store locations

Retail Store Location

For long this P has been considered as a most important in retailing.Selecting a market area and specific location are two important decisions for a retailerSince 90% of retail sales are made at stores.It is an important part of retail strategy.Location decisions can be complex, costs can be quite high, there is often little flexibility once the location has been chosen.Location of store conveys a fair amount of its image.

Retail Store Location…

The ultimate goal is maximum customer accessMarket and location selection depends upon target marketRetailer need to understand who its current customers are, who its competitors customers are and who makes up the potential customer basesPeople who are alike tend to live in neighborhood and have similar behavior and psychographic traitsGeographic location matter because cost-effective product delivery and adaptation of websites to fit local market interests/ needs are necessary

Importance of Location

Good Location CAN Overcome Mediocre Strategy MixPoor Location Difficult to OvercomeRequires Extensive Decision MakingNot Flexible

Problem with shifting location

Heavy InvestmentNew Location May Not Have Same CharacteristicsStore Fixtures and Renovations May Not Transfer

EvaluateAlternate

Geographic(Trading)

Areas

SelectGeneralLocation

AnalyzeAlternate

Sites

DetermineType of Location

Site Selection Steps

Trading-Area Analysis

A trading area is a geographic area containing the customers of a

particular firm or group of firms for specific goods or services

Trading area analysis

A trade area should account for more than 50% or higher sales Trade area can be a nation/ single neighbor blockSize of area depends on retailer’s objectives, like, how many customers are needed to achieve profitability? What sales is required to achieve breakeven?Ray Kroc of McDonald’s insisted that franchisees live in trading area so they would understand the local market

Trading Area Parts

Often the trading area is broken down in primary, secondary, tertiary or fringe areasPrimary area should produce at least 60% of business, secondary area additional 15-20% and fringe areas the remainder

Trading Area

Size and Shape of Trading Area

Not ConcentricTwo Stores in Same Area Can Have Different Trading Areas (TA)

Trading Area Analysis Benefits

Consumer Characteristics DetailedPromotional Activity Focus DeterminedProper Number of Stores CalculatedGeographic Weaknesses Highlighted

Trading Area Influencers

Store SizeCompetitors’ LocationsNew StoresResidential Housing PatternsTravel or Driving TimePromotion-impact is temporary

Factors Affecting Demand for a Trading area

CompetitionBusiness climateDemographic and lifestyle characteristicsEconomies of scale versus cannibalization

Benefits of Trading Area Analysis

Discovery of consumer demographics and socioeconomic characteristics

Opportunity to determine focus of promotional activities

Opportunity to view media coverage patterns

Assessment of effects of trading area overlap

Ascertain whether chain’s competitors will open nearby

Discovery of ideal number of outlets, geographic weaknesses

Review of other issues, such as transportation

DECISION MAKING MODEL FOR TRADING AREA SELECTION

The Trading Areas of Current and Proposed Outlets

GIS Software

Geographic Information Systems– digitized mapping with key locational data to

graphically depict trading-area characteristics such as

• population demographics• data on customer purchases• listings of current, proposed, and competitor locations

GIS Software in Action - A

GIS Software in Action - B

Private Firms Offering Mapping Software

Claritas

ESRI

GDT

GeoVue

Mapinfo

SRC

Delineating Trading-Area Segments

Trading Areas and Store Type

Largest

TRADINGAREAS

Smallest

Specialty Stores

Department stores

Apparel stores

Supermarkets

Gift stores

Convenience stores

Delineating The Trading Area Of An Existing Store

Store records or special study can be used to measure the trading area.Primary, secondary and fringe areas can be described in terms of:•Frequency with which people from various geographic areas shop at a particular store.•The average rupee purchase at a store by people from given geographic areas.•The concentration of a store’s credit card holders from given geographic areas.

