2. Learning Objectives for Chapter 7:
1. Explain the criteria used in selecting a target
market.
2. Identify the different options, both store-
based and non-store-based, for effectively
reaching a target market and identify the
advantages and disadvantages of business
districts, shopping centers, and freestanding
units as sites for retail location.
3. Define geographic information systems (GIS)
and discuss their potential uses in a retail
enterprise.
2-2
3. Learning Objectives
4. Describe the various factors to consider in
identifying the most attractive geographic
market for a new store.
5. Discuss the various attributes to consider in
evaluating retail sites within a retail
market.
6. Explain how to select the best geographic
site for a store.
2-3
4. Importance of Topic
Vital to doing well in your group project
You need to apply the concepts of LA and discuss
critically the issues required in the project brief
Read the project brief in detail and note each
requirement!!
Do not stray out of point.
5. Location!! Location!! Location!!
These words resonate in retailing
A key decision is where to locate the retail
shop/s and mall
Location will determine where you draw
your target customers from
We call this “Trading Area”
This topic forms the basis of your project-
learn it very well!!
2-5
6. Why is Store Location Important for a Retailer?
Location is typically prime
consideration in customer’s
store choice.
Location decisions have
strategic importance
because they can help to
develop sustainable
competitive advantage.
Location decisions are
risky: invest or lease?
2-6
7. Geographic space and cyberspace must be considered
Traditionally, reaching the target
market has been associated with
selecting the best physical location for
a store.
The Internet is becoming a viable
alternative for reaching one’s
customers.
2-7
8. Virtual Stores
The equivalence of a store on the Internet is a
retailer's World Wide Web (www) site.
The retailer's home page is the introductory or first
material viewers see when they access a retailer's
Internet site. It is equivalent to a retailer's
storefront in the physical world.
Virtual store is the total collection of all the pages
of information on the retailer's Internet site.
The counterpart to location on the Internet is the
"ease of access." This refers to the consumer’s
ability to find a Web site in cyberspace easily and
quickly.
2-8
9. Market Segmentation
a method retailers use to segment, or
break down, heterogeneous consumer
populations into smaller, more
homogeneous groups based on their
characteristics.
2-9
10. Segmentation
No single retailer can serve all potential customers;
it is important that it segment the market and select
a target market(s).
A target market is the segment of the market that
the retailer decides to pursue through its marketing
efforts.
The topics of target market selection and location
analysis are combined because a retailer must
identify its target market(s) before it decides how
best to reach that market(s).
2-10
12. Identifying a Target Market
Market segment should
be measurable
To reach a
target market Market should be
accessible
successfully
Market should be
sustainable enough to
be profitable
2-12
13. Market Segmentation
Target market
Is the group of customers that the
retailer is seeking to serve.
How do you know which particular segment
is the most attractive for your firm? What
factors would you consider when selecting
and penetrating a given target market?
2-13
14. Target Market
UNIQLO has a well-
defined target market:
customers who desire
good quality but
reasonably priced
casual fashion apparel
Think of some local retailers that focus on
specific customer segments. What examples
come to mind? Is narrow or broad targeting
a preferred strategy and why?
2-14
15. Target marketing in retailing
Using this
framework,
think of
examples of
retailers who
apply each of
these 3 types
of targeting
strategies.
2-15
23. Positioning of Malls- possible criteria
Landmark City Location
i-ON Orchard
Orchard Central
Local Tenants Upscale
International
Branded Tenants
Lot 1
Chelsea Premium
Outlets coming to
Johore in 2011
Loyang Point
Neighborhood/ Suburban Location
24. Reaching Your Target Market
Location of Store-
based Retailers
Non-store-based
Retailers
2-24
25. Location of Store-Based Retailers
Store-Based Retailers operate from a
fixed store location that requires
customers to travel to the store to view
and select merchandise or service.
Non-store-Based Retailers intercept
customers at home, at work, or at a
place other than a store where they
might be susceptible to purchasing.
