2. SELECTING A TARGET
MARKET
The most critical determinants of success in retailing to be, first, selecting a target marketfirst, selecting a target market
and second, evaluating alternative ways to reach this target marketevaluating alternative ways to reach this target market .
the internet is becoming a major force in retailing . The equivalent of a store on the internet
is a retailer’s site on the World wide web (WWW)
When stopping at an e-tailer’s visitors firs view the firm’s:
Home page
Is the introductory or first material viewers see when the access a retailer’s internet site. It is the
equivalent of the retailer’s store front in physical world.
Virtual store
Is the total collection of all the pages of information on the retailer’s internet site.
Ease of access
Refers to the consumer’s ability to easily and quickly find a retailer’s web site in cyberspace.
3. MARKET SEGMENTATION
Is the dividing of a heterogeneousIs the dividing of a heterogeneous
consumer population into smaller, moreconsumer population into smaller, more
homogenous groups based on theirhomogenous groups based on their
characteristics.characteristics.
4. TARGET MARKET
Is the group of customers thatIs the group of customers that
the retailer is seeking to serve.the retailer is seeking to serve.
5. IDENTIFYING A TARGET
MARKET
First, a retailer should be able to measure or describe the
selected market segment using objective measures on which
data is available, such as age, gender, income, education,
ethnic group, religion, and so on.
Second is accessibility, or the degree to which the retailer
can target its promotional or distribution efforts to a
particular market segments.
Finally, successful target marketing requires that the
segment be substantial enough to be profitable for the
retailer.
6. REACHING YOUR TARGET
MARKET
Store-base retailers
Operate from a fixed store location that requires customers to
travel to the store to view and select merchandise or services
Non store-based retailers
Intercept customer at home, at work, or at a place other than
a store where they might be susceptible to purchasing.
7. Central Business District (CBD)
Usually consist of an unplanned shopping area around the
geographic point at which all public transportation systems
converge; it is usually in the center of the city and often where the
city originate historically.
Secondary Business District (SBD)
Is the shopping area that is smaller than the CBD and that
revolves around at least one department or variety store at a major
street intersections.
Neighborhood Business District (NBD)
Is the shopping area that evolves to satisfy the convenience-
oriented shopping needs of a neighborhood, generally contains
several small stores ( with the major retailer being a supermarket
or a variety store), and is located on a major artery of a residential
area.
Store based
8. Shopping Center (or Mall)Shopping Center (or Mall)
Is a centrally owned or manage shopping district that isIs a centrally owned or manage shopping district that is
planned, has balanced tenancy (the store complement each other inplanned, has balanced tenancy (the store complement each other in
merchandise offerings), and is surrounded by parking facilities.merchandise offerings), and is surrounded by parking facilities.
Anchor storeAnchor store
Are the store in the shopping center that are the mostAre the store in the shopping center that are the most
dominant and are expected to draw customers to the shoppingdominant and are expected to draw customers to the shopping
center.center.
Freestanding locationFreestanding location
Generally locates along major traffic arteries and does notGenerally locates along major traffic arteries and does not
have any adjacent retailers to share traffic.have any adjacent retailers to share traffic.
Non traditional locationNon traditional location
[retailer are identifying non traditional locations that[retailer are identifying non traditional locations that
offers great convenience]offers great convenience]
10. GEOGRAPHIC INFORMATION SYSTEMS
Is a computerized system that combines physical geography
with cultural geography.
Culture
Is the buffer that people have created between themselves
and the raw physical environment and include the characteristic
of the population humanly created objects, and mobile physical
structures.
Thematic maps
Use visual techniques such as colors, shading ,and lines to
display cultural characteristics of the physical space.
12. USES OF GIS
Market selection
Site analysis
Trade area definition
New store cannibalization
Advertising management
Merchandise management
Evaluation of store manager
14. Exhibit 7.5
Selecting retail location
Identify the most
attractive market
in which to
operate
Select the best
site(s) available
Identify the most
attractive sites
that are available
within each
market
15. RETAIL LOCATION THEORY
Trading AreaTrading Area
is the geographic area from which a retailer, or group of retailer,is the geographic area from which a retailer, or group of retailer,
or community draws its customer.or community draws its customer.
Retail gravity theoryRetail gravity theory
Suggests that there are underlying consistencies in shoppingSuggests that there are underlying consistencies in shopping
behavior that yield to mathematical analysis and prediction basedbehavior that yield to mathematical analysis and prediction based
on the nation or concept of gravity.on the nation or concept of gravity.
