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Module 5 retail location selection
 

Module 5 retail location selection

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  • The classification is from There are many different ways to classify the different store types, in my view, the store locations classification is only based on the sector of in-store retailing. We focus on our analysis on the physical locations of different kind of stores and the match of retail categories and those locations.
  • Free standings in China and US are similar, however, in big cities in China, because of the scarcity of land, free standings for a single retail store are not very common. However, in some first-tier cities in China such as Shanghai and Beijing, you can see many department stores which own or lease the free standing building.
  • In tier-1 cities, the central business district and secondary business district are always co-exist. For example, in Shanghai, Lujiazui Financial Center counts for CBD, however, it also have many SBD inside of the middle ring.
  • In China, you can see many strings which in CBD or downtown areas. Motor vehicles are not permitted on strings. In fact, many strings are located in CBD areas.
  • Here, shopping centers don’t mean department store but a clustered community shopping area where people can have access to different retail category stores. In US, we usually call it ”plaza”, but in China we often give them name of “shopping center” and recently we also use the name of “plaza”.For example in Shanghai, in Huaihai Road CBD area, we have” Hong Kong Plaza”, “New World Plaza”, “Pacific Shopping center” and many others.
  • We can see from the exhibit, the United States has almost every kind of retail locations. For comparison, in China, the factory outlet is not very common, and lifestyle centers and power centers are not easily to seen even in big cities.
  • Regarding the open market in China, we have two types. One is regular open market, which retailers just leave their goods in the market and they have a small storage space everyone. Another is specific open market such as some “old book markets” which those retailers only open the market on a specific date. Therefore they need to carry their goods everytime and sometimes they just leave the goods in nearby self storage warehouse.For example: “Wen Temple old book market” in Shanghai, it open only on sundays.
  • Barber, clothing store and groceries are rare in CBD or SBD, but for a typical NBD or regional shopping center, they are necessary.
  • These retail type classifications are from China retail industry website.
  • Central place theory is a spatial theory in urban geography that attempts to explain the reasons behind the distribution patterns, size, and number of cities and towns around the world. It also attempts to provide a framework by which those areas can be studied both for historic reasons and for the locational patterns of areas today.
  • According to the marketing principle K = 3, the market area of a higher-order place includes a third of the market area of each of the following size neighbouring lower-order places and each is located at the corner of a hexagon around the high-order settlement. Each high-order settlement gets 1/3 of each satellite settlement, thus K = 1 + 6×1/3 = 3.However, although in this K = 3 marketing network the distance traveled is minimized, the transport network is not the most efficient, because the important transport links between the larger places do not pass through intermediate places.
  • According to K = 4 transport principle, the market area of a higher-order place includes a half of the market area of each of the six neighbouring lower-order places, as they are located on the edges of hexagons around the high-order settlements. This generates a hierarchy of central places which results in the most efficient transport network. There are maximum central places possible located on the main transport routes connecting the higher order center. K=1+1/6*2=4
  • According to K = 7 administrative principle (or political-social principle), settlements are nested according to sevens. The market areas of the smaller settlements are completely enclosed within the market area of the larger settlement. Since tributary areas cannot be split administratively, they must be allocated exclusively to a single higher-order place. Efficient administration is the control principle in this hierarchy.
  • This example is the settlement system in Zhejiang Province in China.From central place theory, we know that the marketing principle K = 3, the market area of a higher-order place includes a third of the market area of each of the following size neighbouring lower-order places and each is located at the corner of a hexagon around the high-order settlement. Each high-order settlement gets 1/3 of each satellite settlement, thus K = 1 + 6×1/3 = 3. Form the graph, we can see that the high order place such as “Wuzhen” get 1/3 of market area of lower order places such as “hongtang” and “taoyuan”.The situation of this town is consistent with the idea of “ group effect”. In China, many cities are famous for its unique theme such as “ Water town”, ”furniture town’ and “ wedding store town”. We can see from the figure, those “central places” are theme towns so other small towns are lower-order places and each is located at the corner of a hexagon around the high-order settlement.
  • http://wenku.baidu.com/view/12e29dbd960590c69ec376ca.htmlThe government plays an important role in site selection in merging market such as China. Since lands are owned by government and developers can only get the using right of the land within some period, developers need to pay a “transfer fee” to the government and Chinese government and it agencys also controls the development process and the licensing process of the business. We will talk about this topic in detail later.
  • The value segmentation in China varies fast recently. With the accumulation of social wealth and personal wealth, the consuming lifestyle an leisure lifestyle are increasing significantly. Those lifestyle modes are mostly come from wealthy family or elite class. Right now, the wealth gap in China is very huge, middle class or below can rare spend a lot of money in luxury retail stores. Also, these stores usually have their target small group consumers.
  • The is the core segment of this module so everything in this segment is very important.First we need to understand the “location” from the macro perspective: trade area definition in ChinaThen we move to micro characteristics of unique locations in terms of accessibility, visibility and parking ratios.Finally, based on the macro and micro concepts of location, we can forecast and calculate the project revenue and cost of these retail stores based on some models.
