Store location

 Trading area analysis

 Site analysis
 Location, Location, Location

 Little flexibility once a site is chosen

 Involves a sizeable investment

 Store fixtures at an old site cannot be

transferred to a new site

 Requires extensive decision making….

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
 Choosing a Store Location

Step 1: Evaluate alternate geographic (trading) areas in

terms of residents and existing retailers

Step 2: Determine whether to locate as an isolated store

or in a planned shopping center

Step 3: Select the location

Step 4: Analyze alternate sites contained in the specific

retail location type
 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
 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 (e.g. labour availability, supplier

location, transportation)
Trading-Areas of Current and Proposed Outlets
Net increase in sales = Revised sales of existing stores + Sales of new store –
Previous sales of existing store
GIS Software in T-A analysis
Geographic Information Systems

Combine digitized mapping with key location-specific

data to graphically depict trading-area characteristics
such as:

population demographics

data on customer purchases

listings of current, proposed, and competitor locations

GIS Software in T-A analysis
There are private firms that offer mapping software
– such as Nielsen

Till GIS:

Retailers placed different colour pins on paper maps to show

current and proposed locales, competitors’ sites and had to
collect and analyse data

With GIS:

Firms can access computer-generated maps and quickly

research the attractiveness of different locations
 GIS Software in Action
The analysis examines the relationship between total purchase behaviour
and the distance each customer travels to patronize the store
 GIS Software in Action
Impact on existing customers if the location of a store/site is changed

Red and yellow polygons represent a 9-minute drive around each location – 80%
of customer base
 GIS Software in Action
The correlation between purchase behavior of customers and lifestyle
segment of the neighborhood in which they live
 GIS Software in Action
No. of customers and their spending for one retail site – customer database is “geocoded”
 Technology in Retailing
ShopperTrak (www.shoppertrak.com) has 70,000 shopper
traffic- counting devices that have been installed in 70
countries around the world.

ShopperTrak devices count shopper visits and can refine the

counts to exclude children and retail employees from its overall
count. Their traffic counts are between 96 percent and 98
percent accurate.

ShopperTrak’s new FlashTraffic system conveys traffic data on

an hourly basis to retailers’ point-of-sale systems to enable
retail managers to adjust and optimize store staffing levels.
The Segments of a Trading-Area
The Size and Shape of Trading-Areas
 Primary trading-area (50-80% of a store’s customers)
It is the area closest to the store and possesses the highest density
of customers to population and the highest per capita sales.
There is little overlap with other trading areas.

 Secondary trading-area (15-25% of a store’s customers)

It is located outside the primary area, and customers are more
widely dispersed.

 Fringe trading-area (all remaining customers)

Includes all the remaining customers, and they are the most widely
dispersed. The fringe trading area typically includes some out-
shoppers who travel greater distances to patronize certain
stores.
 Delineating Trading-Area Segments
The GIS map clearly depicts primary, secondary and fringe trading areas of a store
 Size and shape of Trading Areas

Trading areas do not usually follow such circular patterns. They

adjust to the physical environment.

The size and shape of a trading area are influenced by store

type, store size, the location of competitors, housing
patterns, travel time, traffic barriers and media
availability.
Destination Versus Parasite Stores
Two stores can have different trading areas even if they are in the same shopping
district or shopping center

Destination stores Parasite stores

Have a better  Do not create their own

assortment, traffic and have no real
promotion, and image trading-area of their own
 These stores depend on
Generate trading-areas people who are drawn to
much larger than the area for other
competitors reasons
 Trading Areas and Store Types
As a store or center gets larger, its trading area usually increases, because
store or center size generally reflects the assortment of goods and services.

Largest
Supermarkets

Department stores
TRADING
AREAS
Apparel stores

Smallest
Convenience stores
Trading-Area of a New Store
A trading area with less-defined shopping and traffic
patterns must be evaluated in terms of opportunities rather
than current patronage and traffic patterns. Tools are:

 Trend analysis - by examining government and other data

for predictions about population, location, auto registrations,
new housing, public transport, etc.

 Consumer surveys – information is gathered about the

time and distance people would be willing to travel to
various possible retail locations, the factors attracting
people to a new store, the addresses of those most apt to
visit a new store, etc.

 Computerized trading-area analysis models

Computerized Trading-Area Analysis Models
Analog Model
Potential sales for a new store are estimated on the basis of revenues for similar
stores in existing areas, competition at a prospective location, new store’s
expected market share at that location, size and density of the location’s
primary trading area.

Regression Model
Series of mathematical equations showing the association between
potential store sales and several independent variables at each location, such as
population size, average income, number of households, nearby competitors,
transportation barriers and traffic patterns.

Gravity Model
People are drawn to stores that are closer and more attractive than competitors’
stores. The distance between consumers and competitors, the distance between
consumers and a given site, and store image are included in this model.
 Reilly’s Law of Retail Gravitation

Reilly’s law establishes a point of indifference

between two cities or communities so that the
trading-area of each can be determined

Point of indifference is the geographic breaking

point between two cities (communities) at which
consumers are indifferent to shopping at either.
 Exercise: Reilly’s Law

Cities A and B are 50 miles apart. City A has a population of

400,000 and City B has a population of 100,000. According to
Reilly's law, what is the point of indifference for City B?

d
Dab 
Pb
1
Pa
 Calculation: Reilly’s Law
50
Dab  , i.e., 16.7
1.5
Point of Indifference from smaller city = 16.7 miles and 33.3 miles from
larger city.