Reilly’s law of retail gravitationReilly’s law of retail gravitation
Based on newtonian gravitation principles,Based on newtonian gravitation principles,
Explain how large urbanized areas attract customers from smallerExplain how large urbanized areas attract customers from smaller
rural communities.rural communities.
16. FORMULATION OF REILLY’S
LAW
where Dwhere Dabab is the breaking point from city A, measured inis the breaking point from city A, measured in
miles along the road to city B;miles along the road to city B;
dd is the distance between city A and city B along the majoris the distance between city A and city B along the major
highway;highway;
PPaa is the population of city A ; andis the population of city A ; and
PPbb is the population of city B.is the population of city B.
Point of indifferencePoint of indifference
is the extremity of a city’s trading area where household wouldis the extremity of a city’s trading area where household would
be indifferent between shopping in the city or in an alternative citybe indifferent between shopping in the city or in an alternative city
in a different geographic direction.in a different geographic direction.
18. SATURATION THEORY
RetailRetail store saturationstore saturation
is a condition where there are just enough store facilities for ais a condition where there are just enough store facilities for a
given type of store to efficiently and satisfactorily serve thegiven type of store to efficiently and satisfactorily serve the
population yield a fair profit to the owners.population yield a fair profit to the owners.
UnderstoredUnderstored
is a condition on the community where the number of stores inis a condition on the community where the number of stores in
relation to households is relatively low so that engaging in retailingrelation to households is relatively low so that engaging in retailing
is an attractive economic endeavor.is an attractive economic endeavor.
OverstoreOverstore
is a condition in a community where the number of store inis a condition in a community where the number of store in
relation to household is so large that engaging in retailing is usuallyrelation to household is so large that engaging in retailing is usually
unprofitable or marginally profitableunprofitable or marginally profitable.
19. INDEX OF RETAIL
SATURATION (IRS)
Is the ratio of demand for a product (households in the geographicIs the ratio of demand for a product (households in the geographic
area multiplied by annual retail expenditures for a particular line ofarea multiplied by annual retail expenditures for a particular line of
trade per household) divided by available supply (the squaretrade per household) divided by available supply (the square
footage of retail facilities of a particular line of trade in thefootage of retail facilities of a particular line of trade in the
geographic area).geographic area).
IRS=(H x RE)/RFIRS=(H x RE)/RF
H – is the number of household in the area.H – is the number of household in the area.
RE – is the annual retail expenditures for a particular lines of tradeRE – is the annual retail expenditures for a particular lines of trade
per household in the area.per household in the area.
RF – is the square footage of retailer facilities of a particular line ofRF – is the square footage of retailer facilities of a particular line of
trade in the area (including square footage of the proposed store)trade in the area (including square footage of the proposed store)
IRS (city A) = 17,000 x 6.28 / ( 2,000 + 500) = 42.70IRS (city A) = 17,000 x 6.28 / ( 2,000 + 500) = 42.70
IRS ( city B) = 17,000 x 6.28 / ( 2,500 + 500 ) = 35 .59IRS ( city B) = 17,000 x 6.28 / ( 2,500 + 500 ) = 35 .59
20. BUYING POWER INDEX
(BPI)
Is an indicator of a market’s overall retail potential and is
composed of weighted measures of effective buying income,
including all nontax payments such as social security minus all
taxes), retail sales, and population size.
BPI = 0.5(the area’s percentage of U.S effective buying
income) + 0.3(the area’s percentage of U.S retail sale) +
0.2(the area’s percentage of U.S Population)
BPI(alton-granit city)=0.5(.ooo83)+0.2(.00012) =.000466
BPI(Hamilton-Middletown)= 0.5(.000717) + 0.3(.00063) +
0.2(.000112) = .000570
21. MARKET DEMAND
POTENTIAL
In analyzing the market potential , retailers identify certain criteria that are specificIn analyzing the market potential , retailers identify certain criteria that are specific
to the product line or service they are selling. The criteria chosen by one retailer mightto the product line or service they are selling. The criteria chosen by one retailer might
not be of use to a retailer selling product line . The major components of marketnot be of use to a retailer selling product line . The major components of market
demand potential are as follows.demand potential are as follows.