  • http://www.amendes.uac.pt/SEIO/ITOR.pdfRetail store location assessment
  • http://www.directionsmag.com/features/retail-trade-area-analysis-concepts-and-new-approaches/129766http://www.tradeareasolutions.com/business_services.htmThe trade area definition in US frequently refers driving time and 5-miles radius. However, in China, except some metropolis, we seldom use driving time to define a trade area.
  • Based on business plan and expansion plan, trade area changes for different retail stores. For example, KFC China has a local brand” DongfangJiBai”. This Chinese stylish fast food chain stores started from suburban area of China and then expanded into urban areas gradually.
  • Some larger retail chains define regions as their trade area. Examples: Walmart and Carrefour
  • Also some regional retail firms define trade area using province and metro cities.
  • Shanghai: three ringsInner ring: downtown, CBDs, up scale lifestyleMiddle ring: uptown, expensive residential district and secondary CBDsOuter ring: suburban area, residential district and neighborhood shopping areaMany big cities in China also have similar trade area classification.
  • Once we define the trade area of the macro concept of locations, we must analyze and compare different characteristics of locations which can reach and serve the trade area and meet the needs of business operations. Usually retailers need to deal with some trade-offs between “ excellent locations” and “high costs”
  • http://www.sydcyx.cn/dichan/article/111817174.htmlhttp://wenku.baidu.com/view/c64be368a98271fe910ef947.htmlBecause of the different personal car ownerships, the parking ratios requirement is China is not as high as that in US, also, in big cities, China has more structured parking garages.
  • http://www.excaliburgrpllc.com/Files/Assessment_Services_Maroon.pdfhttp://www.bouldercolorado.gov/files/PDS/planning%20and%20zoning/density_floorarearatio.pdfUnderstand ratio and floor area ratioIn China, I want to mention that if the retailer is also the developer and develop the retail store from acquiring the land, they usually do the planning and revenue calculation based on the limited floor ratio. For example, if in downtown area, the floor ratio is 5, most developers design their buildings based on this floor ratio and get their leasable area and then calculate their projected revenue.
  • http://www.butlerplaza.com/docs/traffic.pdfTraffic count map from Butler PlazaThe more traffic volume the better, this is the same requirement in China and US.
  • The brown area is the shopping center site and those black lines are main roads. it has the very easy accesses to main roads and also on the passing point of many branches. In china, easy accessibility to main roads is of course a very important standard, but others are also important such as:Nearby bus stopsEasy access to subwaysOn the way home or on the way to work (for shopping centers, on the way home is better)
  • http://www.ehow.com/list_6685595_retail-space-requirements.html
  • Unlike United States, advertising for logos and locations of retail stores is extremely important in China. Some retail stores which have invisible locations need to attract and guide customers from several hundreds yards away.
  • http://www.amendes.uac.pt/SEIO/ITOR.pdfRetail store location assessmenthttp://www.hi138.com/e/?i192131Wal-Mart, Carrefour VS: Who wins in the future?They focused on so different business strategy and chose very different locations from the very beginning. Also, they are adjusting their strategies according to the market reactions. However, their possibility of future success are decided not only by themselves but also by the changing market and consumers in China.
  • Compared to Carrefour’s CBD strategy, Wal-Mart locked its prospect locations in suburban areas which have fair traffic volume. Over 80% of Carrefour stores are located in crossroads.
  • http://www.amendes.uac.pt/SEIO/ITOR.pdfRetail store location assessmenthttp://www.hi138.com/e/?i192131Wal-Mart, Carrefour VS: Who wins in the future?This is not the most recent map but we can clearly see that Carrefour is the faster mover in Chinese market.
  • Carrefour competed Walmart from the beginning, however, since 2006, Walmart started expansion in East area so as shown in the growing chart, Walmart has the significant upwards trends.
  • We put the revenue and cost calculation in this segment because trade area and site characteristics have direct effect on revenue and cost forecasting. The first model emphasis on the importance of the size of the store and the travel time of customers. The second model emphasis on the relationship between dependent variable and independent variables.The last model compared the current location and prospect location, then use”minus” or “plus” to calculate the revenue and cost.
  • Multipleregression equationsY = β0 + β1x1 + β2x2 ……βnxnX1, X2 toXn are independent variables. Dependsondifferentrequirements and objectives, we can havedifferent variables.In China and US, these variables variessignificantly.
  • They are different independent variables which in the regression equation. If we can define different variables for unique retail locations and calculate betas based on statistical data, we can forecast dependent variable(revenue) easily.
  • This is a simple model for forecasting. If we can get reliable data from comparative locations of similar business model and retail category, we can just use “plus” or “minus” methods to calculate the projected revenue.For example, the comparable A has all similar location characteristics with subject store except the parking capacity. If we estimate the loss of parking capacity is $3000 /month and the monthly revenue of comparable A is $20,000, we can just estimate the months revenue for subject store is $17,000 In real life, locations are different from each other in many aspects, so we need to adjust it carefully.
  • For chain stores, it’s easier to use comparable methods because the estimation is more reliable if these stores are within the same retail category and operated in same business model.We can also find that KFCs in China like to locate in CBD or “central places”, which is very different from the situation in United States. In China, price for a meal of KFC(RMB25) is more expensive for a regular meal for regular people(RMB10-15), therefore compared to regular working class, white-collar class are more likely to choose KFC as everyday meal.
