This chapter talk about the retail store location strategy and trading area analysis

1. Retail Store Location
For long this P has been considered as a most important in
retailing.
Selecting a market area and specific location are two important
decisions for a retailer
Since 90% of retail sales are made at stores.
It is an important part of retail strategy.
Location decisions can be complex, costs can be quite high,
there is often little flexibility once the location has been chosen.
Location of store conveys a fair amount of its image.

2. Retail Store Location…
The ultimate goal is maximum customer access
Market and location selection depends upon target market
Retailer need to understand who its current customers are,
who its competitors customers are and who makes up the
potential customer bases
People who are alike tend to live in neighborhood and
have similar behavior and psychographic traits
Geographic location matter because cost-effective product
delivery and adaptation of websites to fit local market
interests/ needs are necessary

3. Importance of Location
Good Location CAN Overcome Mediocre
Strategy Mix
Poor Location Difficult to Overcome
Requires Extensive Decision Making
Not Flexible

4. Problem with shifting location
Heavy Investment
New Location May Not Have Same
Characteristics
Store Fixtures and Renovations May Not
Transfer

5. Evaluate
Alternate
Geographic
(Trading)
Areas
Select
General
Location
Analyze
Alternate
Sites
Determine
Type of Location
Site Selection Steps

6. 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

7. Trading area analysis
A trade area should account for more than 50% or
higher sales
Trade area can be a nation/ single neighbor block
Size of area depends on retailer’s objectives, like,
how many customers are needed to achieve
profitability? What sales is required to achieve
breakeven?
Ray Kroc of McDonald’s insisted that franchisees
live in trading area so they would understand the
local market

8. Trading Area Parts
Often the trading area is broken down in
primary, secondary, tertiary or fringe areas
Primary area should produce at least 60% of
business, secondary area additional 15-20%
and fringe areas the remainder

9. Trading Area

10. Size and Shape of Trading Area
Not Concentric
Two Stores in Same Area Can Have Different
Trading Areas (TA)

11. Trading Area Analysis Benefits
Consumer Characteristics Detailed
Promotional Activity Focus Determined
Proper Number of Stores Calculated
Geographic Weaknesses Highlighted

12. Trading Area Influencers
Store Size
Competitors’ Locations
New Stores
Residential Housing Patterns
Travel or Driving Time
Promotion-impact is temporary

13. Factors Affecting Demand for a
Trading area
Competition
Business climate
Demographic and lifestyle characteristics
Economies of scale versus cannibalization

14. 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

15. DECISION MAKING MODEL FOR
TRADING AREA SELECTION

17. The Trading Areas of Current and
Proposed Outlets

18. GIS Software
Geographic Information Systems
– digitized mapping with key locational data to
graphically depict trading-area characteristics
such as
• population demographics
• data on customer purchases
• listings of current, proposed, and competitor locations

19. GIS Software in Action - A

20. GIS Software in Action - B

21. Private Firms Offering
Mapping Software
Claritas
ESRI
GDT
GeoVue
Mapinfo
SRC

22. Delineating Trading-Area Segments

23. Trading Areas and Store Type
Largest
TRADING
AREAS
Smallest
Specialty Stores
Department stores
Apparel stores
Supermarkets
Gift stores
Convenience stores

24. Delineating The Trading Area Of
An Existing Store
Store records or special study can be used to measure the trading area.
Primary, secondary and fringe areas can be described in terms of:
•Frequency with which people from various geographic areas shop at
a particular store.
•The average rupee purchase at a store by people from given
geographic areas.
•The concentration of a store’s credit card holders from given
geographic areas.

25. Delineating Trading Area of New
Store
Different tools must be used when an area
must be evaluated in terms of opportunities
rather than current patronage and traffic
patterns
– Trend analysis
– Consumer surveys
– Computerized trading area analysis models

26. Computerized Trading-Area Analysis Models
Analog Model
Regression Model
Gravity Model

27. Analog model
Define current trade area
Match characteristics of current store with
potential new stores location to determine the
best site

28. REGRESSION ANALYSIS
Select store performance measure & variables
used to predict performance.
Solve the regression equation and use it to
project performance for future sites

29. 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

30. Reilly’s law of retail gravitation
Establishes ‘point of indifference’ between two cities’
locations that help the retailer project the physical trading
area
Argues that a customer living between two cities will
consider both trading areas for shopping based on distance
of each area from home and the size of each area
inventory and selection may be more important than
distance, so the consumer will travel little more to get to
the bigger city
Travel distance being equal, consumer will choose the city
with more population because more product assortment is
available
The point of indifference is the distance at which the
consumer is indifferent about shopping at either location

