Store locations

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

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Store locations

  1. 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. 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. 3. Importance of Location Good Location CAN Overcome Mediocre Strategy Mix Poor Location Difficult to Overcome Requires Extensive Decision Making Not Flexible
  4. 4. Problem with shifting location Heavy Investment New Location May Not Have Same Characteristics Store Fixtures and Renovations May Not Transfer
  5. 5. Evaluate Alternate Geographic (Trading) Areas Select General Location Analyze Alternate Sites Determine Type of Location Site Selection Steps
  6. 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. 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. 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. 9. Trading Area
  10. 10. Size and Shape of Trading Area Not Concentric Two Stores in Same Area Can Have Different Trading Areas (TA)
  11. 11. Trading Area Analysis Benefits Consumer Characteristics Detailed Promotional Activity Focus Determined Proper Number of Stores Calculated Geographic Weaknesses Highlighted
  12. 12. Trading Area Influencers Store Size Competitors’ Locations New Stores Residential Housing Patterns Travel or Driving Time Promotion-impact is temporary
  13. 13. Factors Affecting Demand for a Trading area Competition Business climate Demographic and lifestyle characteristics Economies of scale versus cannibalization
  14. 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. 15. DECISION MAKING MODEL FOR TRADING AREA SELECTION
  16. 16. The Trading Areas of Current and Proposed Outlets
  17. 17. 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
  18. 18. GIS Software in Action - A
  19. 19. GIS Software in Action - B
  20. 20. Private Firms Offering Mapping Software Claritas ESRI GDT GeoVue Mapinfo SRC
  21. 21. Delineating Trading-Area Segments
  22. 22. Trading Areas and Store Type Largest TRADING AREAS Smallest Specialty Stores Department stores Apparel stores Supermarkets Gift stores Convenience stores
  23. 23. 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.
  24. 24. 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
  25. 25. Computerized Trading-Area Analysis Models Analog Model Regression Model Gravity Model
  26. 26. Analog model Define current trade area Match characteristics of current store with potential new stores location to determine the best site
  27. 27. REGRESSION ANALYSIS Select store performance measure & variables used to predict performance. Solve the regression equation and use it to project performance for future sites
  28. 28. 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
  29. 29. 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
  30. 30. 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…
  31. 31. 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
  32. 32. 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
  33. 33. 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)
  34. 34. 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.
  35. 35. 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
  36. 36. 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
  37. 37. 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
  38. 38. 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
  39. 39. 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
  40. 40. Chief Factors to Consider in Evaluating Retail Trading Areas Management Management trainee Clerical Availability of Labor
  41. 41. 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
  42. 42. 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
  43. 43. 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
  44. 44. 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
  45. 45. Chief Factors to Consider in Evaluating Retail Trading Areas Taxes Licensing Operations Minimum wages Zoning Regulations
  46. 46. 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
  47. 47. 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
  48. 48. 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
  49. 49. 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
  50. 50. 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
  51. 51. 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
  52. 52. 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
  53. 53. 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
  54. 54. 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
  55. 55. 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’
  56. 56. 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.

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