2. “The way employees treat the customers is a
direct result of how they themselves feel they
are treated.”
3. Chapter objectives
1. Processes involved in selecting a retail
market and site
2. Analyze a retail trading area
3. Various types of sites available to retailers
4. Difference between a planned and an
unplanned shopping district
5. Various characteristics that influence
retailer’s site selection
4. • Selecting a market area and specific location are two important
decisions for a retailer
• 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
5. Selection of right location
• 3 step process of:
1. Regional analysis,
2. Trade area analysis and
3. Actual site analysis
• Regional analysis:
- A region represents a large geographical area. It could be a
part of the country, state, city, designated market area
- Designated market area is composed of countries assigned
exclusively to that market area
- DMAs were developed by A. C. Nielsen Company to help
measure media reach, and are defined according to
population’s total TV viewing hours
6. Trading area analysis
• Trading area means ‘a geographic area containing customers
of a particular firm for specific goods/ services’.
• 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
• 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
7. • Main thing to look for in a trading area is a customer base that
matches target market. Other variables include;
- Population of trading area
- Availability of labor force for clerical, managerial and line
works
- Rules/ laws that govern the area
- Types of schools
- Area’s economy
- Number and size of competitors
- Promotion network
- Transport facilities
- Supplier proximity
8. Geographic Information Systems
• GIS is used to determine trading area and making
location decisions
• GIS software programs allow retailers to identify key
geographic areas and to combine with psychographic/
demographic information
• Data may include information on competitors,
consumer purchase behavior, no. of consumers,
effective buying income
• Geographic barriers such as bridges, tunnels, rivers
are included in such systems
9. Approaches for defining trading area:
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
10. • Reilly’s law of retail gravitation:
Dab = d / (1 + √Pb/ Pa)
Where,
Dab= point of indifference between cities a and b
Pa = population of city a
Pb= population of city b
d = distance along most traveled route between cities
a and b
11. Huff’s Gravity Model
• 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
12. • 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
13. 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
14. • 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
15. Actual site analysis and selection
• 3 types of sites are available;
1. Freestanding (isolated)
2. Planned
3. Unplanned
• Freestanding sites: the retailer moves into an area with no
other retailers in the immediate vicinity
• 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
16. 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
17. • 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
18. • 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
19. • 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
20. • 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
21. 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’
22. Characteristics of the available site
• Traffic: 2 types of traffic patterns – vehicle and pedestrian
• Vehicle traffic
- look not only no. of vehicles but also types of vehicles
- The easier to get to the site, more business it will generate
- Quality of streets and roads surrounding the site
- Level of congestion in the street
- Parking facilities
- Are there one way streets?
• Pedestrian traffic
- Heavy pedestrian traffic make excellent choices for retail
location
- Consider gender, their age, what are they wearing?, are they
walking alone or with others?
23. • Transportation considerations
- Availability
- Can trucks deliver inventory with ease?
- Public transportation available for customers?
• Site availability
- Physically available?
- Conditions?
- Terms of rental agreement?