  • Base rent: The term "Base Rent" refers to the minimum rent due under the terms of a lease that also requires the tenant to pay additional rent based on a percentage or participation requirement. This type of lease is commonly executed in retail stores in malls. Step rent: Step rent is where you take the rental expense over the life of the leased asset and you amortize on a straight line basis. For example, if you are paying 10,000 a year for 20 years and then the rent goes up to 20,000 for another 20 years, then with straight lining that expense your rent expense would be 15,000 (600,000 total rent/480 months (12 months * 40 years). You incur additional expense the first 20 years and then the next 20 years you have the offset. After 40 years the expense is the same.Tenantimproment: Changes made to the interior of a commercial or industrial property by its owner to accommodate the needs of a tenant such as floor and wall coverings, ceilings, partitions, air conditioning, fire protection, and security. Who bears what portion of TI costs is negotiated between the lessor and the lessee, and is usually documented in the lease agreement.Pass through: A lease may contain a long list of pass-through expenses, such as real estate taxes, maintenance, repairs, trash removal, salaries of the landlord's employees, and costs of building improvements. Typically, landlords divide pass-through expenses among the tenants pro rata, according to the percentage of the building each tenant leases.
  • This is also an important segment because government’s impacts are everywhere in China!If an international retailer wants to run business in China, he needs to meet the requirement of Chinese government in every step.
  • There are three levels in retail site selections.First, land purchasing and developmentSecond, under constructing projectThird, existed projectThere are different governmental regulations applying for those site selections
  • We need to notice that the time starts from when the developer bid the right of using the land from Chinese government. Sometimes the developer doesn’t want to develop the land immediately, making the net use life of the building shorter than the above land use period.In China, real estate developers can be many kinds of businesses and entities, they can work directly from acquiring a piece of land to the leasing or selling process of the developed property. They can also be a management group and manage professional teams to finish a project. However, no matter in which format, they must follow all statutes and codes and work closely with Chinese government.By contrast, the US developers work more closely with retailers. They usually design the layout of the building depends on the need of prospective tenants.http://www.59148.com/zs/tc/49025.html land use time period (Chinese)
  • http://real-estate-law.freeadvice.com/zoning/zoning_legalese.htmWhat is zoning?Right now, in China, only threes ways are provided to get the right of using land:First: BiddingBidding is an offer (often competitive) of setting a price one is willing to pay for something. A price offer is called a bid.Second: ListingGovernment can list lands on an open market and developers can post price within a period. They can also change the price before the deadline. Third: AuctionAn auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder.http://www.robroad.com/data/law/index.php/tender-land-auction-people/“tender auction listing to sell state-owned construction land use rights,” which has 21 September, 2007 Ministry of Land and Resources Department of the 3rd meeting of Council. The “auction tender to sell state-owned land for construction purposes listed on the right to use that” published, since November 1, 2007 will come into effect. XuShaoshiMinister September 28, 2007 http://blogs.forbes.com/robertolsen/2011/01/06/wilmar-wins-china-land-bid/Walmart wins land bid in China
  • China has the Chinese building codes. Every province also has the local codes and standards. If there is a conflict, we should follow the stricter one.The floor area ratio (FAR) or floor space index (FSI) is the ratio of the total floor area of buildings on a certain location to the size of the land of that location, or the limit imposed on such a ratio.As a formula: Floor area ratio = (Total covered area on all floors of all buildings on a certain plot)/(Area of the plot)Sun exposure calculation: the designing must meet the minimum requirements for sun exposure time in summer and winter
  • http://chinahousing.mit.edu/english/resources/BuildingCode.htmlChina building codesFor the building codes, we have both national codes and local codes, sometimes developers need to follow the stricter one.Developers and retailers also need to meet specific regulations depends on different retail types such as tobacco and liquid stores.
  • -- In accordance with its WTO commitments, China has removed most restrictions on foreign-invested retailers, including those governing location, proportion of ownership and the number of outlets.-- On September 12, 2008, the Foreign Investment Administration Department (FIA) of the Ministry of Commerce (MOFCOM) issued a regulation decentralizing store opening approvals. In December 2008, MOFCOM issued guidelines for local commerce bureaus on the examination and approval of store-opening applications.--According to the Measures on the Administration of Foreign Investment in Commercial Sectors, when applying for a new site, foreign retailers must produce a commercial planning certificate from the local government certifying that the proposed site complies zoning plans exist, a public hearing process is also oftentimes required, adding three months or more to the approval process. Furthermore, some locations have incomplete commercial zoning plans, making compliance confirmation impossible for foreign retailers.Since its implementation, the store approval decentralization regulation adopted by the Chinese government has effectively simplified the approval procedures for new foreign-invested retail stores and reduced operating costs and delays associated with the examination and approval process. AmCham-China applauds these moves to streamline the approval process and the resulting positive effects on the development of the retailsector in China.However, despite the simplification of procedures related to the opening of stores by foreign retailers and the number of store openings, discriminatory treatment and a lack of transparency still exist in certain areas of government administration over the retail industry.These issues continue to restrict the expansion of foreign retailers and discourage foreign investors from contributing their expertise, which would benefit the Chinese consumer and overall marketplace.
