Store Site Location & Selection

Location is an important decision for a retailer-why?

Location is an important decision for a retailer because -once started ,it is very difficult to change (loyal customers and employees lost, store fixtures cannot be easily removed)

90% of retail formats are store based

A good retail location may let a retailer succeed

STEPS INVOLVED IN CHOOSING A RETAIL LOCATION

Market identification (which country to enter- attractiveness of a market )

Determine the Market potential

1. ( Demographic features of the population—(population –urban/rural , level of literacy, level of education )

2. The characteristics of the households in the area –( income level, age profile

3. Competition and compatibility –starting a gift shop near department store or theatre

4. Laws and regulations- hours, minimum wages, holidays required

5. Trading area analysis –Primary trading area, secondary and tertiary area analysis

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Factors Affecting The Choice Of Market

Demographics of population & area

Competition

Laws & Regulation

Trade area analysis

TRADING AREA ANALYSIS

A trading area is geographic area containing the customers of a particular firm. it is the geographic area that generates the majority of the customers for the store.

Knowing the boundaries of the trade area helps the retailer estimate the number of potential customers that may patronize store .

Helps the retailer in gathering information about demographic and lifestyle

Understanding of the trade areas also gives key inputs to the retailer for the promotional and communication strategies to be adopted by the firm

Internationally many retailers use GIS software's to understand the characteristics of trading area

Primary trading area- covers between 50- 80 % of the stores customers and the area closest to the store- 4 miles.

Secondary trading area- 15-25 % of the stores customers-5 miles.

The fringe of tertiary trade area- covers the balance customers-10 miles

THE SEGMENTS OF A TRADING AREA

Retail Trading Area Identification

Spotting Techniques: “spot” customer origins – license plate surveys– customer surveys– customer records– customer activities (contests, sweepstakes)

Demographic data & GIS Vendors– Census– Buying Power Index (BPI)– Measuring Competition

Demographic Data and GIS Vendors

Demographic data vendors specialize in repackaging and updating census-type data.

Geographic Information System (GIS) is a computer system that enables analysts to visualize information about their customers’ demographics, buying behavior, and other data in a map format.

• GIS is a spatial database that stores the location and shape of information.

• Analysts can identify the boundaries of a trade area and isolate target customer groups

Analyze alternative sites in the specified retail location type-

1. Traffic

2. Accessibility of the market

3. Total no. of stores and types of stores that exists in the area

4. amenities available

5. To buy or to lease

6. The product mix offered

SITE EVALUATION CRITERIA

Pedestrian traffic Number of people, type of people

Vehicular traffic Number of vehicles, type of vehicles, traffic congestion

Parking facilities Number and quality of parking spots, distance to stores, availability of employee parking

Transportation Availability of mass transport, access from major highways, ease of delivery

Store Composition Number and size of stores, retail balance and affinity(similarity)

Specific site Visibility ,placement in the location, size and shape of the lot, size and shape of the building, condition and age of the building

Terms of Occupancy Ownership or leasing terms, operations and maintenance cost, taxes and other restrictions

Overall rating General location and specific store

Select the best site available

TYPES OF RETAIL LOCATIONS

1.THE ISOLATED STORE/Free standing location- is a free standing retail outlet located on either a highway or a street; there are no adjacent retailers

Advantages

No competition

Rental costs are low

Larger space may be obtained

Better road and traffic visibility

More parking space

Disadvantages

Initial customers may be difficult to attract

Many people will not travel very far to get to one store on a continuous basis

Many people like variety in shopping

A store must often be built rather than rented

Costs such as outside lighting, security etc are not shared

2.THE BUSINESS DISTRICT- is the place of commerce in a city ,which developed historically as the centre of trade and commerce in the city or town. It can be classified into central business district, secondary or a neighborhood business district.

CENTRAL BUSINESS DISTRICT- is the main centre of commerce and trade in the city. eg.in Mumbai –colaba or Nariman point and in Delhi- Connaught place

Characteristics-peak land rates, intense development, vehicular and pedestrian traffics are very high ,shoppers drawn from the whole urban area and has at least one major department store and a number of specialty and convenience stores

Advantages

excellent goods /service assortment

access to public transportation

variety of store type

wide range of prices and customer services

high level of traffic and nearness to social and entertainment facilities

Disadvantages

inadequate parking

traffic and delivery congestion

more travel time for those living in the suburbs

high rent and high cost for property

discontinuity of offerings, such as four shoes store and no pharmacy

SECONDARY BUSINESS DISTRICT- is one which has evolved over a period of time, with the spread of population within the city .A city may have more than one SBD

Characteristics- stores are smaller than those in the CBD, smaller trading area and

it includes traditional department stores and some specialty stores

Advantages

access to public transportation

less crowding and personal service

placement nearer to residential area

Disadvantages

discontinuity of offering

high rent and parking difficulty

fewer outlets

NEIGHBORHOOD BUSINESS DISTRICT- is an unplanned shopping area that appeals to the convenience shopping and service needs of a single residential area. It contains several small stores, such as dry cleaner, stationary sore, barber shop, liquor store and a restaurant .The leading retailer is a supermarket or a large drug store

Advantages

good location

long store hours and a good parking

less hectic atmosphere

Disadvantages

limited selection of goods and services

price is higher

less competition

STRING- it is located along a street or highway .A string may start with an isolated store ,success then breeding competitors

3.PLANNED SHOPPING CENTRE- A group of retail and other commercial establishments that is planned ,developed, owned and managed as a single property. Availability of parking is an important feature of a shopping centre

Positive attributes family shopping sharing of common costs creation of distinctive ,but unified shopping centre image pedestrian traffic parking space access to highway low theft rate

Limitations reduce retailer’s flexibility (working hours) higher rate than isolated store domination by large stores competition expansion is a problem

The International Council of Shopping Centers has defined eight principal shopping center types, shown in the accompanying table.

