Retail Site locations

Objectives

• Factors which retailers consider in selecting a general area for locating stores

• Determining the number of stores to operate in an area

• Different approaches to evaluate a specific site

Factors which affect the demand for region/trade area

• Best locations- generate highest profit for a retailer

• Factors which affect the long term profit generated by stores that should be considered:

- Economic conditions- Competition- Strategic fit of the areas population with retailers

target market- Cost of operating stores

Economic conditions

• Locations: involve commitment over a long term, imp to examine areas level of growth and population and employment

• Fully employed population – high purchasing power and high level of retail sales

• How long the growth trend will continue

Competition

• Competition in an area- affects demand for merchandise

• Eg Walmart- early success: areas which were understored.

Strategic fit

• Area consumers- should fit in the retailers target market

• area – right demographic and lifestyle profile

Operating costs

• Varies according to areas. Store rentals and advt costs can be lower in certain areas

• Store near to the distributor- cost of transportation is lower

• Legal restrictions

Number of stores in an area• Need to consider tradeoffs between lower operating costs and

potential sales cannibalization from having multiple stores in an area• Economies of scale: Promotion and distribution of economies can

be achieved, advt costs for one store and 20 stores same (for newspapers),can increase sales/store and reduce costs, maintains loyal customer base, has regional orientation

• Cannibalization: Diminishing returns by locating additional stores in the same area, should open only if marginal revenues are more than marginal costs. Needs to take into account the new store sale impact on existing store sale. Eg Walmart: deliberate cannibalization. Plans opening when sales reach 100 million USD or more. Builds competitive advantage because shopping experience is enhanced- 2 stores- less congestion creates entry barrier for competitors

EVALUATING A SITE FOR LOCATING A RETAIL STORE

Three factors to consider

• Characteristics of the site• Characteristics of the trading area for a store

at the site• The costs associated with locating at the site

Site Characteristics

Traffic flow and accessibility

• vehicular traffic•Ease of vehicular access• access to major highways • street congestion• pedestrian traffic• availability of transport

Location characteristics• parking spaces• access to store entrance and exit• visibility of store from street• access for deliveries• size and shape of stores• condition of building• adjacent retailers

Costs• Rental fee• common area maintenance costs• local taxes• advt and promotion fees• length of lease

Traffic flow and accessibility

• High traffic- more customers likely to stop and shop• Traffic counts important for retailers offering merchandise

bought on impulse• Accessibility is important as traffic flow. Greater for sites

located near major highways, on uncongested highways and with traffic lights and turns which enable to turn into the site

• Natural barriers and artificial barriers also affect• pedestrian traffic, access by public transportation – imp

min countries where consumers don’t drive to shopping centers

Location characteristics

• Parking: Amount of parking and quality determines location Less: customers are discouraged, more: store may be perceived as unpopular

• Std rule of thumb: 5.5:1000 (5.5 spaces per 1000 sq feet of retail store space)

• Need to consider the availability of employee parking, proportion of shoppers using cars, parking by non shoppers, typical length of shopping trip.

• Congestion: refers to amount of crowding by cars or people. Optimal level essential. Too much: discourage sale, make shopping slow, irritate customers. High level: generate excitement and stimulate sale

Location characteristics

• Visibility: Refers to the customer ability to see the store from the street.

• Good visibility is les imp for a well established store and loyal customer base

• Adjacent tenants: locations with complementary ,competing adjacent retailers can boost customer traffic

• Convenience/comparison shoppers- shop around make choice easily

Location characteristics

• Within a shopping centre: Affects both sales and occupancy costs

• Stores which cater to impulse purchases- eg drug store/florist should be closer to supermarket, whereas shoe repair store- farther away

• Consumers- comparison shopping, -fashionable apparel, benefit from located near departmental store anchor.

