "spotting" on the maps should be examined, in order to ascertain areas not pently served or served inadequately, that is, unpenetrat ion.

Then, sales potentials should be determinedall areas of un derp ene tratio n; and are as shouldso design ated when th ey offer sufficient salestential to meet at least the company's minimstandard requirements for its s tores.The effect of each new store-location move areas of underpenetration on the sales of exisnearby company stores should be calculated estimated. These areas designated for new stoshould be tho ugh t of as tent ativ e, subje ct to

examination under step 13.12 . Consider Competitors' Likely Location Move

Every important competitor has his plans orleast some ideas for growth, through store expsion. Considering the store facilities and locatithat each important competitor has, and his financand man age rial st ren gth , what location moveshe likely to make?Here the need is to "step into the other felloshoes " and to try to guess wh at he m igh t do. Teffort will sharpen the analysis required to devea store-location strategy program for the compa

making the s tudy.13 . Develop a Store-location Strategy Plan.

At thi s point a re-exa min ation should be mof (a) all formulated concepts of possible stolocation moves involving existing company stor(b) tentatively formulated new store-location movinto areas of underpenetration; and (c) the antipated effect of each possible new store-location moon existing company nearby stores.Certain concepts will now have to be modifieand a total store-location strategy plan made fthe area. This plan must be designed to harmoniwit h th e policies of the compa ny an d with its nancial and managerial capabilities .Some preliminary field checks are now needto determine the feasibility of finding sites for tconceptualized store-location moves. Whenever posble, suggestions should be included as to alternasites, or at least general locations.

14 . Calculate Your O wn Company's FuturePosition in the Area.Assuming that the proposed store-location straegy plan will be accepted by the company and wi

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Guidelines for a Store-location Strategy Studybe carried out, the m arke t sh are the company migh texpect to achieve should be calculated.1 5 . Project Investment Requirements, Profits, andReturn on Investment.

At this point it is essential to review with thecompany's operators and merchandisers the salesprojections for the proposed store-location moves.The dep artm ents concern ed need to develop (a)projections of the investment required for the pro-posed stores and supporting service facilities, and(b) store operat ing budgets (pro-form as).Then the company can project anticipated returnon the investm ent required to carry out the plan.Where a company has related enterprises that willbenefit from the additional sales in the new stores,the total corporate ret ur n on investmen t can andshould also be estimated.

1 6 . Prepare a Written Report.A store-location stra teg y study should result ina report, clearly and concisely written.This report should contain only the conclusionsand the most important data developed in the study.Details can be compiled in a separate appendix, orkept in an orderly reference file.The report should give sources of data and shouldstate what is fact, what is assumption, and whatis opinion. All recommendations should be as preciseand specific as possible.

45Evaluat ing a New Market Area

A store-location strategy study of a new marketarea should cover steps 1 through 7, and 12. Thestudy requires the development of a "model" of howto get maximum market coverage with a minimumnumber of stores. The model plan developed mustbe realistic and feasible, and should be tailored tothe company's merchandising and operating policies.

After such a model plan is developed, it is neces-sary to calculate the company's position in the newmarket, and to make the projections covered understep 15. Consideration should also be given to pos-sible acquisitions.Evaluat ing a Possible Acquisi t ion

A company may wish to make a thorough studyof the store facilities of a firm being considered foracquisition, and of the competitive conditions andmarket potentials within the area involved. In thatcase, the study should attempt to cover as much aspossible of each of the preceding 15 steps.From the firm under consideration for acquisi-tion, permission should be sought to customer"spot" each of its stores (see step 8). Special at-tention to store facilities and personnel may alsobe required as part of this study.The financial arrangem ents and manag erial a gree-ments involved in the acquisition of a firm are essen-tial, but outside the scope of a store-location str ate gystudy.

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