Types of Shopping Centers

Neighborhood and Community Centers (Strip Centers)

Power Centers

Enclosed Malls

Lifestyle Centers

Fashion Specialty Centers

Outlet Centers

7-23

Neighborhood and Community Centers

Attached row of stores

Managed as a unit

Onsite parking

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Power Centers

Big box stores

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Limited small specialty stores

Free-standing stores

Open air set up

Available parking

Desirable shopping experience

Many located near enclosed malls

Large trade areas

Low occupancy costs Convenient

Modest vehicular and pedestrian traffic

7-25

Lifestyle Centers

Courtesy of General Growth Properties

Photo provided by ICSC and used with permission of Aspen Grove Lifestyle Center

7-26

Lifestyle Centers

Usually located in affluent residential neighborhoods

Open-air configuration

Design ambience and amenities

Upscale stores

Restaurants and often a cinema or other entertainment

Small department store format may be there

7-27

Fashion Specialty Centers

Upscale apparel shops

Need to be anchored

Décor is elegant

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Outlet Centers

These shopping centers contain mostly manufacturers and retail outlet stores

Courtesy of Beall’s, Inc.

7-29

Other Retail Location Opportunities

Mixed Use Developments AirportsResorts HospitalsStore within a Store

Royalty-Free/CORBIS

7-30

Alternative LocationsMixed Use Developments MXDs

Skip Nall/Getty Images

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Civic Centers

Office Buildings

Hotels

7-31

Alternative LocationsAirports

Airports: Why wait with nothing to do?

Rents are 20% higher than mallsSales/sqft are 3-4 times higher than mallsBest airports are ones with many connecting flights

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Alternative LocationsResorts

Captive audience

Well-to-do customer

Customers have time to shop

Royalty-Free/CORBIS

7-33

Alternative LocationsHospitals

Patients cannot leaveGifts are available

Royalty-Free/CORBIS

7-34

Matching Location to Retail Strategy

Department Stores Regional Mall (a shopping mall which is designed to service a larger area (15 miles) than a conventional shopping mall.)

Specialty Apparel Central Business District, Regional Malls

Category Specialists Power Centers, Free Standing

Grocery Stores Strip Shopping Centers

Drug Stores Stand Alone

Retail Location Theories/ Methods of evaluating a trading area

Retail Location Theories/ Methods of evaluating a trading area

1. Huff’s model of trading area analysis

2. The index of Retail saturation/

Saturation Theory

3. Reilly’s law of retail gravitation

Huff’s Model

Based on the premise that the probability that a given customer will shop in a particular store or shopping center becomes larger as the size of store or center grows and distance or travel time from customer shrinks

Huff’s Law

Assumptions:

The proportion of consumers patronizing a given shopping area varies with the distance from the shopping area

The proportion of consumers patronizing various shopping areas varies with the breadth and depth of merchandise offered by each shopping area

The distance that consumers travel to various shopping areas varies for different types of products purchased

The “pull” of any given shopping area is influenced by the proximity of competing shopping areas

Huff’s Model Formula

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center shopping particular a to travelingorigin ofpoint given aat customer a ofy Probabilit

Where

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University and Shopping Centers: Gravity Model Illustration

Huff’s Model: The Solution

Pij = 1000 32

(1000 32) + (500 52) + (100 12)

Probability = .43

.43 x 12,000 students = 5,160 customers

5,160 customers x $150 = $774,000

• Repeat steps 1 to 3 for the remaining areas and then sum them.

Retail Location TheoriesRetail Location Theories

Saturation theory

examines how the demand for goods and services of a potential trading area is

being served by current retail establishments in comparison with

other potential markets.

Retail Location TheoriesRetail Location Theories

Index of retail saturation (IRS)If a market has a low level of retail saturation, the likelihood of success is higher. In the following formula, a higher IRS indicates a lower level of saturation, thereby increasing the likelihood of retail success.

His theory basically implies that a retailer needs to clearly check the demand for a particular product or service that he wishes to retail and the number of stores offering the same. Thus, checking demand and supply is of importance.

Retail Location TheoriesRetail Location TheoriesIndex of Retail Saturation (IRS)

where IRS is the index of retail saturationH is the number of households in the areaRE is the annual retail expenditures for a particular line of trade per

household in the areaRF is the square footage of retail facilities of a particular line of

trade in the area (including square footage of the proposed store)

IRS = (H X RE)/RF

Reilly’s law of retail gravitation

When two cities compete for retail trade area from immediate rural (suburban) area, the breaking point for the attraction of such trade will be more or less in direct proportion to the population of the two cities and in inverse proposition to the square of the distance from the immediate area of each city.

Retail Location TheoriesRetail Location Theories

Buying power index (BPI)is an indicator of a market’s overall retail

potential and is composed of the weighted measures of effective buying income (personal income, including all

nontax payments such as social security, minus all taxes), retail sales,

and population size.

Buying Power Index (BPI)

• Published annually in Demographics

• Measures a given market’s ability to buy

• Is expressed as a percentage of the total COUNTRY’S. potential

Retail Location TheoriesRetail Location Theories

Buying Power IndexBPI = 0.5(the area’s percentage of effective buying income)

+ 0.3(the area’s percentage of retail sales)

+ 0.2(the area’s percentage of population)

Classification Of Cities And Towns

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