6. Retail Location Planning, Retail Site Location

Retail Location Planning,
Retail Site Location
Dr. Parveen Nagpal

Retail Location
• Location is one of the most influential considerations in a customer’s store-
choice decision.
• Location decisions have strategic importance because they can be used to
develop a sustainable competitive advantage. If a retailer has the best
location i.e. the location that is most attractive to its customers, competitors
cannot easily copy this advantage.
• Location decisions are risky. When retailers select a location, they either
must make a substantial investment to buy and develop the real estate or
must commit to a long-term lease with developers. Retailers often commit
to leases for 5 to 15 years.

Types of Retail Location
• There are several types of location choices available for retail stores, each
type with its own strengths and weaknesses.
• The basic types of location are:
I. Freestanding (unplanned)
II. City or Town business district (unplanned)
III. Shopping Center or
IV. Nontraditional location such as in an airport or within another store.
• Choosing a particular location type requires evaluating a series of trade-offs,
such as the size of trade area, occupancy cost of location, pedestrian and
vehicle customer traffic generated, restrictions placed on store operations
by the property managers, customer convenience etc.

I. Isolated Store/ Free Standing Location (Unplanned)
• Retail locations for an individual, isolated store unconnected to other
retailers; however, they might be near other freestanding retailers or a
shopping center.
• The advantages of freestanding locations are:
Convenience for customers (easy access and parking)
High vehicular traffic and visibility to attract customers driving by
Modest occupancy costs
Fewer restrictions on number of hours, or merchandise, as are imposed in
shopping centers.
Low rents
Ample parking

• These locations are popular for gas stations, hotels on highways, fast-food
restaurants, such as McDonald’s etc.
• However, freestanding locations have a limited trade area. There are no
other nearby retailers to attract customers interested in shopping at
multiple outlets on one trip.
• Freestanding locations may have higher occupancy costs because they do
not have other retailers to share the cost of outside lighting, parking lot
maintenance, or trash collection.
• Freestanding locations may have little pedestrian traffic, limiting the
number of customers who might drop in because they are walking by.
• Outparcels enable retailers to have a drive-through window, dedicated parking,
and clear visibility from the street. (Outparcels are stores that are not connected
to other stores in a shopping center but are located on the premises, may be in a
parking area.)

II. City or Town Locations (Unplanned)
• Urban locations have lower occupancy costs than enclosed malls and
often have high pedestrian traffic.
• However, vehicular traffic is limited due to congestion in urban areas,
and parking problems reduce consumer convenience.
• Unlike freestanding locations, store signage can be restricted in these
locations.
• Young professionals and retired empty-nesters are moving into these
areas to enjoy the convenience of shopping, restaurants, and
entertainment near their residence.
• Many urban areas are going through a process of Gentrification - the
renewal and rebuilding of offices, housing, and retailers in deteriorating
areas, coupled with an influx of more affluent people that displaces the
former, poorer residents.

a. Central Business District (CBD)
• Main center of commerce and trade in the city.
• A hub for public transportation, high level of pedestrian traffic
• Good accessibility in terms of transport from all parts of the city.
• Large number of residents living in the area.
• Limited parking and longer driving times can discourage suburban shoppers
from patronizing stores in a CBD.
• Shoplifting is a concern, requiring increased security costs.
• Lack of planning (One block may contain upscale boutiques, next may have
low-income housing. Consumers may not have access to enough retailers
that they can visit in one shopping trip)

b. Main Street (called High Streets in the United Kingdom)
• Traditional shopping area in smaller towns within a larger city
• Main Streets share most of the characteristics of a CBD, but their
occupancy costs are generally lower.
• Main Street locations do not draw as many people as CBD because
fewer people work in the area and the fewer stores generally mean a
smaller overall selection.
• Main Streets do not offer the range of entertainment and recreational
activities available in CBDs.

c. Inner City
• The term ‘inner city’ in the United States refers to a high density urban
area that has higher unemployment and lower income than the
surrounding metropolitan area.
• Generally retailers avoid opening stores here because it is riskier and
achieves lower returns than other areas. As a result, inner-city
consumers have to travel to the suburbs to shop, even for food items.
• Retailing can play an important role in inner-city redevelopment
activities by providing needed services and jobs for inner-city
residents, as well as property taxes to support the redevelopment.
• Because of the potential of this untapped market and incentives from
local governments, developers are increasing their focus on
opportunities in the inner city.

