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

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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.