Delineating Trading Area of New Store

Different tools must be used when an area must be evaluated in terms of opportunities rather than current patronage and traffic patterns– Trend analysis– Consumer surveys– Computerized trading area analysis models

Computerized Trading-Area Analysis Models

Analog Model

Regression Model

Gravity Model

Analog model

Define current trade areaMatch characteristics of current store with potential new stores location to determine the best site

REGRESSION ANALYSIS

Select store performance measure & variables used to predict performance.Solve the regression equation and use it to project performance for future sites

Reilly’s Law

Reilly’s law of retail gravitation, a traditional means of trading-area delineation, establishes a point of indifference between two cities or

communities, so the trading area of each can be determined

Reilly’s law of retail gravitation

Establishes ‘point of indifference’ between two cities’ locations that help the retailer project the physical trading areaArgues that a customer living between two cities will consider both trading areas for shopping based on distance of each area from home and the size of each areainventory and selection may be more important than distance, so the consumer will travel little more to get to the bigger cityTravel distance being equal, consumer will choose the city with more population because more product assortment is availableThe point of indifference is the distance at which the consumer is indifferent about shopping at either location

REILLY’S LAW OF RETAIL GRAVITATION:Its purpose is to establish point of indifference between two cities so the trading of each can be established.This law can be expressed as:Dab= d 1+Pb/PaDab = limit of city A’s trading area in miles along the road to city B d = distance in miles along a major roadway between cities A & BPa = population of city APb = population of city B

Reilly’s Law…

Limitations of Reilly’s Law

Reilly’s law rests on 2 assumptions: 1. Competing areas will be assessable from the major road

Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets

2. Retailers in the two areas will be equally effective.3. Other factors such as dispersion of population are ignored. 4. Travel time does not reflect distance traveled. Many people are

more concerned with time traveled than with distance5. Actual distance may not correspond with perceptions of

distance

Ellwood’s modification….

Ellwood has modified the Law of Retail Gravitation by using different variables. “The principal retail districts within a metropolitan trading area attract trade from the residential sections of the area approximately in direct proportion to the size of the retaildistricts and in inverse proportion to the square of the driving time distance from each

Ellwood’s modification….

N nBa = ( Sa) ( Tb)Bb Sb Ta

– Where : N = 1 n = 2– B = percentage of consumer want to visit shopping

center– S = retail area – T = travel time– a, b = two shopping centres (a and b)

Huff’s Law

Huff’s law of shopper attraction delineates trading areas on the basis of product

assortment (of the items desired by the consumer) carried at various shopping

locations, travel times from the shopper’s home to alternative locations, and the

sensitivity of the kind of shopping to travel time.

Huff’s Law…

Huff’s gravity model/ huff’s law of shopper attraction states that consumers will shop at a store more often if the size of the store is increased and the distance to shopping area is decreased.The theory says that because the center is larger, it may have larger/ wider assortment of goods and servicesDistance has the opposite effect on probability of patronageAll things being equal, consumer wants a shopping area close to home

Huff’s Law…

Huff’s Gravity Model (Huff’s Law of Shopper Attraction

n

PiJ = (SJ / TiJλ) / ∑ (SJ / TiJ

λ) Where; j=1

PiJ = Probability of consumer traveling from origin (i) to given shopping center or store (j)

SJ = sq. ft. of selling space in shopping location, expected to be devoted to particular product being sold

TiJ = travel timeλ = exponent reflecting effect of travel time on different types of

shopping trips (i.e. one may travel more for medical product)n = no. of shopping locations available

Index of Retail Saturation Theory

It is strategically sound to access how deeply competitors are entrenched in a given market areaIRS theory helps the retailer to access the level of demand and supply in various trading areasA trading area in which supply and demand are in equilibrium shows retail saturationRetail saturation means consumer needs are just being met with the existing retail facilitiesWhen that trading area has too few stores, the area is said to be under storedIf too many stores/ selling space is devoted, the area is said to be over storedIRS is simply the sales per sq. ft. of retail space for a trading area for a given product lineIf IRS high, the area is under stored; if it is low, the area is over stored

Index of Retail Saturation Theory…

Index of Retail Saturation;IRS = (H * RE) / RF

Where;

IRS = index of retail saturation for given trading areaH = no. of households in given trading areaRE = annual retail expenditure for the retailer’s line of

products per household RF = retail sq. footage of a particular product for the trading

area

Chief Factors to Consider in Evaluating Retail Trading Areas

Total size and densityAge distributionAverage educational levelPercentage of residents owning homes