2-25
27. Location of Store-Based Retailers
Central Business Districts (CBD) usually
consists 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 originated historically.
Secondary Business District (SBD) is a
shopping area that is smaller than the CBD
and that revolves around at least one
department or variety store at a major street
intersection.
2-27
28. Central Business District
ADVANTAGES
Draws people into areas during business
hours
Hub for public transportation
Pedestrian traffic
Residents
DISADVANTAGES
High security required
Shoplifting
Parking is poor
Evenings and weekends are slow
29. Location of Store-Based Retailers
Neighborhood Business District (NBD) is a chopping
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 its located on a major artery of a
residential area. (Example our HDB heartland stores)
Shopping Center (or mall) is a centrally owned or
managed shopping district that is planned, has
balanced tenancy (the stores complement each
other in merchandise offerings), and is surrounded
by parking facilities. (note: quite often in Singapore
our Shopping Centre is located within the city or
main street) 2-29
33. Shopping Center Advantages
Heavy traffic resulting from the wide
range of product offerings.
Cooperative planning and sharing of
common resources.
Access to highways and availability of
parking.
Lower crime rate.
Clean, neat environment.
2-33
34. Shopping Center Disadvantages
Inflexible store hours (open during mall hours
only).
High rents.
Restrictions as to what merchandise the
retailer may sell.
Inflexible operations and required
membership in the center’s merchant
organization.
Possibility of too much competition and the
fact that much of the traffic is not interested
in a particular product offering.
Dominance of the smaller stores by the
anchor tenants.
2-34
36. Advantages and Disadvantages of Shopping Malls
Advantages:
Many different types of stores
Many different assortments available
Attracts many shoppers
Main Street for today’s shoppers
Never worry about the weather
Comfortable surrounding to shop
Uniform hours of operation
Disadvantages:
Occupancy costs are high
Tenants may not like mall
management control of operations
Competition can be intense
2-36
37. Challenges to Malls
Time pressured society makes it
impractical to wander malls
Fashion apparel sold in malls
experiencing limited growth
Malls are getting old and rundown –
unappealing to shop
Anchor tenants are decreasing due to
retail consolidation
2-37
38. Lifestyle Centers
• Usually located in affluent residential
neighborhoods
• Includes 50K sq. ft. of upscale chain specialty
stores
• Open-air configuration
• Design ambience and amenities
• Upscale stores
• Restaurants and often a cinema or other
entertainment
• Small department store format may be there
2-38
40. Fashion / Luxury Specialty Centers
Branded goods
Located in upscale malls
Target at up-market
clients
2-40
41. Outlet Centers
These shopping centers contain mostly
manufacturers and retail outlet stores
2-41
42. There is one coming soon to Johore soon!!
The new Johor project is expected to attract 4 million visitors a year, according to Malaysian Prime Minister Najib Razak. It's a joint
venture between Chelsea Premium Outlets and Genting Group that's being developed in Johor as part of the Iskandar Malaysia
project, and understandably, Malaysia has bragging rights to it. "It is the first (Chelsea) center in the (Asean) region and I'm very
happy that they have chosen Malaysia," said PM Najib. He said he understood other countries in the region had been trying to woo the
Chelsea Group to set up the center
http://www.cnngo.com/singapore/shop/chelsea-premium-outlets-open-johor-709556
43. Location of Store-Based Retailers
Anchor Stores are the stores in a
shopping center that are the most the
most dominant and are expected to
draw customers to the shopping center.
Free-Standing Retailer generally
locates along major traffic arteries and
does not have any adjacent retailers to
share traffic with.
2-43
44. Unplanned Retail Locations
Merchandise Kiosks – small temporary
selling stations located in walkways of
enclosed malls, airports, train stations or
office building lobbies.
2-44
45. Unplanned Retail Locations
Freestanding Sites
– location for
individual store
unconnected to
other retailer
46. Advantages of Freestanding Retailing
Lack of direct competition.