  • ChinaThe Environmental Impact Assessment Law (EIA Law) requires an environmental impact assessment to be completed prior to project construction. However, if a developer completely ignores this requirement and builds a project without submitting an environmental impact statement, the only penalty is that the environmental protection bureau (EPB) may require the developer to do a make-up environmental assessment. If the developer does not complete this make-up assessment within the designated time, only then is the EPB authorized to fine the developer. Even so, the possible fine is capped at a maximum of about US$25,000, a fraction of the overall cost of most major projects. The lack of more stringent enforcement mechanisms has resulted in a significant percentage of projects not completing legally required environmental impact assessments prior to construction.[17]China's State Environmental Protection Administration (SEPA) used the legislation to halt 30 projects in 2004, including three hydro-power plants under the Three Gorges Project Company. Although one month later (Note as a point of reference, that the typical EIA for a major project in the USA takes one to two years.), most of the 30 halted projects resumed their construction, reportedly having passed the environmental assessment, the fact that these key projects' construction was ever suspended was notable.A joint investigation by SEPA and the Ministry of Land and Resources in 2004 showed that 30-40% of the mining construction projects went through the procedure of environment impact assessment as required, while in some areas only 6-7% did so. This partly explains why China has witnessed so many mining accidents in recent years.SEPA alone cannot guarantee the full enforcement of environmental laws and regulations, observed Professor Wang Canfa, director of the centre to help environmental victims at China University of Political Science and Law. In fact, according to Wang, the rate of China's environmental laws and regulations that are actually enforced is estimated to be barely 10%.[18]
  • Some strong brands or stores always have more bargain powers on that to protect the customer group in that trade area.
  • This is important in site selection because you can’t simply just analyze the characteristics of the site, you also need to watch out the possible impacts that adjacent stores may have on your stores. For example, most restaurant doesn’t want to next to a gym. To avoid that, you can put the clause in the contract in advance or just simply not to choose the store if those stores are existed.
  • This is a very important part in Chinese retailing industry because the perception and feelings for retail locations is so different between western and eastern countries. Even within eastern countries such as Japan, Thailand and China, people will behave very differently because of consumer behavior and cultures.
  • http://www.gov.mb.ca/agriculture/statistics/releases/china_market_analysis_report_en.pdfhttp://www.fibtex.lodz.pl/46_06_10.pdfBrand effect on consumer behavior in China If a salesman in a retail store is too eager to help and approaches a consumer who has not decided what to buy, the consumer will feel uneasy and go away. The proper way is to keep a certain distance from the consumer, but at the same time letting the consumer know that he is always ready to help.
  • This phenomenon caused many specific markets in China such as “wedding store street”, “furniture streets”, “restaurant streets” and “ bar streets”. Some streets are famous for its specific stores across from the beginning to the end. In order to compare the price and quality easily and efficiently, people in China prefer to purchase in these specific areas. Also, because of the perfect competitive market characteristics, the market decide the price, consumers can get fair price for the goods.
  • In China , you can find these convenient stores anywhere. In almost every apartment or condo complex, you can easily find at least one convenient store which open 7/24 through the year. In this stores, people can also buy hot and fresh Chinese breakfast and eat inside. Besides, it also offer other services to consumers such as “first-aid”, “microwave oven”, “ pay utility fees”.http://www.nacsonline.com/NACS/News/Daily/Pages/ND0322114.aspxConvenient stores in China provide healthier meals.http://www.reuters.com/article/2009/05/06/us-walmart-china-idUSTRE5450YY20090506Wal-Mart enters China's convenience store market
  • In China, price wars happen in every market segment especially those have homogeneous products. Therefore, people are more likely to shop in those store has one or two ”special price” everyday. For example, in Carrefour Shanghai, every store must ensure that one vegetable's unit price is below RMB 1.00. Stores usually can’t make any profit by offering this price but can win more potential consumers.http://www.reuters.com/article/2008/04/16/us-agflation-china-retail-idUSHKG11361720080416China's retailers well-armed in food price war, for now
  • Right now in China, specialty stores usually don’t operate very well because Chinese people are more likely to shop at huge and up-scale department store. They prefer “one-stop” shop.Brand loyalty also plays a very important role in “one-stop” shopping. With the increase of consumer lifestyle, more and more Chinese people put more weight on brand value and quality of products. They can easily find many international brands in department stores.
  • http://www.people.com.cn/GB/paper40/1022/146724.htmlWhy Jusco failed in China?http://findarticles.com/p/articles/mi_m0WDP/is_2000_July_10/ai_63276181/Jusco closed shanghai divisionhttp://www.shanghai.gov.cn/shanghai/node17256/node18151/userobject22ai1540.htmlJusco plans to give Shanghai a second chance
  • This is also an important part associated with site selection. Some retail stores formed different expansion strategy because their different site selection criterion.
  • Commercial real estate is a big weight in retail models especially in appliance and furniture stores. Right now more and more appliance and furniture stores prefer buy the property because of the depreciation tax savings.These stores don’t get revenue by operating the retail business, instead, they gain their revenue from the leasing payment.GOME’s official website: http://www.gome.com.hk/Red S Star Macalline’s official website: http://www.chinaredstar.com/web/news.aspx?sortid=0565cf2d-e00c-4bea-bcc3-f6bc87e18119&page=1Leasing or buy depends on these stores’ business plan and their expansion speed. For example, GOME expands in a fast speed so it choose to lease instead of buying.