31. REILLY’S LAW OF RETAIL GRAVITATION:
Its purpose is to establish point of indifference between two cities so
the trading of each can be established.
This law can be expressed as:
Dab= d
1+Pb/Pa
Dab = limit of city A’s trading area in miles along the road to city B
d = distance in miles along a major roadway between cities A & B
Pa = population of city A
Pb = population of city B
Reilly’s Law…

32. Limitations of Reilly’s Law
Reilly’s law rests on 2 assumptions:
1. Competing areas will be assessable from the major road
Distance is only measured by major thoroughfares; some people will travel
shorter distances along cross streets
1. Retailers in the two areas will be equally effective.
2. Other factors such as dispersion of population are ignored.
3. Travel time does not reflect distance traveled. Many people are
more concerned with time traveled than with distance
4. Actual distance may not correspond with perceptions of
distance

33. Ellwood’s modification….
Ellwood has modified the Law of Retail
Gravitation by using different variables. “The
principal retail districts within a metropolitan
trading area attract trade from the residential
sections of the area approximately in direct
proportion to the size of the retail
districts and in inverse proportion to the square
of the driving time distance from each

34. Ellwood’s modification….
N n
Ba = ( Sa) ( Tb)
Bb Sb Ta
– Where : N = 1 n = 2
– B = percentage of consumer want to visit shopping
center
– S = retail area
– T = travel time
– a, b = two shopping centres (a and b)

35. 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.

36. Huff’s Law…
Huff’s gravity model/ huff’s law of shopper
attraction states that consumers will shop at a store
more often if the size of the store is increased and
the distance to shopping area is decreased.
The theory says that because the center is larger, it
may have larger/ wider assortment of goods and
services
Distance has the opposite effect on probability of
patronage
All things being equal, consumer wants a
shopping area close to home

37. Huff’s Law…
Huff’s Gravity Model (Huff’s Law of Shopper
Attraction
n
PiJ = (SJ / TiJ
λ
) / ∑ (SJ / TiJ
λ
) Where;
j=1
PiJ= Probability of consumer traveling from origin (i) to given
shopping center or store (j)
SJ= sq. ft. of selling space in shopping location, expected to be
devoted to particular product being sold
TiJ= travel time
λ
= exponent reflecting effect of travel time on different types
of shopping trips (i.e. one may travel more for medical
product)
n = no. of shopping locations available

38. Index of Retail Saturation Theory
It is strategically sound to access how deeply competitors are
entrenched in a given market area
IRS theory helps the retailer to access the level of demand and
supply in various trading areas
A trading area in which supply and demand are in equilibrium
shows retail saturation
Retail saturation means consumer needs are just being met with
the existing retail facilities
When that trading area has too few stores, the area is said to be
under stored
If too many stores/ selling space is devoted, the area is said to be
over stored
IRS is simply the sales per sq. ft. of retail space for a trading
area for a given product line
If IRS high, the area is under stored; if it is low, the area is over
stored

39. Index of Retail Saturation Theory…
Index of Retail Saturation;
IRS = (H * RE) / RF
Where;
IRS = index of retail saturation for given trading area
H = no. of households in given trading area
RE = annual retail expenditure for the retailer’s line of
products per household
RF = retail sq. footage of a particular product for the trading
area

40. Chief Factors to Consider in Evaluating Retail
Trading Areas
Total size and density
Age distribution
Average educational level
Percentage of residents
owning homes
Total disposable income
Per capita disposable
income
Occupation distribution
Trends
Population Size and Characteristics

41. Chief Factors to Consider in Evaluating Retail
Trading Areas
Management
Management trainee
Clerical
Availability of Labor

42. Chief Factors to Consider in Evaluating Retail
Trading Areas
Delivery costs
Timeliness
Number of manufacturers
Number of wholesalers
Availability of product
lines
Reliability of product lines
Closeness to Sources of Supply

43. Chief Factors to Consider in Evaluating Retail
Trading Areas
Dominant industry
Extent of diversification
Growth projections
Freedom from economic
and seasonal fluctuations
Availability of credit and
financial facilities
Economic Base