Generally lower rents.
Freedom in operations and hours.
Facilities that can be adapted to
individual needs.
Inexpensive parking.
2-46
47. Limitations of Freestanding Retailing
Lack of drawing power from complementary
stores.
Difficulties in attracting customers for the initial
visit.
Higher advertising and promotional costs.
Operating costs that cannot be shared with
others.
Stores that may have to be built rather than
rented.
Zoning laws that may restrict some activities.
2-47
48. Other Retail Location Opportunities
• Mixed Use Developments
• Airports
• Resorts
•
Hospitals
• Store within a Store
2-48
49. Alternative Locations
Mixed Use Developments (MXDs)
Office Hotels
Buildings
Civic Centers
49
50. Airports as retail locations
Airports: Why wait with
nothing to do?
Rents are 20% higher than
malls
Sales/sq ft are 3‐4 times
higher than malls
Best airports are ones
with many connecting
flights
2-50
51. Alternative Locations- Hotels and Resorts
Hilton Singapore Banyan Tree
Captive audience
Well-to-do customer
Customers have time to shop
2-51
52. Alternative Locations - Hospitals
Captive Location
Patients cannot leave
Gifts are available
2-52
53. Non-store-based Retail Formats
Direct Selling
Street Peddling
Interactive TV
Mail-Order
Internet
Automated Merchandising Systems
2-53
54. Location must also to be considered from the
“customer’s perspective”
While we discuss location, we don’t just
consider the retailer’s perspective of store
choice location
What about customers’ shopping patterns?
How, where, when and why do customers
buy?
There are different patterns…
2-54
55. Shopping Situations
Convenience Shopping
Minimize the
customer’s effort to get
the product or service
by locating store close
to where customers are
located
2-55
56. Shopping Situations
Comparison Shopping
Customers have a
good idea of what
type of product
they want, but
don’t have a
strong preference
for brand, model
or retailer.
Typical for furniture, appliances, apparel,
consumer electronics, hand tools and
cameras. 2-56
59. Destinations Versus “Parasites”
Destination stores have a Parasite stores do not
better assortment, create their own traffic
better promotion, and have no real
and/or better image trading area of their
They generate trading own
areas much larger than These stores depend on
competitors people who are drawn
Going to IKEA- this is a to the area for other
destination store reasons
59
60. Question to Ponder
Given the wide variety of locations available
to target specific consumer groups, what new
locations will provide the greatest
opportunities for the retailers of tomorrow?
Trends will vary across Asia. More malls will
spring up in city centers. Others will still rely
on traditional retail locations. Within Asia
location is important for tourism retailing.
Other comments?
2-60
62. Geographic Information Systems
These comprise:
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
2-62
63. Geographic Information Systems
The GIS combines physical geography with
cultural geography.
Cultural geography: is the buffer that people
have created between themselves and the
raw physical environment and includes the
characteristics 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.
2-63
65. Uses of GIS
Market selection.
Site analysis.
Trade area definition.
New store cannibalization.
Advertising management.
Merchandise management.
Evaluation of store managers.
2-65
66. Market Identification
Market Identification - involves three
sequential steps:
1. First, the retailer must identify the most
attractive markets in which to operate.
2. Second, one must evaluate the density of
demand and supply within each market and
identify the most attractive sites that are
available within each market.
3. Third, select the best site or sites
available.
2-66
68. Location analysis is like a filtering
process…
1 Target
Overall market
segment
market
2 The
locality or
Trading catchment
area area
The
3 actual
Site location
of the
store/mall
2-68
69. Market Identification
Trading Area
Is the geographic area from
which a retailer, or group of
retailers, or community draws
its customers.