  • http://www.monorails.org/tmspages/RedStarMacalline.htmlThe new Red Star Macalline store in Shanghai has one of the most unique monorails in the world. The furnishing store features a mini-monorail system that spirals it's way up inside the stores six stories, stopping on each floor. The 14-meter long system is the first of its kind in the world.
  • This model can find in every retail segment. Compared to commercial real estate model, those stores must bear economic and business risks.
  • Franchising first emerged in China in the late 1980s. In 1987, KFC’s first Chinese outlet was opened in Beijing, the capital city of China.The new Regulation on Commercial Franchise, announced by the Ministry ofCommerce on December 30th 2004 and which took effect on February 1, willstimulate business in terms of its scale and standardization. The new regulationfor franchises, to replace the 1997 measures concerning administration ofcommercial franchising, defines more clearly the way foreign brands operatefranchise businesses in China. The new rule should help build a sound legalenvironment and invite additional foreign franchisers into doing the localbusiness.The franchising model, which allows people with limited capital to enter anestablished business, is well suited to a developing economy. China’s infantfranchising industry is set to enter a rapid but orderly development
  • See Attached Reading: Chain stores in China

Module 5 retail location selection Module 5 retail location selection Presentation Transcript

  • Locations in Chinese Retail Industry
    Presented by Yan Lu V1
  • Segment 1--Types of locations
    Learning objectives:
    Know about major location Segmentations and how to match different location characteristics with retail types
    Learning contents
    • Location definition and major location Segmentations
    • Central Place theory
    • Matching of location Segmentations with retail types
    • Life style Segmentation in China
  • Segment 1--Types of locations
    Location definition and major location Segmentations
    -Location definition and Chinese three-level
    Segmentation
    Different from US, Japan and other countries, Chinese
    retail industry divides the types of operations using three
    levels:
    First, store types. ( in-store retail and off-store retail)
    Second, organization of stores. (independent, Chain,
    franchising, voluntary cooperation group)
    Third, store locations (most related to our study)
  • Segment 1--Types of locations
    Free standing
  • Segment 1--Types of locations
    Business district
    central business district (CBD)
    secondary business district (SBD)
  • Segment 1--Types of locations
    Business district
    neighborhood business district (NBD)
    string
  • Segment 1--Types of locations
    shopping centers
    community shopping center
    regional shopping center
    factory outlets center
  • Segment 1--Types of locations
    -comparison between US retail locations and Chinese retail locations
    Exhibit:
  • Segment 1--Types of locations
    -some comparisons between US retail locations and Chinese retail locations
    Open market in China
    Free standing in China
    Free standing in US
    Lifestyle center in US
  • Segment 1--Types of locations
    -how to match them with location Segmentations in China
  • Segment 1--Types of locations
    Matching of location Segmentations with retail types –Chinese retail types
  • Segment 1--Types of locations
    Central Place theory
    -classic theory and understanding
    Developed by Walter Christaller in 1933 “Central Places in southern Germany”.
    It is a deductive theory to explain the number, location, size, spacing and functions of settlements in terms of the services they performed for surrounding hinterlands.
    Central place: a service center, a settlement providing a range of goods and services to the surrounding areas.
    Centrality: the functions or services provided by central place.
    The higher the centrality of a central place is, the more the variety of services and the higher the order of services it provides.
    Hinterlands: the market areas covered by the services of central places that may include smaller central places.
    The higher the centrality of a central place is, the larger the hinterland.
  • Segment 1--Types of locations
    Central Place theory
    The impact of increased population density or increased income of population
    Consumer expenditure will increase
    Further high-order services will be required
    Increase the potential number of levels of hierarchy
    Increase the degree of functional specialization of the highest-order center
    The impact of improved transportation on central place system
    Population mobility increased
    People are willing to travel longer to obtain services
    Market area of a central place will expand
    Restructuring of central places, some have to be closed.
  • Segment 1--Types of locations
    Central Place theory
    K = 3 Marketing principle
  • Segment 1--Types of locations
    Central Place theory
    K = 4 Transport principle
  • Segment 1--Types of locations
    Central Place theory
    K = 7 Administrative principle
  • Segment 1--Types of locations
    Central Place theory
    Case1 : Settlement systems in Zhejiang China
    Means a town in Zhejiang Province in China
  • Segment 1--Types of locations
    Government role in site selection
    • Environmental regulations
    • Site future plan
    • Impact to lifestyle
    • Permission notes for location
    --we will talk about this in detail in Segment 3
  • Segment 1--Types of locations
    Life style Segmentations
    -Chinese life style Segmentations (Three ways)
    1. subject Segmentation
    1.1 Social
    1.2 Group
    1.3 Individual
    2. Value Segmentation (most relative to our topics)
    2.1 Blue-collar lifestyle: working class
    2.2 Consuming lifestyle: wealth family
    2.3 Leisure lifestyle: enjoy life
    2.4 Social lifestyle: networking oriented
    2.5 Political lifestyle: plays important role in government agencies
    2.6 Religion lifestyle: (not a majority)
    3. Community Segmentation
    3.1 City lifestyle
    3.2 Rural district lifestyle
  • Segment 1--Types of locations
    Lifestyle and Site Selection
  • Segment 2-- Site evaluation and selections
    Learning objectives:
    -Know about different site characteristics and the definition of trade area.