Total disposable income

Per capita disposable income

Occupation distribution

Trends

Population Size and Characteristics


Management

Management trainee

Clerical

Availability of Labor


Delivery costs

Timeliness

Number of manufacturers

Number of wholesalers

Availability of product lines

Reliability of product lines

Closeness to Sources of Supply


Dominant industry

Extent of diversification

Growth projections

Freedom from economic and seasonal fluctuations

Availability of credit and financial facilities

Economic Base

Chief Factors to Consider in Evaluating Retail Trading Areas…

Number and size of existing competition

Evaluation of competitor strengths and weaknesses

Short-run and long-run outlook

Level of saturation

Competitive Situation

Chief Factors to Consider in Evaluating Retail Trading Areas…

Number and type of store locations

Access to transportation

Owning versus leasing opportunities

Zoning restrictions

Costs

Availability of Store Locations


Taxes

Licensing

Operations

Minimum wages

Zoning

Regulations

Location, Location, Location

Criteria to consider includepopulation size and traitscompetitiontransportation accessparking availabilitynature of nearby storesproperty costslength of agreementlegal restrictions

Destinations versus Parasites

Destination stores have a better assortment, better promotion, and/or better imageIt generates a trading area much larger than that of its competitorsDunkin’ Donuts: “It’s worth the trip!”

Parasite stores do not create their own traffic and have no real trading area of their ownThese stores depend on people who are drawn to area for other reasons

Types Of Location

Typically a store location may be:1. Freestanding/ isolated store2. Part of a planned business district3. Part of a unplanned business district

Isolated Store/ Freestanding Location

A freestanding location is a store located along a major traffic artery, without any competitive retailers around.

Generally the store is located off the main road, highway orStreet

Large retailers and medical retailers utilize isolated sites

Advantage is limited competition resulting in lower rental

It is harder to attract traffic to a freestanding site

Planned Business Sites

Generally planned business site/ district is centrally managed/ ownedThe key to successful planned business site is balanced tenant mix which offers complementary merchandise to the consumerPlanned business districts are developed to attract consumers from greater distancesHave at least one anchor store and enough parking space to attract traffic3 types of planned business sites are regional centers, community centers and neighborhood/ lifestyle centers

Planned Business Sites…Regional centers: attracts customers from an area of 5 to 15 milesProvides general merchandise and is typically enclosed with parking spaceMalls have balanced tenancy, convenient, free parking and vast selection of storesGenerally about 50 stores, besides one anchor store make up regional centerShould have about 4,00,000 sq. ft. of gross leasable area (GLA), though most regional centers are larger than thisMegamalls/ superregional centers – two of the world’s largest are – the West Edmonton Mall in Canada and the Mall of America in MinneapolisMall of America took $ 650 mn. to build, has 2.5 mn. sq. ft. of GLA and more than 4 mn. sq. ft. in total

Planned Business Sites…

Community shopping centers tend to be between 100,000 to 400,000 sq. ft.House a smaller branch department store, large discount store, a category killer or combination of these stores as an anchor Have a diverse tenant mix, that includes banks, pharmacies, hair salons and specialty storesNeighborhood centers are planned shopping districts with a smaller anchor store and focus more on convenience goods


Lifestyle centers is a neighborhood center targeted to upper-income shoppers, are typically outdoors with a main street type of ambience, tenants sell nonessential items, building and landscaping costs are higher than other retail developments and parking in front of the storesA lifestyle center is typically one-third size of a traditional regional center


Airport malls is a community shopping center located in an airport2 models for airport malls: Prime model and Developer modelIn Prime model, the airport is responsible for management of retail facilities whereas, in the Developer model, an outsider company serves as the mall manager and works to draw top retailers to the airportThe shops in the developer model are owned and operated by individual retailers, who do their own hiring

Unplanned Shopping Sites

Unplanned shopping sites result when two or more retailers move into the same area or in close proximity to each otherCentral Business Districts are city center areas/ downtown areas of citySecondary Business Districts generally a miniature CBD, located around major transportation intersections of citiesNeighborhood Business Districts generally relies on convenience products as the main product mix and provides shopping for a neighborhoodStrip shopping Districts have stores visible from the road and arranged in a long ‘strip’

Choosing Store Locations

In choosing store location, retailer should follow these four steps:1. Evaluate alternative trading areas in terms of characteristics of

residents and existing retailers- Market Identification.2. Determine whether to locate as an isolated store, in an

unplanned business district or in a planned shopping center within the geographic area.

3. Select the general isolated store, unplanned business district, or planned shopping center location.

4. Analyze alternate sites contained in the specified retail location type.

The choice of the location of the store depends on the target audience and the type of merchandise to be sold.