2-69
70. Elements in Trading-Area Selection
Population Economic Base
Characteristics Characteristics
Nature and Saturation
of Competition
2-70
71. Benefits of Trading Area Analysis
Discovery of Assessment of effects of
consumer trading area overlap
demographics and Ascertain whether chain’s
socioeconomic competitors will open
characteristics nearby
Opportunity to Discovery of ideal
determine focus of number of outlets,
promotional activities geographic weaknesses
Opportunity to view Review of other issues,
media coverage such as transportation
patterns
2-71
72. Selected Population Statistics for Trading Areas A and B
Characteristics Area A Area B
Total population, 2000 13,732 15,499
Population change, 1990-2000 +8.2 +2.5
College graduates, 25 +, 2000 (%) 41.4 39.2
Median household income, 2000 $61,236 $61,242
Managerial and professional 45.3 45.0
occupations (%), 2000
Which trading area would you consider as
being the most attractive and why?
2-72
77. Retail Location Theories
Retail Gravity Theory
Suggests that there are underlying
consistencies in shopping behavior that
yield to mathematical analysis and
prediction based on the notion or
concept of gravity.
It is based on Newtonian gravitational
principles, explains how large
urbanized areas attract customers from
smaller rural communities.
2-77
78. Retail Location Theories
The Formula used:
d
Dab =
Pb
1+
Pa
where Dab is the breaking point from city A, measured in miles along the road to city
B;
d is the distance between city A and city B along the major highway;
Pa is the population of city A; and
Pb is the population of city B.
2-78
79. Retail Location Theories
Point of Indifference
Is the extremity of a city’s
trading area where households
would be indifferent between
shopping in that city or an
alternative city in a different
geographical direction.
2-79
81. The break points are computed based on the formula:
Exhibit 7.6 2-81
82. Computation of the values using
Reilly’s Law of Retail Gravitation
From City_ to Computed value using the Point of
equation
Central City (A) Indifference:
18
From B to A = 14.5 X = 18 –14.5 = 3.5
1+√ 14000
240000
14
From C to A = 10.8 Y = 14 –10.8 = 3.2
1+√ 21000
240000
5
From D to A = 3.7 Z = 5 – 3.7 = 1.3
1+√ 30000
240000
2-82
83. Limitations of Reilly’s Law
Distance is only measured by major
thoroughfares; some people will travel
shorter distances along cross streets
Travel time does not reflect distance
traveled. Many people are more
concerned with time traveled than with
distance
Actual distance may not correspond
with perceptions of distance
2-83
85. The challenge of doing LA analysis in
Singapore context
Urban state
Small geographical area
Efficient transportation system (no issue
about mobility unlike US where customers
commute if there larger malls)
In this project we will substitute population
size (as shown in text) with mall size
(square feet)
Reason: mall size becomes the “surrogate
measure” of a centre’ attractiveness
2-85
86. Mall B
Floor Area 450K Sq Ft
Mall C
Floor Area 150K Sq Ft
25 km
10km
Mall A
Your Site
Floor Area 250K Sq Ft
2-86
87. Work out using the Reilly model
d
Dab =
Pb
1+
Pa
where Dab is the breaking point from city A, measured in miles
along the road to city B;
d is the distance between city A and city B along the major
highway;
Pa is the population of city A; and Substitute with floor area (square feet) of
your own mall site
Pb is the population of city B. Substitute with floor area (square feet) of
another nearby mall that may attract
similar customers
2-87
88. Mall A and Mall B
25
Dab =
450
1+
250
= 10.6km
2-88
89. Mall A and Mall C
10
Dab =
150
1+
250
= 5.6 km
2-89
90. Mark off the break points
Mall B
Floor Area 450K Sq Ft
Mall C
Floor Area 150K Sq Ft
25 km
5.6 10km
10.6
Mall A
Your Site
Floor Area 250K Sq Ft
2-90
91. Zone off the Trading Area
Mall B
Floor Area 450K Sq Ft
Mall C
Floor Area 150K Sq Ft
25 km
5.6 10km
10.6
Mall A
Your Site
Floor Area 250K Sq Ft
2-91
94. Retail Location Theories
Saturation Theory
Examines how the demand for
goods and services of a
potential trading area is being
served by current retail
establishments in comparison
with other potential markets.