III. Shopping Centers (Planned)
• A group of retail and other commercial establishments that are planned,
developed, owned, and managed as a single property.
• By combining many stores at one location, the development attracts
more consumers to the shopping center than would be the case if the
stores were at separate locations.
• The developer and shopping center management carefully select a set
of retailers that are complementary to provide consumers with a
comprehensive shopping experience, including a well-thought-out
assortment of retailers.
• The shopping center management maintains the common facilities such
as the parking area - an arrangement referred to as common area
maintenance (CAM) - and is responsible for providing security, parking
lot lighting, outdoor signage for the center, advertising and special

• Retailers in the center pay a portion of the CAM costs for the center
according to the size of their store’s space.
• Shopping center management generally place restrictions on the
operating hours, signage, and even the type of merchandise sold in
the stores.
• Most shopping centers have at least one or two major retailers,
referred to as anchors, that are specially called by the center’s
developer because they attract a significant number of consumers
and make the center more appealing for other retailers.
• To get these anchor retailers to locate in a center, developers give
them special deals, such as reduced lease amount.

a. Neighborhood and Community Shopping Centers
• Also called strip shopping centers, are attached rows of non-enclosed
stores, with on-site parking usually located in front of the stores.
• Smaller centers (neighborhood centers) are anchored by a supermarket or a
drugstore and designed for day-to-day convenience shopping.

• The larger centers (community centers) are anchored by at least one big-box
store such as a discount department store or an off-price retailer.
• The main advantages are that they offer the customers, convenient
locations and easy parking and have relatively low occupancy costs.
• Disadvantage is that smaller centers have a limited trade area due to their
size, and they lack entertainment and restaurants.
• There is no protection from the weather. As a result, neighborhood and
community centers do not attract as many customers as larger, enclosed
malls do.

b. Power Centers
• ‘Retail Park’ (U.K., Ireland) or ‘Power Center’ (North America) are the terms
used among retailers to describe a shopping complex, generally 250,000 to
600,000 sq. ft in area, that primarily consists of collections of big-box retail
stores, such as full-line discount stores, off-price stores, warehouse clubs,
and specialty store.
• Although these centers are “open-air,” unlike traditional strip centers, power
centers often include several unconnected anchors and only a minimum
number of small specialty store tenants.
• Power centers may be larger than some regional malls and have trade areas
as large as regional malls.
• Power centers offer low occupancy costs and modest levels of consumer
convenience and vehicular and pedestrian traffic.

Vertical power center with big box Retail Park in France
stores on multiple floors in Toronto

c. Shopping Malls
• Enclosed, climate-controlled, lighted shopping centers with retail stores on
one or both sides of an enclosed walkway.
• Parking is usually provided around the perimeter of the mall.
• Shopping malls are classified as either regional malls (less than 800,000
square feet) or superregional malls (more than 800,000 square feet).
• Super-regional centers are similar to regional centers, but because of their
larger size, they have more anchors, specialty stores, and recreational
opportunities and draw from a larger geographic area, and are considered
tourist attractions.

Advantages of Shopping Malls
• Attract many shoppers and have a large trade area because of large number
of stores and the opportunity to combine shopping with entertainment.
• Provide an inexpensive form of entertainment.
• People can socialize
• Since they are enclosed, customers can conveniently shop during all
seasons.
• Mall management ensures a level of consistency that benefits all the
tenants. For instance, most major malls enforce uniform hours of operation

Disadvantages of Shopping Malls
• Shopping mall occupancy costs are higher than those of strip centers,
freestanding sites, and most central business districts.
• Some retailers may not like mall management’s control of their operations,
such as strict rules governing hours of operations, window displays and
signage.
• Competition within shopping centers can be intense. Several specialty and
department stores might sell similar merchandise and be located in close
proximity.
• Freestanding locations, strip centers, lifestyle centers, and power centers
have convenient parking facilities.

