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11 Retail Location 11 Retail Location Strategies and DecisionsStrategies and Decisions

11 Retail Location 11 Retail Location Strategies and DecisionsStrategies and Decisions

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Factors to Consider in Site Selection

Economic growth potential Economic growth potential

Area competitionArea competition

GeographyGeography

Issues in Selection of Location Site

Consumer ChoiceThe Need for Competitive Advantage

Consideration of TrendsHigh InvestmentProperty Asset

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The Planning Policy Guidelines Issued by the

Government has the Objectives of: • Sustaining and enhancing the vitality and

viability of town centres• Focusing retail development in locations

where the proximity of business facilitates competition from which all consumers are able to benefit and maximising the opportunity to use means of transport other than a car

• Maintaining an efficient, competitive and innovative retail sector and

• Ensuring the availability of a wide range of shops, employment, services and facilities to which people have easy access by a choice of means of transport

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Long term goal: maximise profits Diversity

Short and Medium term goals

Inc. Sales/ Improve productivity Rationalise Mkt. Share Reduce costs Portfolio

Inc. size of premises? Refurbishment Disposal

NoExtend existing stores Build new stores

Small town centre format Compact store Superstore Internationalise?

Location A Location B Location C Acquisition?

Planning Permission?

Fig. Strategic Choice and Location Decision Alternatives

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Types of Retail Locations/ Location Decisions

Freestanding/ Isolated Store: located along a major traffic artery, without any competitive

retailers around

Freestanding/ Isolated Store: located along a major traffic artery, without any competitive

retailers around

Part of a Business District: is a place of commerce in the city, which developed historically as the centre of trade in the city or town and

would have no pre format or structure-CBD: Main centre of commerce and trade in the city

-Sec BD: evolved with a period of time, with spread of population in the city -NBD: unplanned shopping area to serve the needs of the neighbourhood

Part of a Business District: is a place of commerce in the city, which developed historically as the centre of trade in the city or town and

would have no pre format or structure-CBD: Main centre of commerce and trade in the city

-Sec BD: evolved with a period of time, with spread of population in the city -NBD: unplanned shopping area to serve the needs of the neighbourhood

Part of a Shopping Centre: a gp of retail and other commercial establishments that is planned, developed, owned and managed as a single

property

Part of a Shopping Centre: a gp of retail and other commercial establishments that is planned, developed, owned and managed as a single

property

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Shopping Center and Mall Locations

AdvantagesAdvantages

• Design attracts shoppers

• Activities and anchor stores draw customers

• Ample parking• Unified image

DisadvantagesDisadvantages

• Expensive leases• Failure of common

promotion efforts• Lease restrictions• Anchor store

domination• Direct competitors

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Steps Involved in Choosing a Retail Location

1 Market Identification in which to locate the store

2 Determining the mkt potential (DvsS)– Demographic features of the population– The characteristics of the household in

the area– Competition and compatibility– Laws and regulations– Trade Area analysis

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GEOGRAPHIC LOCATION DECISIONS

Store

Primary Zone

Secondary Zone

Fringe or Tertiary Zone

Fig. Market Area Zones/ Types of Trade Areas

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• Location decision is based upon:– Location Area: which attract higher level of

customers than others– Regions: which involve a larger section of the

country– Market area: a geographical sector containing

zones•Primary trading zone: which provides the major

customer base for the retail outlet (60-65%)•Secondary Zone: Which can be any distance

between 2-7 miles (under 20 min drive)•Fringe/ Tertiary zone: which will include those

who occasionally shop there as an alternative to shopping (upto 5 miles)

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3 & 4: Identify Alternative Sites and Select the Site– Traffic– Accessibility of the Market is also a Key

Factor– The Total No. of Stores and the Type of

Stores that Exist in the Area– Amenities Avle– To Buy or to Lease– The Product Mix offered

• Site Visit Report

11Fig. The Nature of Spatial Development in Cities

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It stresses that a city will develop by forming different urban concentric zones focused around a central business district

Concentric Zones Approach

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• This approach place the stress on understanding residential areas but take into consideration importance of commercial areas in relation to residential development.

Sector Approach

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Multiple Nuclei Approach

• It is an approach that accepts that different types of activity will tend to group together: shopping centres, buss districts, residential areas etc.

• The nuclei effect is created by:

– The mutual need for close proximity of different activities

– The need for accessibility of shopping– The different abilities to afford higher rents– Any significant physical aspects of the land – such as

steep hills or rivers affecting spatial development

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Generalization of City Development

• Central Business District• Wholesale, smaller businesses• Low class residential• Medium class residential• High class residential• Heavy manufacturing• Outlaying business district• Residential suburb• Commuter’s zone based upon transport

links

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EXPLANATIONS FOR THE SPATIAL DISTRIBUTION OF RETAIL ACTIVITIES

• Main Spatial Patterns which Describe Most Cases of Retail Location are:

– Central place theory is based upon the premise that as the distance to a retail centre increases, demand for a product will decrease due to increased cost of transport. Eventually, the demand will drop to zero as this is the cut-off point past which consumers will not trade if the level of demand is too low. This level is known as

• Threshold level – it differs acc. to product offered– High threshold products-relatively expensive, infrequently

purchased– Low threshold products-relatively expensive, purchased on regular

basis

• Low order goods – based on low threshold, low range criteria• High order goods – based on high threshold, high range criteria

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Table: Consumer changes which may affect the basic assumptions behind central place theory