• When consumers enter and leave- attracted to neighboring specialty retailers

• Locate stores closeby – to attract similar target market- good assortment of merchandise

Trade area characteristics

• After site identification: have acceptable traffic flow, accessibility and location characteristics, next step

• Collect info about the trade area- used to forecast sales for a store located at that site

• Retailer needs to define trade area for the site, retailer develops understanding of nature of consumers in the sites trade area

Trade area• A contiguous geographic area that accounts for majority of store`s

sale and customers• Primary trading area: geographic area from which the shopping

centre or store site derives 50-70% of its customers• Secondary trading area: Geographic area of secondary importance

in terms of customer sales, generating 20-30% of the sites customers• Tertiary trading area/fringe: includes the remaining customers who

shop at the site but come from widely dispersed areas• Trading areas of three zones may be defined on basis od driving

time. Primary: customers within five mins of driving site. Secondary: 15 min drive, Tertiary: more than 15 mins from site

• Also define by distance: 3,5,10 miles from site

The Segments of a Trading Area

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

Factors affecting the size of trading area

• Stores accessibility• Natural and physical barriers• level of competition• Type of shopping area• Type of store

Type of shopping area

• Size of trading area is determined by the nature of merchandise sold, the assortment offered, and location alternatives for the merchandise

• Convenience store: for speed, category specialist for comparison shopping,

Type of store

Destination stores

•Merchandise, selection, presentation pricing or other unique features attract customers to other stores regardless of other neighboring stores•have a better assortment, better promotion, and/or better image•It generates a trading area much larger than that of its competitors• Anchor stores in shopping malls such as dept stores•Eg Lifestyle, Marks and Spencers

Parasite stores•do not create their own traffic and have no real trading area of their own• Trading area is determined by dominant retailer in the shopping area or retail area• offer complementary products/services•These stores depend on people who are drawn to area for other reasons•Eg drycleaners

Measure the trade area for customer site

• Can determine the existing trade area fo9r their existing store by Customer spotting

• Is the process of locating residences of customers for a store on a map and displaying their positions relative to the store location

• Address for locating the customers residence : ask the customers/internet/cheque info/customer loyalty programs

• Data processing: manual or through GIS(Geographic Information Systems)

• For new store use the info from existing stores

Trading Areas and Store Type

Largest

TRADINGAREAS

Smallest

Department stores

Supermarkets

Apparel stores

Gift stores

Convenience stores

The Trading Area of a 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

Sources of information about the Trade area

• Census data• GIS data

GIS-Geographic Information system

• System of hardware and software used to store/retrieve/map/analyse geographic data.

• Identified with a coordinate(latitude/longitude)that references a particular place

• Firms offer GIS combine data with updated demographic census data+ consumer spending pattern+lifestyle.

• Data can be analysed easily and output are maps which enable to visualize implications easily

Estimating a sales potential for a store site

• Huffs Gravity model• Regression analysis• Analog model

Huffs gravity model

• Based on concept of gravity• Customers attracted to a store just as

Newton's falling apple was attracted towards earth

• Force of attraction is based on two factors:- Size of store(larger store has more pull power)- time it takes to travel( More travel time=less

pull power)

Regression analysis

• Statistical model• based on assumption that factors which affect

the sales of existing store in a chain will have the same impact on stores located at new sites being considered

• Employs a technique called as multiple regression to estimate sales

CHIEF FACTORS TO CONSIDER IN EVALUATING RETAIL TRADING AREAS

Population Size and Characteristics

•Total size and density•Age distribution•Average educational level•Percentage of residents owning homes•Total disposable income•Per capita disposable income•Occupation distribution•Trends

Availability of Labor

•Management•Management trainee•Clerical

Closeness to Sources of Supply

•Delivery costs•Timeliness•Number of manufacturers•Number of wholesalers•Availability of product lines•Reliability of product lines

Economic Base

•Dominant industry•Extent of diversification•Growth projections•Freedom from economic and seasonal fluctuations•Availability of credit and financial facilities

Competitive Situation

•Number and size of existing competition•Evaluation of competitor strengths and weaknesses•Short-run and long-run outlook•Level of saturation

Availability of store locations•Number and type of store locations•Access to transportation•Owning versus leasing opportunities•Zoning•Costs

Regulations

•Taxes•Licensing•Operations•Minimum wages• Zoning

Analyzing Retail Trading Areas