2-94
95. Retail Location Theories
Retail Store Saturation:
is a condition where there is just
enough store facilities for a given
type of store to efficiently and
satisfactorily serve the population
and yield a fair profit to the
owners.
2-95
96. Retail Location Theories
Understored:
is a condition in a community
where the number of stores in
relation to households is relatively
low so that engaging in retailing is
an attractive economic endeavor.
2-96
97. Retail Location Theories
Overstored:
is a condition in a community
where the number of stores in
relation to households is so large
that engaging in retailing is usually
unprofitable or marginally
profitable.
2-97
98. Retail Location Theories
Index of Retail Saturation (IRS) is the
ratio of demand for a product
(households in the geographic area
multiplied by annual retail
expenditures for a particular line of
trade per household) divided by
available supply (the square footage of
retail facilities of a particular line of
trade in a geographic area).
2-98
99. Index of Retail Saturation (IRS)
IRS = (H X RE)/RF
Where IRS is the index of retail saturation for
an area; H is the number of households in the
area; RE is the annual retail expenditures for
a particular line of trade per household in the
area; RF is the square footage of retail
facilities of a particular line of trade in the
area (including square footage of the proposed
store).
2-99
100. Sample Question 11 from the text:
11. Compute the index of retail saturation for the following three markets. The data for
department stores are as follows:
MARKET A B C
Retail expenditures per household $789 $875 $943
Square feet of retail space 600,000 488,000 808,000
Number of households 121,000 102,000 157,000
Based on these data, which market is most attractive? What additional data would you find
helpful in determining the attractiveness of the three markets?
2-100
101. Solution to Question 11
IRS (Market A) = (121,000 x $789) / 600,000
= 159.12
IRS (Market B) = (102,000 x $875) / 488,000
= 182.89
IRS (Market C) = (157,000 x $943) / 808,000
= 183.23
The most attractive market is Market-C with an IRS of 183.23 or $183.23 in expected sales per
square foot. It would be helpful if additional information on various factors that influence
market demand potential such as population characteristics, buyer behavior characteristics,
household income, household age profile, household composition, community life cycle,
population density and mobility. In addition supply factors such as square feet per store, square
feet of space per employee, store growth, and the quality of competition should be analyzed.
2-101
102. See also the ‘Planning Your Own Retail Business’
example
The retail store that you are planning has an estimated circular trade radius of four miles. Within
this four-mile radius, there is an average of 1,145 households per square mile. In a normal year,
you expect that 47 percent of these households would visit your store (referred to as penetration)
an average of 4.3 times (referred to as frequency). Based on these figures, what would you
expect to be the traffic (i.e., number of visitors to your store per year)? (Hint: Traffic can be
viewed as the square miles of the trade area multiplied by the household density multiplied by
penetration, which is in turn multiplied by frequency.)
Once you answer this question, do some sensitivity analysis, which is an assessment of
how sensitive store traffic is to changes in your assumptions about penetration and frequency.
What happens if penetration drops to 45 percent or rises to 50 percent? What happens if
frequency drops to 4.0 times annually or rises to 4.5 times annually? In this analysis, only change
one thing at a time and hold all other assumptions constant.
2-102
103. Solution:
Suggested Answer:
One needs to first compute the following.
1. square miles of trade area = r2
= (22/7)(4)2
= 50.286
2. traffic = (square miles in trade area)
x (household density)
x (penetration)
x (frequency)
traffic = (50.286) x (1,145) X (47%) X (4.3)
traffic = 116,364
Next do some sensitivity analysis.