44. Chief Factors to Consider in Evaluating Retail
Trading Areas…
Number and size of
existing competition
Evaluation of competitor
strengths and
weaknesses
Short-run and long-run
outlook
Level of saturation
Competitive Situation

45. Chief Factors to Consider in Evaluating Retail
Trading Areas…
Number and type of store
locations
Access to transportation
Owning versus leasing
opportunities
Zoning restrictions
Costs
Availability of Store Locations

46. Chief Factors to Consider in Evaluating Retail
Trading Areas
Taxes
Licensing
Operations
Minimum wages
Zoning
Regulations

47. Location, Location, Location
Criteria to consider include
population size and traits
competition
transportation access
parking availability
nature of nearby stores
property costs
length of agreement
legal restrictions

48. Destinations versus Parasites
Destination stores have
a better assortment,
better promotion, and/or
better image
It generates a trading
area much larger than
that of its competitors
Dunkin’ Donuts: “It’s
worth the trip!”
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
area for other reasons

49. Types Of Location
Typically a store location may be:
1. Freestanding/ isolated store
2. Part of a planned business district
3. Part of a unplanned business district

50. Isolated Store/ Freestanding
Location
A freestanding location is a store located along a major traffic
artery, without any competitive retailers around.
Generally the store is located off the main road, highway or
Street
Large retailers and medical retailers utilize isolated sites
Advantage is limited competition resulting in lower rental
It is harder to attract traffic to a freestanding site

51. Planned Business Sites
Generally planned business site/ district is centrally
managed/ owned
The key to successful planned business site is balanced
tenant mix which offers complementary merchandise to
the consumer
Planned business districts are developed to attract
consumers from greater distances
Have at least one anchor store and enough parking space to
attract traffic
3 types of planned business sites are regional centers,
community centers and neighborhood/ lifestyle centers

52. Planned Business Sites…
Regional centers: attracts customers from an area of 5 to
15 miles
Provides general merchandise and is typically enclosed
with parking space
Malls have balanced tenancy, convenient, free parking and
vast selection of stores
Generally about 50 stores, besides one anchor store make
up regional center
Should have about 4,00,000 sq. ft. of gross leasable area
(GLA), though most regional centers are larger than this
Megamalls/ superregional centers – two of the world’s
largest are – the West Edmonton Mall in Canada and the
Mall of America in Minneapolis
Mall of America took $ 650 mn. to build, has 2.5 mn. sq.
ft. of GLA and more than 4 mn. sq. ft. in total

53. Planned Business Sites…
Community shopping centers tend to be between
100,000 to 400,000 sq. ft.
House a smaller branch department store, large
discount store, a category killer or combination of
these stores as an anchor
Have a diverse tenant mix, that includes banks,
pharmacies, hair salons and specialty stores
Neighborhood centers are planned shopping
districts with a smaller anchor store and focus
more on convenience goods

54. Planned Business Sites…
Lifestyle centers is a neighborhood center
targeted to upper-income shoppers, are
typically outdoors with a main street type of
ambience, tenants sell nonessential items,
building and landscaping costs are higher
than other retail developments and parking
in front of the stores
A lifestyle center is typically one-third size
of a traditional regional center

55. Planned Business Sites…
Airport malls is a community shopping center
located in an airport
2 models for airport malls: Prime model and
Developer model
In Prime model, the airport is responsible for
management of retail facilities whereas, in the
Developer model, an outsider company serves as
the mall manager and works to draw top retailers
to the airport
The shops in the developer model are owned and
operated by individual retailers, who do their own
hiring

56. Unplanned Shopping Sites
Unplanned shopping sites result when two or more
retailers move into the same area or in close proximity to
each other
Central Business Districts are city center areas/
downtown areas of city
Secondary Business Districts generally a miniature CBD,
located around major transportation intersections of cities
Neighborhood Business Districts generally relies on
convenience products as the main product mix and
provides shopping for a neighborhood
Strip shopping Districts have stores visible from the road
and arranged in a long ‘strip’

57. Choosing Store Locations
In choosing store location, retailer should follow these four steps:
1. Evaluate alternative trading areas in terms of characteristics of
residents and existing retailers- Market Identification.
2. Determine whether to locate as an isolated store, in an
unplanned business district or in a planned shopping center
within the geographic area.
3. Select the general isolated store, unplanned business district,
or planned shopping center location.
4. Analyze alternate sites contained in the specified retail
location type.
The choice of the location of the store depends on the target
audience and the type of merchandise to be sold.