Central Place Assumptions Modern Retail Consumerof Consumer *Trips are regular to purchase *The use of large refrigeration &small amounts, especially those freezers allow less frequent purchaseswith product perishability from superstores or retail centres*Purchase response is based upon *Non-price factors are increasingly price and product range more imp. determinant of pur. decision*Trips are home location based *Improved road systems, increased no. and often single-purpose trips to of cars & drivers per family allows the nearest shopping district multi-purpose trips and greater where goods are available distances to be covered*The shopping visit decision is *There has been an increase based upon necessity of the trip in leisure shopping *The consumer treats each shoppng *Retail innovation has taken place, area as a similar experience i.e. all with themed and purpose-built retailers are assumed to adopt a facilities creating retail experiencesuniform retail strategy which appeal to diff. type of consumr

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Table: Retail Strategy Diff. Bet. a Discount Store & a Traditional Deptt. Store

Disc. Clothing Store Strategy Deptt. Store Strategy*Low cost rental location *More expensive rental location*Simple fixtures & fittings, cheap *Elegant fixtures & fittings,covering, few displays, single floor carpeted flooring, individualfitting room fitting rooms, an abundance of

window and interior displays*Promotional strategy is based *Promotional strategy is basedupon price leadership upon developing brand image

and providing superior service

*Little flexibility in service *Flexibility in service *Reliance on self-service, basic *Thorough sales assistance, depthdisplays & breadth of stock, attractive dis*May stock limited lines and *Full selection of branded product cheap discounted brands, most and reluctance to have

discounted merchandise being visible and in itemscrowded conditions *Sales limited to specific end or *Continual use of low price offers season clearances or sp. occasions*No changing rooms *Changing rooms

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Fig: Retail Location and Consumer Behaviour Consideration

Bulky purchase

Destination retailers ‘Category killer’

Retail park Solus» Time

Comparison Time Time Convenience

available constraint

High street Local shops

Variety Proximity important

Portable purchase

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LOCATIONAL TECHNIQUESFactors in the location decisionLocation Assessment Techniques

Customers-Potential/ actual Accessibility Competition Costs*No. by demographics Site visibility Amt. & level Building

costs*income/ employment Pedestrian flows Type & no.s Rent costsby occupation, ind., *Spending patterns Barriers such as Saturation Rates

payable railway tracks index*Population growth, Type of Proximity of Deliverydensity and trends location zone key compets, costs*Lifestyles Road conditions traders, brand Insurance and network leaders – for costs *Car ownership Parking eg. Marks & Labour

Public transport Spencer ratesTable: Sample of Location Factors

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The Herfindahl-Herschman Index

• It is determined by adding the squares of the market shares of each competitor within the relevant product and geographic market

• The regulatory authorities in the US believe that markets are – concentrated when HHI > 1800– Moderately concentrated when HHI is between

1000 and 1800– unconcentrated when HHI < 1000

METHODS OF EVALUATING A TRADE AREA

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The Index of Retail Saturation

Saturation is calculated in terms of the existing retail facilities and their use. The indicator is termed as The Index of Retail Saturation (IRS) which is calculated as:

IRS = H * RE/ RF where

IRS = The Index of Retail Saturation for a part. area

H= no. of households in that areaRE=Annual retail expenditures for a part. line of trade per household in that area

Rf= the total square footage of that part. line of trade in that area, incl. the proposed store

This theory implies checking of demand and supply

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Reilly’s Law of Retail GravitationIt states when two cities compete for retail trade area from the immediate rural (suburban) areas, 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 proportion to the square of distance from the immediate area of each city

(Ba/Bb)=(Pa/Pb)(Db/Da)2, where

Ba = the buss which city a draws from the intermediate placeBa = the buss which city b draws from the intermediate placePa = Popu. of city a; Pb = Popu. of city bDa = Distance of city a to the intermediate placeDa = Distance of city b to the intermediate place

Acc to this law, people will travel to the largest place most easily reached

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Central Place TheoryCentral place: the centre of commerce of a village, town or city, which comprises of a cluster of retail orgns

Christaller presented 2 imp. concepts:

Range: the max that a consumer is willing to travel for a part. product or service

Threshold: the min. amt. of consumer demand that must exist for a store to survive

Technically, range should be > threshold for a store to be economically viable

The level of dev. tells a retailer abt. which type of retail activity is likely to develop in that area in the future

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• Computerized databases as an aid to store location catchment area decisions

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RETAIL PROPERTY DEVELOPMENT

Retail property development is also reliant on:– Local factors of supply and demand– Appropriateness of the avle site for diff. types

of retailer– The experience and preferences of the

developer and local planning officers– The min. amt. of land reqd. to provide diff.

scales of dev. and change– The costs of the dev.– The time factors in the completion of the dev.– The level of financial risk in undertaking the

dev.

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THE LEASING OF A RETAIL OUTLET

• Straight Lease• Percentage Lease

– Maintenance Recoupment– Net Lease

• Prohibited Lease

• Exclusive Use Clause

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TRENDS IN RETAIL PROPERTY DEVELOPMENT IN INDIA

Tier 1: Major Cities (Mumbai)– 8 cities, popu. > 4 million,

– Total income > 100 billion Indian Rupee

Tier 2: Mainstream Cities (Jaipur)– 26 cities, popu. > 1 million

Tier 3: Climbers (Faridabad)– 33 cities, popu. > 5,00,000

Tier 4: Small Towns (Shimla)– 5094 towns

Fig. The Classification of Cities and Towns

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CONCLUSION

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Hypermarket and Supercenter

HypermarketHypermarket A large retail store combining

a supermarket and a full-line discount store.

A large retail store combining a supermarket and

a full-line discount store.

SupercenterSupercenterRetail store combining groceriesand general merchandise goods

with a wide range of services.

Retail store combining groceriesand general merchandise goods

with a wide range of services.