2-103
104. Solution (sensitivity analysis)
Consider the following possible parameter values
SQUARE HOUSEHOLD
MILES IN (x) DENSITY (x) PENETRATION (x) FREQUENCY = TRAFFIC
TRADE AREA
1 50.286 x 1145 x 47% x 4.3 = 116,364
2 50.286 x 1145 x 45% x 4.3 = 111,412
3 50.286 x 1145 x 50% x 4.3 = 123,792
4 50.286 x 1145 x 47% x 4.0 = 108,246
5 50.286 x 1145 x 47% x 4.5 = 121,776
2-104
105. Retail Location Theories
Buying Power Index (BPI):
is an indicator of a market’s overall
retail potential and is composed of the
weighted measures of effective buying
income (personal income, including all
nontax payments such as social
security, minus all taxes), retail sales,
and population size.
2-105
106. Buying Power Index (BPI)
BPI = 0.5(the area’s percentage of U.S.
effective buying income)
+ 0.3(the area’s percentage of U.S.
retail sales)
+ 0.2(the area’s percentage of U.S.
population)
2-106
107. Other Demand and Supply
Factors
- Market Demand Potential
- Market Supply Factors
2-107
108. Market Demand Potential
Population Characteristics
Buyer Behavior Characteristics
Household Income
Household Age Profile
Household Composition
Community Life Cycle
Population Density
Mobility
2-108
110. Market Supply Factors
Square Feet Per Store
Square Feet Per Employee
Growth in Stores
Quality of Competition
2-110
111. Site Analysis
Site Analysis
Is the evaluation of the density
of demand and supply within
each market with the goal of
identifying the best retail
site(s).
2-111
112. Site Analysis
Size of Trading Areas
Description of Trading Area
Demand Density
Supply Density
Site Availability
2-112
113. Site Analysis
Size of Trading Areas
Applebaum developed a technique for estimating the
trade area of a current store.
It involved interviewing a customer for each $100 in
weekly sales. The customers were randomly selected
and their home addresses obtained.
After the home addresses of the shoppers were
plotted on a map one could make inferences about
the trading area size and the competition.
This is sometimes referred to as ‘customer spotting’
2-113
114. But for new stores… the task is more difficult;
however, there are some general rules that apply.
1. Stores that sell products that the customer
wants to buy in the most convenient manner will
have a smaller trading area
2. As customer mobility increases, the size of the
trading area increases
3. As the size of the store increases, its trading
area increases, because it can stock a broader
and deeper assortment of merchandise, which
will attract customers from greater distances.
2-114
115. Some conclusions…
4. As the distance between competing stores
increases, their trading areas will increase.
5. Natural and synthetic obstacles such as
rivers, mountains, railroads, and freeways
can abruptly stop the boundaries of a
trading area
2-115
116. Description of Trading Areas
Retailers can access at relatively low cost
information concerning the trading area for
various retail locations and the buyer
behavior of the trading area.
Use descriptors to profile trading areas
Start with geo-demographic variables
Can be supplemented with lifestyle and
behavioral factors
Neighborhood analysis
MapInfo
www.mapinfo.com 2-116
117. Demand Density
Demand Density
Is the extent to which the
potential demand for the
retailer’s goods and services is
concentrated in certain census
tracts, ZIP (postal) code areas,
or parts of the community.
2-117
126. Site Selection
Nature of Site
Terms of Purchase or
Lease
Expected Profitability
2-126
127. Site Selection
100 Percent Location
Is when there is no better use for a site
than the retail store that is being
planned for that site.
After all, all retailers should attempt to find a 100
percent location for their stores. A 100 percent
location is a location where there is no better use
for the site then the retail store that is being
planned. Retailers should remember that what
may be a 100 percent site for one store may not
be for another. The best location for a
supermarket may not be the best location for a
discount department store
2-127
128. Nature of Site
Store Compatibility
Exists when two similar retail
businesses locate next to or
nearby each other and they
realize a sales volume greater
than what they would have
achieved if they were located
apart from each other. 2-128
129. Past Year Exam Questions
MARKET SELECTION &
LOCATION ANALYSIS
(Chapter 7)
1-129