d. Lifestyle Centers
• Shopping centers that have an open-air configuration of specialty stores,
entertainment, and restaurants, with design ambience and amenities such
as fountains and street furniture.
• They resemble the main streets in small towns, where people stroll from
store to store, have lunch, and sit for a while on a bench talking to friends.
Thus, they cater to the “lifestyles” of consumers in their trade areas.
• Lifestyle centers are particularly attractive to specialty retailers and can be
anchored by department stores.
• People are attracted to lifestyle centers not only because of their shops and
restaurants but also because of their outdoor attractions such as a pop-up
fountain, ice cream carts, balloon artists, magicians, face painters etc.

• Due to the ease of parking, lifestyle centers are very convenient for
shoppers, and the occupancy costs, like those of all open-air developments,
are considerably lower than those for enclosed malls.
• They have less retail space than enclosed malls and thus may attract fewer
customers than enclosed malls.
• Many lifestyle centers are located near higher-income areas, so the higher
purchases per visit compensate for the fewer number of shoppers.

e. Mixed-use developments (MXDs)
• Mixed-use zoning allows for horizontal and vertical combination of land
uses in a given area, combining two or more uses within a building, site or
block that can be organized vertically, horizontally, or a combination of the
two.
• Shops or other commercial premises at ground floor with apartments or
offices above are a common example of a vertical mixed use development.
• MXDs combine several different uses into one complex including retail,
office, residential, hotel, recreation, or other functions.
• They are pedestrian - oriented and therefore people can live, work and play.

• MXDs provide a pleasant, pedestrian environment and are an efficient use
of space.
• MXDs make use of space productively. For instance, land costs the same
whether a developer builds a shopping mall by itself or an office tower on
top of the mall or parking structure.

f. Outlet Centers
• Shopping centers that contain mostly manufacturers’ and retailers’ outlet
stores.
• Outlet center rent rates are lower than those at shopping malls.
• Some outlet centers have a strong entertainment component, including
movie theaters and restaurants to keep customers on the premises for a
longer period of time.
• Tourism represents 50 percent of the traffic generated for many outlet
centers. Thus, many are located with convenient interstate access and close
to popular tourist attractions.

g. Theme/ Festival Centers
• Shopping centers that employ a unifying theme carried by the individual
shops in their architectural design and, to an extent, in their merchandise.
• Shopping centers are very appealing to the tourists.
• These centers are generally located in urban areas or in a place of historical
interest, or may simply replicate a historical place, or create a unique
shopping environment.
• The centers do not have large specialty stores or department stores.
• Theme/festival centers can be anchored by restaurants and entertainment
facilities.

h. Larger, Multiformat Developments - Omnicenters
• New shopping center developments are combining enclosed malls, lifestyle
centers, and power centers. Such places are commonly referred to as
‘omnicenters’
• They represent a response to several trends in retailing such as:
including the desire of tenants to lower common area maintenance charges
spreading the costs among more tenants
function inside larger developments that generate more pedestrian traffic
and longer shopping trips.
Facilitate the growing tendency of consumers to cross-shop.

The Omni Centre Business Park, one of the few professional business campus
environments in the Omaha/Council Bluffs metropolitan area (US), is a
unique business environment which is comprised of 2 multi-story office
buildings, a main mall promenade, a garden courtyard and a four-level
covered parking structure all within a 4-block square area.
With nearly 400,000 total square feet of rentable office and light retail space,
it has over 100 tenants. Tenants, including medical, legal, investment,
insurance and state agencies have come together in an exciting and new
concept of modern business environments. Located in a strategic enterprise
zone, it has set itself apart as a downtown destination for business and
services to grow and prosper.