1.1.Population characteristicsPopulation characteristics . are the criteria most often used to segment market . The successful. are the criteria most often used to segment market . The successful
retailer can obtain a more detailed profile of a market by examining school enrolment ,education,retailer can obtain a more detailed profile of a market by examining school enrolment ,education,
age , sex, occupation ,race, and nationality.age , sex, occupation ,race, and nationality.
2.2.Buyer behavior characteristicsBuyer behavior characteristics . another useful criterion for analyzing potential markets is the. another useful criterion for analyzing potential markets is the
behavioral characteristic s of buyer in the market . Such characteristic include store loyalty , consumerbehavioral characteristic s of buyer in the market . Such characteristic include store loyalty , consumer
lifestyles, store patronage motives , geographic and climatic conditions and product benefit sought.lifestyles, store patronage motives , geographic and climatic conditions and product benefit sought.
3.3.Household incomeHousehold income . the average household income and the distribution of household incomes can. the average household income and the distribution of household incomes can
significantly influence demand for retail facilities. Further insight into the demand for retail facilities issignificantly influence demand for retail facilities. Further insight into the demand for retail facilities is
provide by angle’s laws, which imply that spending increase for all categories of product as a result ofprovide by angle’s laws, which imply that spending increase for all categories of product as a result of
an income increase, but that the percentage of spending in some categories increases more than foran income increase, but that the percentage of spending in some categories increases more than for
others.others.
4.4.Household age profileHousehold age profile . the average composition of household can be an important determinant. the average composition of household can be an important determinant
of demand for retail facilities. In communities ted to be young the preference for stores may beof demand for retail facilities. In communities ted to be young the preference for stores may be
different from communities where the average household is relatively old.different from communities where the average household is relatively old.
5.5.Household compositionHousehold composition . if we hold income and age constant and change the composition of the. if we hold income and age constant and change the composition of the
household, we will be able to identify another determinant of the demand for retail facilities. After all,household, we will be able to identify another determinant of the demand for retail facilities. After all,
households with children have different spending habit than childless households with similarhouseholds with children have different spending habit than childless households with similar
incomes .incomes .
22. Market demand potential
6.6. Community life cycle.Community life cycle. community tend to exhibit growth patterns over time.community tend to exhibit growth patterns over time.
Growth patterns of communities may be of four major types: rapid growth,Growth patterns of communities may be of four major types: rapid growth,
continuous growth, relatively stable growth, and finally, decline. The retailercontinuous growth, relatively stable growth, and finally, decline. The retailer
should try to identify the communities that are a rapid or continuous growthshould try to identify the communities that are a rapid or continuous growth
pattern, since they represent the best long run opportunities.pattern, since they represent the best long run opportunities.
7.7. Population density .Population density . the population density of a community equals the numberthe population density of a community equals the number
of persons per square miles. Research suggest that the high the populationof persons per square miles. Research suggest that the high the population
density, the larger the average store should be in terms of square feet and thusdensity, the larger the average store should be in terms of square feet and thus
the fewer the number of store that will be needed to serve the population of athe fewer the number of store that will be needed to serve the population of a
given size.given size.
8.8. Mobility .Mobility . the easier it is for people to travel, the more mobile they will be.the easier it is for people to travel, the more mobile they will be.
When people are mobile they are willing to travel greater distance to shop.When people are mobile they are willing to travel greater distance to shop.
Therefore, there will be fewer but larger stores in the community. That is , in aTherefore, there will be fewer but larger stores in the community. That is , in a
community where mobility is low.community where mobility is low.
23. MARKET SUPPLY FACTOR
In deciding to enter a new market, the successful retailerIn deciding to enter a new market, the successful retailer
will spend time analyzing the competition. The retailerwill spend time analyzing the competition. The retailer
should consider :should consider :
Square feet per employeeSquare feet per employee
Growth in storeGrowth in store
Quality of competitionQuality of competition
Square feet per storeSquare feet per store
24. Market supply factors
1.1. Square feet per store-Square feet per store- it is helpful to obtain data on the square feet per storeit is helpful to obtain data on the square feet per store
for the average store in the communities that are being analyzed. These datafor the average store in the communities that are being analyzed. These data
will indicate whether the community tends to have large – or small –scalewill indicate whether the community tends to have large – or small –scale
retailing .retailing .
