WMG 19Term 8, Retail ManagementSession 9-10Store Locations and Site evaluationDr. Asif Zameer
Objectives• The importance of store locations• Types of locations• Steps involved in choosing a location• Trade areas and their evaluation• Evaluating a retail location
Location as an important tool of RetailStrategy• Selecting a location involves a trade-offbetween cost of the site and potential of thesite.
Importance of location decision• Location is a major cost factor because it :i. involves large capital investmentii. affects transportation costsiii. affects human resources cost• Location is a major revenue factor because it :i. affects the amount of customer trafficii. affects the volume of business
Location, Location, LocationCriteria to consider includepopulation size and traitscompetitiontransportation accessparking availabilitynature of nearby storesproperty costslength of agreementlegal restrictions
Levels of location decision and itsdetermining factors• A retailer takes a location decision based on:- selection of a city- selection of an area or type of location within acity- identification of a specific site
Market Area Analysis• Country• Region• City• Business District• Site
Factors for choosing a city• Size of the city’s trade area• Pop size & growth (demographic)• Purchasing power & distribution(demographic)• Trade potential (economic)• Cultural factor• No., size & quality of competition• Development cost (infrastructure)
Choosing a Store LocationStep 1: Evaluate alternate geographic (trading)areas in terms of residents and existing retailersStep 3: Select the location typeStep 2: Determine whether to locate as anisolated store or in a planned shopping centerStep 4: Analyze alternate sites contained in thespecific retail location type
Trading-Area AnalysisA trading area is a geographic areacontaining the customers of a particularfirm or group of firms for specific goodsor services
Trade area analysis• Trade area consists of 3 parts – primary, secondary &tertiary or fringeFactors determining the size and shape of trade areas:• Store type (format and merchandise)• Store size• Location of competition• Housing patterns• Travel time• Traffic barriers
The Size and Shape ofTrading Areas Primary trading area - 60-80% of astore’s customers Secondary trading area - 15-25%of a store’s customers Fringe trading area - all remainingcustomers
Benefits of Trading Area Analysis Discovery of consumerdemographics andsocioeconomiccharacteristics Opportunity todetermine focus ofpromotional activities Opportunity to viewmedia coverage patterns Assessment of effectsof trading area overlap Ascertain whetherchain’s competitorswill open nearby Discovery of idealnumber of outlets,geographicweaknesses Review of other issues,such as transportation
The Trading Areas of Current and Proposed Outlets
Trading Areas and Store TypesLargestTRADINGTRADINGAREASAREASSmallestDepartment storesSupermarketsApparel storesGift storesConvenience stores
Destinations Versus ParasitesDestination stores have abetter assortment, betterpromotion, and/or betterimage• They generate tradingareas much larger thancompetitors• Shoppers’ Stop:“Shopping and beyond”Parasite stores do notcreate their own trafficand have no realtrading area of theirown• These stores depend onpeople who are drawnto the area for otherreasons
Defining the Trade Area - Centralplace theory• Theory established by Christaller and LoschThresholdRange- theory attempts to explain the spatialdistribution of a settlement-central level for a store is theminimum area from which it mustdraw traffic to be viable- range is a sphere of the settlement ofconsumers traveling to the centralplace- range of a store should be at leastequal to its threshold area- store will earn profits only if its rangeis larger than its threshold
Reilly’s LawReilly’s law of retail gravitation, atraditional means of trading-areadelineation, establishes a point ofindifference between two cities orcommunities, so the trading area of eachcan be determined
Defining the Trade Area• Reilly’s Law of Retail Gravitation :Dab = d / ( 1+ sqrt (Pb / Pa))Dab = Breakpoint of Ad = Distance between 2 cities A and BPa = population of city APb = population of city B2 major assumptions:• 2 competing areas will be equally accessible• Retailers in the 2 areas are equally competitive
Spatial interaction theory• Theory discards the assumption made bycentral place theory that behavior is explainedby consumers using the nearest offering ofgoods or services• Theory dates to 1931 from the pioneeringstudies of William J. Reilly• Likelihood that a city or shopping centre willattract shoppers from the hinterland increaseswith the size of the city or shopping centre anddecreases with distance from the city orshopping centre
Limitations of Reilly’s Law Distance is only measured by majorthoroughfares; some people will travelshorter distances along cross streets Travel time does not reflect distancetraveled. Many people are moreconcerned with time traveled than withdistance Actual distance may not correspond withperceptions of distance
Huff’s LawHuff’s law of shopper attraction delineates trading areas onthe basis of product assortment (of the items desired bythe consumer) carried at various shopping locations,travel times from the shopper’s home to alternativelocations, and the sensitivity of the kind of shopping totravel time
Huff’s Model Formulatripsshoppingofkindsdifferentontimetravelofeffectthereflectsthatoexponent tAncentershoppingpoint tostartingscustomerfromdistanceortimeTravelcentershoppingofSizecentershoppingparticularatotravelingoriginofpointgivenaatcustomeraofyProbabilitWhereijTbijTjjSjiijPn1jbijTjSbijTjSijP====∑=÷÷=
Huff’s Law of Shopper Attraction• It provides probability of consumers choosingto visit one area as opposed to another.• It defines trade areas on the basis of productattractiveness, time taken to travel from theconsumer’s residence to alternative shoppingcenters and the sensitivity of shopping totravel time.