    -Learn how to evaluate a site for a specific retail store
    -Know about the general idea of forecasting revenues and costs for a retail store on a selected site
    Learning contents
    -Site evaluation
    -Trade area
    -definition
    -how to define a trade area in China
    -evaluate the trade area for different retail stores
    -Huff Gravity, Regression and comparable methods
  • Segment 2-- Site evaluation and selections
    Site Evaluation
  • Segment 2-- Site evaluation and selections
    Trade area
    -definition: The geographic region in which a good or service is available and from which a company generates most of its sales. For example, a local retail store may have a trade area with a 50-mile radius. Also called market area.
  • Segment 2-- Site evaluation and selections
    Trade area
    -trade area in China
    Generally speaking, Chinese retail industry doesn’t have clear concept of trade area. Instead, we usually use target district or business cycle
    • For retail stores with dramatic different scale, target district also varies significantly.
    • No standard classification
    ex. Wal-Mart may use 8 minutes driving time in US to describe its trade area. By contrast, it uses 20mins bus driving time in China (public transportation methods)
  • Segment 2-- Site evaluation and selections
    Trade area classification is China
    • Region (seven)
    South China, North China, Middle China, West China, East China, Northeast China, Southwest China, Northwest China
  • Segment 2-- Site evaluation and selections
    Trade area classification is China
    • Province Area Metro Area
    Ex. Northeast Area
  • Segment 2-- Site evaluation and selections
    Trade area classification is China
    • Inner-city
    Varies from cities to cities
    Beijing: 5 rings/ Shanghai: 3 rings/district/
    administrative area residence community/ street
  • Segment 2-- Site evaluation and selections
    Site Characteristics
    -Parking
    -Size
    -Traffic volume
    -Accessibility
    -Visibility
  • Segment 2-- Site evaluation and selections
    Site Characteristics
    Parking
    In US, the parking standard for retail space is around 4 parking spots/1000 SF
    In China, the requirement varies from cities to cities, but the average ratio is 1/100 M²
    Ground parking VS. Structured Parking
  • Segment 2-- Site evaluation and selections
    Site Characteristics
    Size
    Floor Area Ratio
    In some central district in China, the FAR can be 5 or higher which make it possible to build multi-story shopping centers
  • Segment 2-- Site evaluation and selections
    Site Characteristics
    Traffic Volume
    Also refers to traffic counts, very important characteristic for retail space.
    For example, in China, supermarket requires traffic volume be between 4000-8000/day
  • Segment 2-- Site evaluation and selections
    Site Characteristics
    Accessibility
    --Entrance
    --Exit
    --Connect with major roads and traffic
    --internal roads design
  • Segment 2-- Site evaluation and selections
    Site Characteristics
    Visibility
    customer should see retail space easily and feel comfortable
  • Segment 2-- Site evaluation and selections
    Site Characteristics
    Visibility (Chinese Characteristics)
    As we said in last study Segment, free standings in China are not so common, it’s very difficult for retail stores to get visibility directly. In stead, almost every retail stores show very good visibility of their LOGOs and banners to attract customers.
  • Segment 2-- Site evaluation and selections
    Site Evaluation
    Case studies
    Wal-Mart vs. Carrefour who wins in site selection?
    • Trade Area
    • Walmart: started from South China, second-tier cities, suburban area
    • Carrefour: started from Shanghai and East China, first tier cities, CBD and SBD
  • Segment 2-- Site evaluation and selections
    • Site characteristics comparison
  • Segment 2-- Site evaluation and selections
  • Segment 2-- Site evaluation and selections
    Year: 2007
  • Segment 2-- Site evaluation and selections
    We introduce three methods to forecast revenue and cost to different retailing locations
    • Huff Gravity Model
    The larger the size (Sj) of the store compared with competing
    stores’ sizes, the greater the probability that a customer will shop at the location.
    The more the travel time or distance, the less the probability that a customer will shop at the location.
  • Segment 2-- Site evaluation and selections
    • Regression methods
    The regression analysis approach is based on the assumption that factors that affect the sales of existing stores in a chain will have the same impact on stores located at new sites being considered. When using this approach, the retailer employs a technique called multiple regression to estimate a statistical model that predicts sales at existing store locations.
    First, gather data from existing stores
    Second, define factors
    Third, using multiple regression to calculate coefficient
    Fourth, Forecasting subject stores.
    KEY: define factors
  • Segment 2-- Site evaluation and selections
    • Key factors comparison(for example)
  • Segment 2-- Site evaluation and selections
    • Comparison methods
    Retailer simply describes the site and trade area characteristics for its most successful stores and attempts to find a site with similar characteristics.
    1. Do a competitive analysis.
    2. Define present trade area.
    3. Analyze trade area characteristics.
    4. Match characteristics of present trade area with potential sites.
    5. Adjust those factors(upwards or downwards) to forecast revenue for subject retail store site.
  • Segment 2-- Forecast retail revenues and expenses
    • Comparison methods
    For Chinese retailers especially larger chain stores such as KFC or McDonalds, they can easily use their database to find the similar store characteristics and using comparison methods to forecast sales revenue.