IV. Other Non-Traditional Location
a. Pop-up Stores
• Stores in temporary locations that focus on new products or a limited group
of products to create a long term, lasting impression with potential
customers.
• Retailers and manufacturers are using these spaces to create buzz or test
new concepts, connect with customers and increase sales.
• Pop up stores may stock merchandise related to fashion to tech gadgets and
food items.
• Such stores are even popping-up on college campuses. For instance, Kiehl’s
pop-up store at the University of Colorado, is the fashion brands’ latest
attempt at developing brand loyalty among college students.

b. Stores within a Store (Shop - in - Shop)
• Here the retailer acts as a host, allowing one or more other brands to
operate independently within the store.
• Retailers, particularly department stores, have traditionally leased space to
other retailers, such as sellers of fine jewelry, or high-end designer brands.
• Grocery stores have store-within-a-store concept with service providers like
coffee bars, bank ATMs etc.
• Store-within-a-store retail gives brands the power to manage their own
inventory, determine the prices of their products, and independently
develop their own marketing campaigns.
• Shoppers enjoy the store-within-a-store model because it maximizes
convenience, encourages variety and enhances their shopping experience.

• This model also helps brands save money by removing much of the
overhead it costs to run an independent store. If the host retailer generates
a lot of foot traffic, brands within their store also end up selling more.
• The versatility of this model gives retail stores and storekeepers the
opportunity to service different market segments, create a more
comfortable shopping experience, and introduce new and exclusive
products.

c. Merchandise Kiosks
• Small selling spaces, located in the walkways of enclosed malls, airports,
college campuses, or office building lobbies.
• They are 'mini-stores' and are also known as Mall Kiosk, Island Retail Unit,
Shop-in-shop, Vending Kiosk and so on.
• Some merchandise kiosks are staffed and resemble a miniature store or cart
that could be easily moved, others are 21st century versions of vending
machines, such as the Apple kiosks that sell iPods and other high-volume
Apple products.
• For mall operators, kiosks are an opportunity to generate rental income in
otherwise vacant space and offer a broad assortment of merchandise for
visitors.

• Mall kiosks can be changed quickly to match seasonal demand.
• When planning the location of kiosks in a mall, operators are sensitive to
their regular mall tenants’ needs. They are careful to avoid kiosks that block
any storefronts, create an incompatible image, or actually compete directly
with permanent tenants by selling similar merchandise.

d. Airport Location
• A high-pedestrian area that has become popular with national retail chains
is airports.
• Passengers arrive earlier for their flights than they did in the past, leaving
them more time to shop.
• Sales per square foot at airport may be higher than at regular mall stores.
• However, rents are higher, costs can be higher - hours are longer, and
because the location is often inconvenient for workers, the retailers may
have to pay higher wages to employees.
• The best airport locations tend to be ones where there are many connecting
flights (Atlanta and Frankfurt) and international flights (New York’s Kennedy
and London’s Heathrow), because customers have downtime to browse
through stores.

• The Centre for Asia-Pacific Aviation (CAPA) estimates that the duty-free
spend at Indian airports will reach $1.6 billion by 2021 - an eight-fold
increase, spread across a decade.
• A spokesperson from Mumbai International Airport highlighted, “Today’s
millennial generation is not only travelling further and more frequently, it is
also exploring more of the world and as a result more informed and
conscious of reputed brands even when it comes to making impulse
purchases. With the upgradation and privatization of airports across the
country, travel retail has been growing at a fast rate and we expect the
growth to further accelerate in the coming years. The Mumbai International
Airport has witnessed a double digit growth year-on-year in travel retail.”

Location and Retail Strategy
• The selection of retail type must reinforce retailer’s strategy. The location
decision needs to be consistent with the shopping behavior and size of the
target market and the retailers positioning in the target market.
I. Shopping Behavior of Consumers in the Target Market
• One of the critical factors affecting the type of location that consumers
select to visit is the ‘Shopping Situation’ in which they are involved.
• The types of shopping situations are:
1. Convenience Shopping: Here the consumers are primarily concerned with
minimizing their effort to get the product/ service they want.
They are relatively insensitive to price and indifferent about which brands to
buy. Thus they want to make quick purchases. Example: buying bread, milk
etc.
Such stores are located at customers convenience and are easily accessible.

2. Comparison Shopping: Here the customers may have an idea about the
type of product/ service they want but not a well developed preference for a
brand or a model.
The purchase decisions are more important to them, so they seek
information and compare alternatives, especially for purchase of furniture,
appliances, apparels, cameras etc.
The competing retailers are located next to each other im order to facilitate
comparison shopping and attract customers.
Enclosed malls offer the same benefits to consumers interested in
comparison shopping for fashion apparels.

