Post on 14-Nov-2014
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WMG 19Term 8, Retail Management
Session 9-10Store Locations and Site evaluation
Dr. Asif Zameer
Objectives
• The importance of store locations• Types of locations• Steps involved in choosing a location• Trade areas and their evaluation• Evaluating a retail location
Location as an important tool of Retail Strategy
• Selecting a location involves a trade-off between cost of the site and potential of the site.
Importance of location decision
• Location is a major cost factor because it :i. involves large capital investment ii. affects transportation costsiii. affects human resources cost
• Location is a major revenue factor because it :i. affects the amount of customer trafficii. affects the volume of business
Location, Location, Location
Criteria to consider includepopulation size and traitscompetitiontransportation accessparking availabilitynature of nearby storesproperty costslength of agreementlegal restrictions
Levels of location decision and its determining factors
• A retailer takes a location decision based on:- selection of a city- selection of an area or type of location within a
city- identification of a specific site
Market Area Analysis
• Country • Region• City• Business District • Site
Factors for choosing a city
• Size of the city’s trade area• Pop size & growth (demographic)• Purchasing power & distribution
(demographic)• Trade potential (economic)• Cultural factor• No., size & quality of competition• Development cost (infrastructure)
Choosing a Store Location
Step 1: Evaluate alternate geographic (trading)areas in terms of residents and existing retailers
Step 3: Select the location type
Step 2: Determine whether to locate as anisolated store or in a planned shopping center
Step 4: Analyze alternate sites contained in the specific retail location type
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
Trade area analysis• Trade area consists of 3 parts – primary, secondary &
tertiary or fringeFactors determining the size and shape of trade areas:• Store type (format and merchandise)• Store size• Location of competition• Housing patterns• Travel time• Traffic barriers
The Segments of a Trading Area
The Size and Shape of Trading Areas
Primary trading area - 60-80% of a store’s customers
Secondary trading area - 15-25% of a store’s customers
Fringe trading area - all remaining customers
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
The Trading Areas of Current and Proposed Outlets
Trading Areas and Store Types
Largest
TRADINGTRADINGAREASAREAS
Smallest
Department stores
Supermarkets
Apparel stores
Gift stores
Convenience stores
Destinations Versus Parasites
Destination stores have a better assortment, better promotion, and/or better image
• They generate trading areas much larger than competitors
• Shoppers’ Stop: “Shopping and beyond”
Parasite stores do not create their own traffic and have no real trading area of their own
• These stores depend on people who are drawn to the area for other reasons
Defining the Trade Area - Central place theory
• Theory established by Christaller and Losch
Threshold
Range
- theory attempts to explain the spatial distribution of a settlement
-central level for a store is the minimum area from which it must draw traffic to be viable
- range is a sphere of the settlement of consumers traveling to the central place
- range of a store should be at least equal to its threshold area
- store will earn profits only if its range is larger than its threshold
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
Defining the Trade Area• Reilly’s Law of Retail Gravitation :
Dab = d / ( 1+ sqrt (Pb / Pa))Dab = Breakpoint of Ad = Distance between 2 cities A and BPa = population of city APb = population of city B
2 major assumptions:• 2 competing areas will be equally accessible• Retailers in the 2 areas are equally competitive
Spatial interaction theory
• Theory discards the assumption made by central place theory that behavior is explained by consumers using the nearest offering of goods or services
• Theory dates to 1931 from the pioneering studies of William J. Reilly
• Likelihood that a city or shopping centre will attract shoppers from the hinterland increases with the size of the city or shopping centre and decreases with distance from the city or shopping centre
Limitations of Reilly’s Law
Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets
Travel time does not reflect distance traveled. Many people are more concerned with time traveled than with distance
Actual distance may not correspond with perceptions of distance
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 Model Formula
tripsshopping of kinds different on time travelofeffect thereflects that oexponent tAn
center shopping point to starting scustomer' from distanceor timeTravel
center shopping of Size
center shopping particular a to travelingorigin ofpoint given aat customer a ofy Probabilit
Where
ijT b
ijT
jj S
jiijP
n
1jb
ijTjS
bijTjS
ijP
Huff’s Law of Shopper Attraction
• It provides probability of consumers choosing to visit one area as opposed to another.
• It defines trade areas on the basis of product attractiveness, time taken to travel from the consumer’s residence to alternative shopping centers and the sensitivity of shopping to travel time.
University and Shopping Centers: Gravity Model Illustration
Huff’s Model: The Solution
Pij = (1000 32 ) / (1000 32) + (500 52) + (100 12)
Probability = .48
.48 x 12,000 students = 5,760 customers
5,760 customers x $150 = $864,000
Repeat steps 1 to 3 for the remaining areas and then sum them.
Summarizing - Elements in Trading-Area Selection
Population Characteristics
Economic BaseCharacteristics
Nature and Saturationof Competition
Location selection criteria
• Pull of a shopping district• Competition in that location• Availability of access routes• Nature of zoning laws• Trend of growth of the city
Types of retail locationTypes ofTypes of locations
Free standing locations neighborhood stores highway stores
Unplanned business districts/ centres downtown or central business district secondary business district suburban business district strip centre
Planned shopping centres regional shopping centres of malls neighbourhood / community specialist markets periodic/ weekly markets (Flea markets)
Understanding various categories of shopping centers
• A flea market is a place where vendors come to sell or trade their goods.