2.2. Square feet per employee-Square feet per employee- a measure that combines two major supplya measure that combines two major supply
factors in retailing, store space and labor , is square feet of space perfactors in retailing, store space and labor , is square feet of space per
employee. A high number of for this statistic in a community is evidence thatemployee. A high number of for this statistic in a community is evidence that
each employee is able to handle more space.each employee is able to handle more space.
3.3. Growth in store –Growth in store – the retailer should look at the rate of growth in the numberthe retailer should look at the rate of growth in the number
of stores for the last one to five years. When the growth is rapid , then onof stores for the last one to five years. When the growth is rapid , then on
average the community will have better-located store with more contemporaryaverage the community will have better-located store with more contemporary
atmospheres.atmospheres.
4.4. Quality of competition –Quality of competition – the three preceding supply factors reflect the qualitythe three preceding supply factors reflect the quality
of competition. They should attempt to identify the major retail chains and localof competition. They should attempt to identify the major retail chains and local
retailers in each market and evaluate the strength of each .retailers in each market and evaluate the strength of each .
25. SITE ANALYSIS
is an evaluation of the density of demand and supply within
each market with the goal of identifying the best retail
site(s).
EXHIBIT 7.8
Customer spotting map for a supermarket
26. DEMAND DENSITY
is the extent to which the potential demand for the
retailer’s goods and services is concentrated in certain
census tracts, ZIP code areas, or parts of the community.
28. SITE EVALUATIONEXHIBIT 7.12EXHIBIT 7.12
Checklist for site evaluationsChecklist for site evaluations
Local DemographicsLocal Demographics
Population and/ or household basePopulation and/ or household base
Population growth potentialPopulation growth potential
Lifestyle of consumersLifestyle of consumers
Income potentialIncome potential
Age makeupAge makeup
Educational makeupEducational makeup
Population of nearby special market,Population of nearby special market,
that is daytimethat is daytime
Workers, students, and tourists, ifWorkers, students, and tourists, if
applicableapplicable
Occupational mixOccupational mix
Retail competitionRetail competition
Number and type of store in areaNumber and type of store in area
Analysis of key players in general areaAnalysis of key players in general area
Competitiveness of other merchantCompetitiveness of other merchant
Number and location of directNumber and location of direct
competitors in areacompetitors in area
Possibility of joint promotion with localPossibility of joint promotion with local
merchantsmerchants
29. Site characteristicsSite characteristics
Number of parking space availableNumber of parking space available
Distance of parking areaDistance of parking area
Ease of access for deliveryEase of access for delivery
visibility of site from streetvisibility of site from street
History of siteHistory of site
Compatibility of neighboring storesCompatibility of neighboring stores
Size and shape of lotSize and shape of lot
Condition of existing BuildingCondition of existing Building
Ease of entrance and exit for trafficEase of entrance and exit for traffic
Ease of access for handicappedEase of access for handicapped
customerscustomers
Restriction on sign usegeRestriction on sign usege
Building safety code restrictionsBuilding safety code restrictions
Types of zoningTypes of zoning
Cost factorCost factor
Terms of lease/rent agreementTerms of lease/rent agreement
Basic rent paymentBasic rent payment
Length of leasedLength of leased
Local taxesLocal taxes
Operation and maintenance cost sOperation and maintenance cost s
Restrictive clauses in leaseRestrictive clauses in lease
Membership in local merchantsMembership in local merchants
association requiredassociation required
Voluntary regulations by localVoluntary regulations by local
merchantmerchant
30. Traffic Flow and AccessibilityTraffic Flow and Accessibility
Number and type of vehicles passing locationNumber and type of vehicles passing location
Access of vehicles to locationAccess of vehicles to location
Number and types of pedestrians passing locationNumber and types of pedestrians passing location
Availability of mss transit, if applicableAvailability of mss transit, if applicable
Accessibility of major highways arteryAccessibility of major highways artery
Quality of access streetsQuality of access streets
Levels of street cogestionLevels of street cogestion
Presence of physical barriers that affect trade area shapePresence of physical barriers that affect trade area shape
31. SITE SELECTION
After completing the analysis of each segment of the desire market andAfter completing the analysis of each segment of the desire market and
identifying the best available site within each market, retailers are nowidentifying the best available site within each market, retailers are now
ready to make the final decision regarding location: selecting the bestready to make the final decision regarding location: selecting the best
sites available.sites available.
