Retail Location

Dr. Parveen Kaur Nagpal
Retail Location Planning

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.

Importance of Suitable Retail Location
• Customer Convenience – Example: grocery store, medical store, car garage
etc.
• Sustainable Competitive Advantage - Retail location is a unique factor which
the competitors cannot imitate.
• Huge Investment - Location decisions are risky. Generally, when retailers
select a location, they either make a substantial investment to buy and
develop the real estate or commit to a long-term lease (5 to 10 years) with
the developers.
• Cost Factor - Location involves large capital investment, affects
transportation costs as well as human resources cost like salaries.
• Revenue Factor - Location affects the amount of customer traffic and also
the volume of business of the retailer.

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.
✓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 events to attract customers etc.

• 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.

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.

Steps in Choosing a Retail Location
Evaluate
Alternate
Geographic
Trading
Area
Determine
Type of
Location
Select
General
Location
Analyze
Alternate
Sites
Analysis of
Competitive
Situation
Other Relevant
Trading Area
Considerations
Financial
Planning
for New
Ventures

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.

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.

THANK YOU
www.linkedin.com/in/dr-parveen-kaur-nagpal-82965b15

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