    Each red spot means a KFC store in a district of Beijing
  • Segment 2-- Site evaluation and selections
    Forecasting expenses for selected retail site
    • Similar to revenue estimating methods
    • Some cost related terminologies
    • Base rent
    • Step rent
    • Tenant improvement
    • Pass through
  • Segment 3--Regulations and Leasing Clauses
    Learning objectives:
    Understand the influences of building codes and government on site selections
    Know about the specific clauses in Chinese retail leases.
    Learning contents
    Zoning and building codes—nationally and locally
    Governmental regulations
    Environmental concerns and sustainability
    Prohibit Use and Exclusive Use
    Leasing negotiation
  • Segment 3--Regulation and Leasing Clauses
    Different retail site selections
    • Land purchasing and development
    • Purchase a project which is under construction
    • Purchase an existed project
  • Segment 3--Regulation and Leasing Clauses
    • Land purchasing and development
    Chinese government owns lands and developers need to purchase the right to use them within some time.
    --Real Estate land use classification
    For retail developers, they can choose commercial or mix-use.
  • Segment 3--Regulation and Leasing Clauses
    • Land purchasing and development
    --Zoning is the similar concepts in US to land use classification in China.
    -- Developers need to get permission notes for location.
    --Developers need to pay land-transferring fees to Chinese government.
    --Local Finance Bureau is the governmental agency to collect land-transferring fees.
  • Segment 3--Regulation and Leasing Clauses
    • Land purchasing and development
    --Building codes
    Building codes have influence on commercial
    development in many different ways.
    1. Floor Area Ratio
    2. Sun exposure
    3. Parking ratios
    4. transportation design (how to connect to main roads)
  • Segment 3--Regulation and Leasing Clauses
    Under-construction projects
    --land use restricts
    --building codes (e.g., …)
    Existed Stores
    --no land use restriction as long as it doesn’t change
    --check building codes
  • Segment 3--Regulation and Leasing Clauses
    Site selection regulations for foreign retailers
    --Removed most restrictions on foreign-invested retailers
    --Issued a regulation decentralizing store opening approvals
    ----commercial zoning
    commercial planning certificate
  • Segment 3--Regulation and Leasing Clauses
    Environmental regulations
    -- Environmental impact assessment
    must be completed before construction
    or upon request
  • Segment 3--Regulation and Leasing Clauses
    Exclusive use
    Most commercial leases for multi-tenant properties contain clauses which regulate the tenants' use of the leased premises. 
    Many tenants will require a landlord to grant the tenant the exclusive right to operate a certain business or sell a certain product to avoid competing with other tenants. These provisions are appropriately referred to as exclusive use clauses. 
  • Segment 3--Regulation and Leasing Clauses
    Prohibit use
    A landlord may also include a prohibited use clause to prevent a tenant from using the leased premises in a manner which the landlord believes is a nuisance to the others
    For example, a landlord may consider a bowling alley or a night club as a nuisance.
     
  • Segment 3--Regulation and Leasing Clauses
    Leasing negotiation
    • tenant mix
    When a business owner is conducting a site selection, he must consider the existed tenant mix and prospecting co-tenants in a shopping center or a multi-tenants property.
    Good co-tenants: complement (
    Bad co-tenants: substitute
  • Segment 3--Regulation and Leasing Clauses
    Leasing negotiation
    • anchor tenant and business brands
    Anchor tenant is a main tenant in a shopping center. It is often essential to have a lease commitment from an anchor tenant before a shopping center can be financed. Wal-Mart, Carrefour and Best buy are all anchor tenants for shopping centers.
    Usually anchor tenants has more power to negotiate leasing clause with landlords regarding prohibit use and exclusive use.
  • Segment 3--Regulation and Leasing Clauses
    Leasing clauses Chinese cases
    Wal-Mart exclusive use
    No similar business in the same building or shopping center
    No similar business with 1.5 Kilometers
  • Segment 3--Regulation and Leasing Clauses
    Leasing clauses Chinese cases
    2. KFC and McDonalds complement effects
    No exclusive use for each other
    complement effect not substitute
    always choose to open stores next to each other or in the same business district.
  • Segment 4--Consumer behavior in retail site selections
    Learning objectives:
    Understand the different shopping types of consumers
    Know about the relationship between consumer behavior and retail store locations
    Learning contents
    Shopping types
    -group effect
    -convenient shopping
    -comparison shopping
    -specialized shopping mode
  • Segment 4--Consumer behavior in retail site selections
    Consumer Behavior in China
    --looking for aesthetic and social value instead of just focusing on the basic needs of warmth and the protective function of products.
    -- consumer’s expectations of product quality in general have been steadily rising,
    --reluctance to pioneer
    --like to shop in a free environment without interference
  • Segment 4--Consumer behavior in retail site selections
    Consumer Behavior and Retail site selections
    I Group effect
    Phenomenon: many brands like to open stores in very close locations such as KFC and McDonalds, Suning and Gome.
    Products: most of them are in the same industry but differentiate in products, and
    have the different target
    consumers.