There is , however, general agreement on the type of things that theThere is , however, general agreement on the type of things that the
retailer should consider in evaluating sites:retailer should consider in evaluating sites:
Nature of siteNature of site
Traffic CharacteristicsTraffic Characteristics
Types of neighborsTypes of neighbors
Terms of purchase or leaseTerms of purchase or lease
Expected ProfitabilityExpected Profitability
32. Nature of siteNature of site
The retailer needs to investigate about the siteThe retailer needs to investigate about the site
Traffic characteristicsTraffic characteristics
The traffic that passes a site, whether it is vehicular or pedestrian , can be anThe traffic that passes a site, whether it is vehicular or pedestrian , can be an
important determinant of the potential sales at the siteimportant determinant of the potential sales at the site
The retailer must also determine whether the population and traffic are of theThe retailer must also determine whether the population and traffic are of the
type desire.type desire.
The retailer should evaluate two traffic-related aspects of the site. The first isThe retailer should evaluate two traffic-related aspects of the site. The first is
the availability of sufficient parking, either at the site or nearbythe availability of sufficient parking, either at the site or nearby..
a second traffic-related aspect the retailer should consider is the ease witha second traffic-related aspect the retailer should consider is the ease with
which consumer can reach the store site. Are the roadways in good shape? Arewhich consumer can reach the store site. Are the roadways in good shape? Are
there traffic barriers (rivers with a limited number of bridges, interstatethere traffic barriers (rivers with a limited number of bridges, interstate
highways with limited crossing, one-way streets, heavy street use resulting inhighways with limited crossing, one-way streets, heavy street use resulting in
congestion that limits exits to the site)? Remember, customer normally avoidcongestion that limits exits to the site)? Remember, customer normally avoid
heavily congested shopping areas and shop elsewhere in order to minimizeheavily congested shopping areas and shop elsewhere in order to minimize
driving time and other difficulties.driving time and other difficulties.
Type of neighborsType of neighbors
What neightbor establishment surround the site? There can be bad neighbor .What neightbor establishment surround the site? There can be bad neighbor .
What constitutes a good or bad neighbor depend on the type of store beingWhat constitutes a good or bad neighbor depend on the type of store being
considering on the site.considering on the site.
33. Terms of purchase or leaseTerms of purchase or lease
Another consideration for the retailer at this point is the lease terms. The retailer should reviewAnother consideration for the retailer at this point is the lease terms. The retailer should review
the length of the lease(it could be too long or too short), the exclusivity clause (whether or not thethe length of the lease(it could be too long or too short), the exclusivity clause (whether or not the
retailer will be the only one allowed to sell a certain line of merchandise), the guaranteed trafficretailer will be the only one allowed to sell a certain line of merchandise), the guaranteed traffic
rate(a reduction in rent should be offered if the shopping center fails to achieve a target trafficrate(a reduction in rent should be offered if the shopping center fails to achieve a target traffic
level), and an anchor clause (which would also allow for a rent reduction if the anchor store in alevel), and an anchor clause (which would also allow for a rent reduction if the anchor store in a
developing center does not open on time or when you open)developing center does not open on time or when you open)
Lease arrangements generally call for either a fixed payment, in which the rental charge isLease arrangements generally call for either a fixed payment, in which the rental charge is
usually based on a fixe amount per month ,or a variable payment in which rent is a specificusually based on a fixe amount per month ,or a variable payment in which rent is a specific
persentage of sales with a guaranteed minimum rent .persentage of sales with a guaranteed minimum rent .
It is important to the retailer to choose the one that is best under the circumstances- perhaps aIt is important to the retailer to choose the one that is best under the circumstances- perhaps a
combination of the two methodcombination of the two method
When the retailer decides to locate in a shopping center, it usually has no other choice than toWhen the retailer decides to locate in a shopping center, it usually has no other choice than to
lease. However, in the case of freestanding location, an outright purchase is often possible.lease. However, in the case of freestanding location, an outright purchase is often possible.
Purchase and lease cost should be factor into the site’s expected profitability.Purchase and lease cost should be factor into the site’s expected profitability.
34. Expected profitabilityExpected profitability
The final step in site selection analysis is contraction of a pro forma (expected) returnThe final step in site selection analysis is contraction of a pro forma (expected) return
on asset model for each possible site. The return on asset model comprises threeon asset model for each possible site. The return on asset model comprises three
crucial variable: net profit margin, asset turnover, and return on assets.crucial variable: net profit margin, asset turnover, and return on assets.