3. Specialty Shopping: When customers go specialty shopping, they know
what they want and will not accept a substitute.
They are loyal to the brand as well as retailer and don’t mind spending more,
for example, while buying organic food items, buying a high quality oven etc.
The retailers they patronize when specialty shopping also are destination
stores, which may be inconvenient locations.
II. Density of Target Market: A good location has many people in the target
market who are drawn to it.
III. Uniqueness of Retail Offering: The convenience of location may not be a
relevant factor for retailers with unique, undifferentiated offerings.

Legal Considerations in Retail Location
I. Environmental and Sustainability Issues
The environmental issues that affect retail stores are:
• Construction material used
• Hazardous material stored
The best options available to retailers is:
• To stipulate in the lease that the lessor is responsible for the removal and
disposal of any such material, if found.
• Retailer can buy insurance that specifically protects it from these risks
New retail developments are using energy-efficient building materials, water
efficient landscaping, natural lighting etc.

Legal Considerations in Retail Location
II. Zoning and Building Codes
Zoning determines how a particular site can be used, for instance, which zone
can be used for residential purpose, retail users etc.
Building Codes are similar legal restrictions that specify the type of building,
signs, size and type of parking lot etc. that can be used at a particular location
Signs – Restrictions on the use of signs can affect a particular site’s
desirability. Sign sizes and styles may be restricted by building codes, zoning
ordinances or the shopping center management.

I. Evaluating Specific Areas for Retail Location
In the United States, retailers often focus their analysis on a metropolitan
statistical area (MSA) because consumers tend to shop within a MSA and media
coverage and demographic data for analyzing location opportunities often are
recognized by MSA.
A MSA is a core urban area containing a population of more than 50,000
inhabitants, together with adjacent communities that have a high degree of
economic and social integration with the core community.
A micropolitan statistical area (MiSA) is a smaller unit of analysis, with only
about 10,000 inhabitants in its core urban area.
The best areas for locating stores are those that generate the highest long –
term profits for a retailer. These factors are: Economic conditions, Competition,
Strategic fit of the areas population with the retailers target market, costs of
operating stores.

• Economic Conditions: Locations involve commitment of resources over a
long time period thus it is important to examine an areas level and growth
of population and employment. A large, fully employed population could
mean high purchasing power and high levels of retail sales.
• Competition: The level of competition in an area affects the demand for a
retailer’s merchandise.
• Strategic Fit of the Areas Population with the Retailers Target Market:
Population level, growth and competition may not be sufficient, the area
needs to have consumers who are in the retailer’s target market – who are
attracted to the retailer’s offerings and interested in patronizing its stores.
Thus the area must have right demographic and lifestyle profile.
• Costs of operating stores: Costs can vary across areas. Operating costs are
also affected by the proximity of the area being considered to other areas in
which retailer operates stores.

II. Number of Stores in an Area
Having selected an area in which to locate the stores, retailers next decision is
how many stores to operate in an area.
When making the decision about how many stores to open in an area,
retailers must consider the trade – offs between lower operating costs and
potential sales cannibalization from having multiple stores in an area.
• Economies of Scale from Multiple Stores: Most retail chains open multiple
stores in an area because promotion and distribution economies of scale
can be achieved.
Multiple stores in an area are needed to justify the cost of building a new
distribution center.
Having so many stores concentrated in one area also facilitates promotion
activities.

• Cannibalization: Although retailers gain economies from opening multiple
locations in an area, they also suffer diminishing returns associated with
locating too many additional stores in an area.
Cannibalization is the reduction of the sales of a retailer’s own outlets as a
consequence of its introduction of another similar outlet.
Foe example, suppose the first four stores opened in a MSA by a specialty
store retailer generate sales of $2 million each. Because they are located far
apart from one another, customers consider patronizing only the store
nearest to them, and there is no cannibalization. When the retailer opens a
fifth store close to one of the existing stores, it anticipates a net sales
increase for the area of $2 million, the new store should generate the same
level as the four existing stores.