• The goods are usually inexpensive and range in quality.
• Example – Village haats,Weekly bazaarsin cities
High streets
• High Street is the generic name (and frequently the official name) of the primary business street of towns or cities in the United Kingdom and Ireland.
• It is usually a focal point for shops and retailers in the city centre, and is most often used in reference to retailing.
• The equivalent in the United States and Canada is Main Street.
• Examples – Connaught Place, New Delhi and Sec 17 Chandigarh
Strip Malls• A strip mall (also called a plaza or mini-mall) is an open
area shopping center where the stores are arranged in a row, with a sidewalk in front.
• Strip malls are typically developed as a unit and have large parking lots in front.
• They face major traffic arterials and tend to be self-contained with few pedestrian connections to surrounding neighborhoods
Community center
• As per ICSC criteria - Community center: a shopping center of 100,000 to 350,000 square feet GLA.
• Typically anchored by a one or two discount department, drug, food & grocery or home improvement stores.
• They are commonly open, one-story, with stores arranged in a single strip, L- or U-shape.
• Examples – Local shopping centers adjoining colonies
Festival or themed marketplace
• Festival (or themed) marketplace: urban entertainment and shopping center, usually with restaurants and entertainments, associated with a place of historic or cultural interest.
• Example – Delhi Haat.
Broadly - Three Types of Locations
IsolatedStore
PlannedShopping
Center
UnplannedBusinessDistrict
Isolated Stores
• Large-store formats– Wal-Mart– Costco
• Convenience stores– 7-Eleven
Isolated Stores
AdvantagesAdvantages* No competition* Low rental costs* Flexibility* Good for convenience
stores* Better visibility* Adaptable facilities* Easy parking
DisadvantagesDisadvantages* Difficulty attracting
customers* Travel distance* Lack of variety for
customers* High advertising expenses* No cost sharing* Restrictive zoning laws
Planned Shopping Centers
AdvantagesAdvantages* Well-rounded
assortments* Strong suburban
population* One-stop, family shopping* Cost sharing* Transportation access* Pedestrian traffic
DisadvantagesDisadvantages* Limited flexibility* Higher rent* Restricted offerings* Competition* Requirements for
association memberships* Too many malls* Domination by anchor
stores
Relative Advantages of Major Retail Locations
Location City Strip Shopping Free
Issues Center Mall Standing
Large size + - + -draws peopleto area
People + + - -working/livingin areaprovided sourceof customers
Source of ? - + -entertainment/recreation
Protection - - + -against weather
Relative Advantages of Major Retail Locations
Location CBD Strip Shopping Free
Issues Center Mall Standing
Security - - + -Long, uniform - + + + hours ofoperation
Planned - - + -shoppingarea/balancedtenant mix
Parking - + - +Occupancy ? + - +costs(e.g. rent)
Relative Advantages of Major Retail Locations
Location City Strip Shopping Free
Issues Center Mall Standing
Pedestrian + - + -traffic
Landlord + + - +control
Strong + + - +competition
Tax ? ? ? ?incentives
Location Evaluation: Multi-Attribute Weighted Checklist
• No single factor or calculation is genrally enough.
• A checklist for all significant factors is prepared and the site is evaluated according to the degree to which the site meets the desired characteristics.
Pedestrian Traffic
The most crucial measures of a location’s and site’s value are the number and type of people passing by
Proper pedestrian traffic count should include* age and gender (exclude very young children)* count by time of day* pedestrian interviews* spot analysis of shopping trips
Vehicular Traffic
• Important for – convenience stores– outlets in regional shopping centers– car washes– suburban areas with limited pedestrian
traffic
Parking Considerations
Number and quality of spots Distance of spots from stores Availability of employee parking Price to charge customers for parking
Evaluation contd..
• Other factors influence the selection of a particular shopping centre:
merchants’ association
landlord’s responsiveness
Location/Site Evaluation Checklist
Some new locations growing in importance
• 5-star hotels• Airports• Railway Stations• Metro Stations• Highways
Features of Airport Retailing
Large group of prospective shoppers Captive audience Strong sales per square foot of retail
space Strong sales of gift and travel items Difficulty in replenishment Longer operating hours Duty-free shopping possible
Indian Retail Property Development
• 800,000: Forecast Organized Retail sales by 2016 (INR crores)• 8000: Average Org Retail Sales PSF per Annum• 700-800 million sq.ft.: Required new built-up area in India in
next 5 years• <300 million sq.ft: Projection on mall-construction in this time.• 400- 500 million sq.ft: Shortfall of proper retail space. • 2000: Sq ft area which can be built in 1 crore today• 400,000: Investment Required in Indian Retail in next 5 years
(INR crores) for building the retail space.• 300,000: (INR crores) for retail fit-outs & related equipment.