University and Shopping Centers:Gravity Model Illustration
Huff’s Model: The SolutionPij = (1000 ÷ 32 )/(1000 ÷ 32) + (500 ÷ 52) + (100 ÷ 12)Probability = .48.48 x 12,000 students = 5,760 customers5,760 customers x $150 = $864,000Repeat steps 1 to 3 for the remaining areas and then sum them.
Summarizing - Elements in Trading-AreaSelectionPopulationCharacteristicsEconomic BaseCharacteristicsNature and Saturationof Competition
Location selection criteria• Pull of a shopping district• Competition in that location• Availability of access routes• Nature of zoning laws• Trend of growth of the city
Types of retail locationTypes ofTypes of locationsFree standing locations neighborhood stores highway storesUnplanned business districts/ centres downtown or central business district secondary business district suburban business district strip centrePlanned shopping centres regional shopping centres of malls neighbourhood / community specialist markets periodic/ weekly markets (Flea markets)
Understanding various categories of shoppingcenters• A flea market is a place where vendors cometo sell or trade their goods.• The goods are usually inexpensive and rangein quality.• Example –Village haats,Weekly bazaarsin cities
High streets• High Street is the generic name (andfrequently the official name) of the primarybusiness street of towns or cities in the UnitedKingdom and Ireland.• It is usually a focal point for shops and retailersin the city centre, and is most often used inreference to retailing.• The equivalent in the United States andCanada is Main Street.• Examples – Connaught Place, New Delhi andSec 17 Chandigarh
Strip Malls• A strip mall (also called a plaza or mini-mall) is an openarea shopping center where the stores are arranged in arow, with a sidewalk in front.• Strip malls are typically developed as a unit and havelarge parking lots in front.• They face major traffic arterials and tend to be self-contained with few pedestrian connections tosurrounding neighborhoods
Community center• As per ICSC criteria - Community center: ashopping center of 100,000 to 350,000square feet GLA.• Typically anchored by a one or two discountdepartment, drug, food & grocery or homeimprovement stores.• They are commonly open, one-story, withstores arranged in a single strip, L- or U-shape.• Examples – Local shopping centers adjoiningcolonies
Festival or themed marketplace• Festival (or themed) marketplace: urbanentertainment and shopping center, usuallywith restaurants and entertainments,associated with a place of historic or culturalinterest.• Example – Delhi Haat.
Broadly - Three Types of LocationsIsolatedStorePlannedShoppingCenterUnplannedBusinessDistrict
Relative Advantagesof Major Retail LocationsLocation City Strip Shopping FreeIssues Center Mall StandingPedestrian + - + -trafficLandlord + + - +controlStrong + + - +competitionTax ? ? ? ?incentives
Location Evaluation: Multi-AttributeWeighted Checklist• No single factor or calculation is genrallyenough.• A checklist for all significant factors isprepared and the site is evaluated accordingto the degree to which the site meets thedesired characteristics.
Pedestrian TrafficThe most crucial measures of a location’s andsite’s value are the number and type of peoplepassing byProper pedestrian traffic count should include* age and gender (exclude very young children)* count by time of day* pedestrian interviews* spot analysis of shopping trips
Vehicular Traffic• Important for– convenience stores– outlets in regional shopping centers– car washes– suburban areas with limited pedestriantraffic
Parking Considerations Number and quality of spots Distance of spots from stores Availability of employee parking Price to charge customers forparking
Evaluation contd..• Other factors influence the selection of aparticular shopping centre: merchants’ association landlord’s responsiveness
Some new locations growing inimportance• 5-star hotels• Airports• Railway Stations• Metro Stations• Highways
Features of Airport Retailing Large group of prospective shoppers Captive audience Strong sales per square foot of retailspace Strong sales of gift and travel items Difficulty in replenishment Longer operating hours Duty-free shopping possible
Indian Retail Property Development• 800,000: Forecast Organized Retail sales by 2016 (INR crores)• 8000: Average Org Retail Sales PSF per Annum• 700-800 million sq.ft.: Required new built-up area in India innext 5 years• <300 million sq.ft: Projection on mall-construction in this time.• 400- 500 million sq.ft: Shortfall of proper retail space.• 2000: Sq ft area which can be built in 1 crore today• 400,000: Investment Required in Indian Retail in next 5 years(INR crores) for building the retail space.• 300,000: (INR crores) for retail fit-outs & related equipment.