Instead, the increase in sales is only $1.5 million because the sales in the
nearest existing store drop to $1.7 million and sales from the new stores are
only $1.8 million because its location is only the fifth best in the area.
Thus because of the new store cannibalizes sales from the closest store, it
only contributes sales of $1.5 million.
Because a primary retailing objective is to maximize profits for the entire
chain, retailers should continue to open stores only as long as profits
continue to increase or, in economic terms, as long as the marginal revenues
achieved by opening a new store are greater than the marginal costs.

Evaluating a Site for Locating a Retail Store
1. Characteristics of the Site
• Traffic flow and Accessibility
• Location Characteristics – Parking, Store visibility, Adjacent retailers
• Costs associated with locating
2. Characteristics of Trading Area for a Store
3. Estimated Potential Sales Generated by a Store at the Site

Trading Area
• A trade area is the adjacent geographic area that accounts for the majority
of a store’s sales and customers.
• Knowing the boundaries of trading area helps a retailer to estimate the
potential customers who may patronize the retail store.
• Accordingly the retailer can gather information about the demographics and
lifestyle of people and estimate sales.
• Understanding the trade area also helps retailers formulate suitable
promotional and communication strategies.
• Thus defining the trade area is one of the most important steps in market
analysis.

Trading Area
Trade areas can be divided into three zones:
Retail
Store
Primary
Trade Area
Secondary
Trade Area
Tertiary
Trade Area

Trading Area
1. Primary Trading Area
It is the geographic area from which the shopping center or store site derives
50 to 70 percent of its customers.
2. Secondary Trading Area
It is the geographic area of secondary importance in terms of customer sales,
generating about 20 to 30 percent of the site’s customers.
3. Tertiary/ Fringe Trading Area
It includes the remaining customers who shop at the site but come from
widely dispersed areas.
These customers might travel an unusually long distance because they do not
have comparable retail facilities closer to home, or they may drive near the
store or center on their way to or from work.

Trading Area
• In USA, most retailers define the three zones based on driving time rather than
distance.
• In smaller cities, the primary trading area might be defined as customers
within 5 minutes’ driving time of the site; the secondary trading area, as
customers with a 10-minute drive; and the tertiary zone, as customers more
than 15 minutes away from the site by car.
• In bigger cities where driving times are lengthy, such as Los Angeles, the
primary trading area may be 15 minutes; the secondary trading area, 40
minutes; and the tertiary trading area, more than 1 hour.
• However, it is much easier to collect information about the number of people
and their characteristics in the different zones by geographic distance than by
driving time.
• Some other retailers may also define the zones by distance - such as 3, 5, and
10 miles from the site - rather than driving time.

Trading Area
Retailers can determine the trade area for their existing stores by customer
spotting.
Customer Spotting is the process of locating the residences of customers for a
store on a map and displaying their positions relative to store location.
The addresses for locating the customers residences are obtained by asking
them and recording the data.
A Parasite Store is the one that does not create its own traffic and whose trade
area is determined by the dominant retailer in the shopping center or retail
area. For instance, a dry cleaner would be a parasite store to a Walmart store
because people tend to stop at the dry cleaner on the way to or from Walmart
and other stores.

Estimating Sales Potential of New Store
The three approaches for using information about the trade area to estimate
the potential sales for a store at the location:
(1) The Huff Gravity Model
(2) Regression Analysis
(3) The Analog Method

Huffs Gravity Model
• The Huff Gravity Model (or Huffs Law of Shopper Attraction) was introduced
by David Huff in 1963, for estimating the sales of a retail store, is based on
the concept of gravity.
• It states that - Consumers are attracted to a store location, just like
Newton’s falling apple was attracted to the Earth.
• In this model, the force of the attraction is based on two factors:
i. the size of the store (larger stores have more pulling power)
ii. the time it takes to travel to the store (stores that take more time to get
to have less pulling power).
• In other words, it is a model that recognizes the correlation between
patronage and distance from the location of the store.
• A larger size is generally more attractive to consumers because it means
more merchandise assortment and variety.