    Consumer behavior: easy to
    find the multiple target products
    among these similar stores
  • Segment 4--Consumer behavior in retail site selections
    Consumer Behavior and Retail site selections
    II convenient shopping
    Phenomenon: many stores are likely to choose locations where consumers can access easily or where have more traffic such as CBDs, residential communities and subway stations
    Products: food and consumer goods.
    Some specialty stores can open close
    CBDs
    Consumer behavior: are likely to pay
    more at these retail store because
    less commuting expenses.
  • Segment 4--Consumer behavior in retail site selections
    Consumer Behavior and Retail site selections
    III comparison shopping—price war
    Phenomenon: in perfectly competition market, stores with same products are less likely to open closely because consumer can have greater bargain power to drive price down.
    Products: homogeneous
    Consumer behavior:
    consumer like to purchase
    products after comparing
    3-5 stores if those stores
    are close.
  • Segment 4--Consumer behavior in retail site selections
    Consumer Behavior and Retail site selections
    IV specialized shopping
    Phenomenon: some retailer stores are likely to open at a specific location without any competitor or similar store nearby such as IKEA
    Products: all-kinds in this industry but has unique characteristics
    Consumer behavior:
    Loyal consumers are likely
    To shopping at that place
    even if the commuting
    expenses are high.
  • Segment 4--Consumer behavior in retail site selections
    Consumer Behavior and Retail site selections
    V one stop up-scale mall shopping
    Phenomenon: in CBD districts, people especially white collar and elite group like to shop in up-scale shopping mall matching their life style and fashion taste
    Products: all-kinds commodity
    Consumer behavior:
    Loyal consumption and
    brand effect
  • Segment 4--Consumer behavior in retail site selections
    Case —failed site selection Jusco
    --Up scale shopping center in Japan
    --choose railway station to open their stores in Shanghai
    --low consumer class
    --failed and out of business
  • Segment 5 — Retail Models and Expansion Strategies in Site Selection
    Learning objectives:
    Explore existingretail models and expansion strategies in China
    Understand why site selections must match retail models and expansion strategies
    Learning contents
    Retail Models
    Commercial Real Estate, Direct Operation, Franchising, etc.
    Expansion Strategies
    Fast & aggressive expansion, moderate expansion
    Tailored Site Selection Principle
    Scattered or concentrated, profit driven or attention driven
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    • Retail Models
    Commercial Real Estate
    Revenue model: buy or lease a property and rent space to suppliers; asset appreciation (buy)
    Advantage: low initial store opening cost (lease) and low operation cost
    Store size: large (buy) or middle
    Applied products: Appliance, furniture, apparel
    Example:
    GOME (appliance) (lease)
    Red Star Macalline (furniture) (buy)
    Pacific (shopping mall)
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    Red Star Macalline (buy)
    Gome (lease)
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    • Retail Models
    2. Direct Operation
    Revenue model: developing, sourcing, storing and selling
    Advantage: high inventory turnover and high gross profit, economy of scale
    Store size: large, middle or small
    Applied products: groceries, furniture, etc.
    Example:
    Tesco (super market)
    IKEA (furniture)
    Best Buy (appliance)
    Lawson (groceries) (convenience store)
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    • Retail Models
    3. Franchising
    Revenue model: franchising fee
    Advantage: easy for emerging brand to expand
    Store size: small
    Applied products: catering, hotel, entertainment
    Example: KFC
    4.Display and Customer Experiencing Store
    Applied products: innovative or fancy products
    Example: Apple Store, Microsoft
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    • Chain Store Expansion Strategies
    1. Fast & aggressive expansion
    Adopted by: world giant but late entrant into Chinese market; new and successful format
    Models: Commercial real estate leasing;
    M&A by direct operation; franchising
    Example: Wal-Mart, Best Buy (late entrant)
    2. Moderate expansion
    Adopted by: new entrant; geographic or demographic focusing
    Models: keep the same pace with internal strength growth or external market growth
    Example: IKEA
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    • Tailored Site Selection
    Case 1: IKEA in Shanghai
    Retail Model: Direct operation
    Expansion Strategy: moderate expansion
    Open 1st store in Shanghai in 1998
    Location: inner city in west side of Shanghai
    Target on middle high income young generations
    Focusing on revenue per square feet improvement instead of store expansion
    Will open 2nd store in Shanghai in 2011
    Location: outskirt area in east side of Shanghai (20 miles from existing store) surrounded by high-scale communities
    Selection Principle: enough distance with existing store,
    convenient to target consumers with great purchasing intention and power, definitely no competitors nearby
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    • Tailored Site Selection
    Case 2: GOME in Shanghai
    Retail Model: Commercial Real Estate (Lease)
    Expansion Strategy: fast expansion
    Open more than 10 stores yearly in Shanghai, close 2 stores
    Location: any population intensive areas except CBD
    may neighbored with or directly face to store of competitors. Low open and close cost make it possible to open multiple stores and let fittest survive
  • Segment 5— Retail Models and Expansion Strategies in Site Selection
    • Tailored Site Selection
    Case 3: Apple Store in Shanghai
    Retail Model: Display and Customer Experiencing
    Location: opened 2 stores in CBDs with highest tourist flow
    Apple sells devices mainly through China Unicom Outlet.
    Store just functions as culture and phenomenon building
    Locations where most attention can be drawn are preferred