Huffs Gravity Model
• The formula indicates that 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.
• A larger size is generally more attractive in consumers’ eyes because it
means more merchandise assortment and variety. Travel time or distance
(Tij) has the opposite effect on the probability that a consumer will shop at
a location.
• The greater the travel time or distance from the consumer, compared with
that of competing locations, the lower the probability that the consumer
will shop at the location. Generally, customers would rather shop at a close
store than a distant one

Huffs Gravity Model
• The exponent (^) reflects the relative effect of travel time versus store size.
When (^) is equal to 1, store size and travel time have an equal but opposite
effect on the probability of a consumer’s shopping at a store location.
• When (^) is greater than 1, travel time has a greater effect, and when l is
less than 1, store size has a greater effect. The value of (^) is affected by the
nature of the shopping trips consumers generally take when visiting the
specific type of store.
• For instance, travel time or distance is generally more important for
convenience goods than for shopping goods because people are less willing
to travel a great distance for a bread than they are for a new pair of shoes.
• Thus, a larger value for (^) is assigned if the particular store specializes in
convenience shopping trips rather than comparison shopping trips. The
value of (^) is usually estimated statistically using data that describe
shopping patterns at existing stores.

Huffs Gravity Model
• A small town has two communities, Rock Creek and Oak Hammock.
• The town currently has one 5,000-square-foot drugstore with annual sales
of $8 million, $3 million of which come from Oak Hammock residents and
$5 million from Rock Creek residents.
• A competitive chain is considering opening a 10,000-square-foot store.
• The driving time for the average Rock Creek resident to the existing store is
10 minutes, but it would be only five minutes to the new store.
• In contrast, the driving time for the typical Oak Hammock resident to the
existing drugstore is 5 minutes and would be 15 minutes to the new store.
• Based on its past experience, the drugstore chain has found that l equals 2
for its store locations.

Huffs Gravity Model
Using the Huff formula, the probability of a Rock Creek resident’s shopping at
the new location

Huffs Gravity Model
• Huffs Gravity Model does not account for other factors (such as having
unique product or service, that they cannot get elsewhere) that may affect a
customer patronizing the store.
• Even though the Huff Gravity Model considers only two factors affecting
store sales—travel time and store size—its predictions are quite accurate
because these two factors have the greatest effect on store choice.

Regression Analysis
• The Regression Approach provides a way to incorporate additional factors
(other than travel time and store size) into the sales forecast for a store
under consideration.
• This 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.
• The technique can consider the effects of the wide range of factors,
including site characteristics, such as visibility and access, and
characteristics of the trade area, such as demographics and lifestyle
segments represented.

Analog Model
• Regression Model can be developed by a retailer using data about the trade
area and site characteristics from a large number of stores.
• Small chains cannot use the regression approach hence they use a similar
but more subjective analog approach.
• The creator of this model, William Applebaum, focused on the study of
existing retail stores to identify potential retail sites. Customers of these
existing stores were interviewed to determine where they lived, allowing
Applebaum to define primary trade areas for these stores.
• He used existing store sales levels to project sales potential of future
locations.
• In order to determine the likely performance of the planned store, he
performed a systematic comparison of the characteristics of the proposed
store with the characteristics of the existing ‘analogue’ store.

Analog Model
• When using the analog approach, the retailer describes the site and trade
area characteristics for its most successful stores and attempts to find a site
with similar characteristics.
• One advantage that the Analog Model has over other methods is its
adaptability to assess virtually all types of retail stores. On the other hand,
the Gravity Model is used primarily with supermarkets and drug stores.
However, the Analog Model has two weaknesses:
• It is highly subjective and does not work well without an experienced
analyst
• Developing and maintaining the database through a well-trained staff has a
relatively high cost.

Analog Model
The steps involved in Analog Model are:
• Competitive Analysis
• Define Present Trade Area
• Analyze Trade Area Characteristics
• Match Characteristics of Present Trade Area with Potential Sites.

References
1. Michael Levy & Barton A Weitz, “Retailing Management”, 8th Edition, Tata
Mc Graw Hill.
2. Swapna Pradhan, “Retailing Management – Text and Cases”, 5th Edition,
Tata Mc Graw Hill.

6. Retail Location Planning, Retail Site Location

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