Assumptions:

1. Two competing areas are equally accessible from a major road

2. Retailers in the two areas are equally effective

3. Other factors (population dispersion, etc.) are held constant or ignored

4. Larger city has more retail facilities and greater drawing power as a result

5. Road conditions, congestion, driving conditions are equal in both cities

6. Retailers in the two cities are equally effective

 Limitations of Reilly’s Law

 Distance is only measured by major thoroughfares;

some people will travel shorter distances along
cross streets

 Distance traveled does not reflect travel time. Many

people are more concerned with time traveled than
with distance
 Huff’s Law
What is the probability of consumers travelling from their
homes to different shopping areas?

Huff’s law of shopper attraction delineates trading-areas on

the basis of:
 Product assortment at various shopping locations (total
square feet selling space for a category)
 Travel time from the shopper’s home to alternative
locations
 The sensitivity of the kind of shopping to travel time
(effect of travel time on different kinds of shopping trips –
trip’s purpose – restocking Vs exploratory, clothing Vs
groceries). Its value is determined through research.
 Exercise: Huff’s Law

Use Huff’s law to compute the probability of consumers travelling

from their homes to each of three shopping areas:
 Square footage of selling space—Location 1, 15,000; Location 2,
20,000; Location 3, 25,000
 Travel time—to Location 1, 15 minutes; to Location 2, 21
minutes; to Location 3, 25 minutes
 Effect of travel time on shopping trip—2
Express your answer in Percentage.
 Solution: Huff’s Law

(15,000)/(15)2
pil = = 43.9%
2 2
(15,000)/(15) + (20,000)/(21) + (25.000)/(25)2

(20,000)/(21)2
pil = = 29.8%
2 2
(15,000)/(15) + (20,000)/(21) + (25.000)/(25)2

(25,000)/(25)2
pil = = 26.3%
(15,000)/(15)2 + (20,000)/(21)2 + (25.000)/(25)2

The probabilities of consumers traveling to locations 1,

2, and 3 are 43.9 percent, 29.8 percent and 26.3
percent respectively.
Chief Factors to Consider in Evaluating Retail Trading-Areas

Population Size and Characteristics

Availability of Labor

Closeness to Sources of Supply

Economic Base

Competitive Situation

Availability of Store Locations

Regulations
Chief Factors to Consider in Evaluating Retail Trading-Areas

Population Size and Characteristics

 Total size and density

 Age distribution
 Average educational level
 Percentage of residents owning homes
 Total disposable income
 Occupation distribution
 Trends
Chief Factors to Consider in Evaluating Retail Trading-Areas

Availability of Labor

 Management
 Management trainees
 Clerical
Chief Factors to Consider in Evaluating Retail Trading-Areas

Closeness to Sources of Supply

 Delivery costs
 Timelines
 Number of manufacturers
 Number of wholesalers
 Availability of product lines
 Reliability of product lines
Chief Factors to Consider in Evaluating Retail Trading-Areas

Economic Base

 Dominant industry
 Extent of diversification
 Growth projections
 Economic and seasonal fluctuations
 Availability of credit and financial facilities
Chief Factors to Consider in Evaluating Retail Trading-Areas

Competitive Situation

 Number and size of existing competition

 Evaluation of competitor strengths and
weaknesses
 Short and long-run outlook
 Level of saturation
Chief Factors to Consider in Evaluating Retail Trading-Areas

Availability of Store Locations

 Number and type of store locations

 Access to transportation
 Owning versus leasing opportunities
 Costs
Chief Factors to Consider in Evaluating Retail Trading-Areas

Regulations

 Taxes

 Licensing

 Operations

 Minimum wages
Site analysis
 Overview

 Step 1: Determine what type of location is desirable

 Step 2: Select the general location

 Step 3: Evaluate alternative specific store sites

Three Types of Locations

Planned
Isolated
Shopping
Store
Center

Unplanned
Business
District
Unplanned Business Districts and Isolated Locations
 Unplanned Business Districts
Two or more stores situate together (or in close proximity) in such a way that the
total arrangement or mix of stores is not due to prior long-range planning.

Secondary
Central Business Business
District District

Neighborhood
Business String
District
 Central Business District
 CBD is the hub of retailing in a city.

 It exists where there is the greatest density of office buildings and

stores.

 Both vehicular and pedestrian traffic are very high.

 Shoppers are drawn from the whole urban area and include all
classes of people.

 The arrangement of stores follows no pre-set format; it depends on

history (first come, first located), retail trends, and luck.
 Secondary Business District

 This format is now more important because cities have “sprawled”

over larger geographic areas.

 SBD is an unplanned shopping area in a city or town that is usually

bounded by the intersection of two major streets.

 The kinds of goods and services sold in an SBD mirror those in the
CBD.

 An SBD has smaller stores, less width and depth of merchandise

assortment, and a smaller trading area (consumers will not travel as
far), and it sells a higher proportion of convenience-oriented items.

 Parking problems, travel time, and congestion are less for the SBD
 Neighbourhood Business District

 NBD is an unplanned shopping area that appeals to the convenience

shopping and service needs of a single residential area.

 An NBD contains several small stores, such as a stationery store, a

barber shop and/or a beauty salon, a dry cleaner and a
restaurant. The leading retailer is typically a supermarket or a
large drugstore. This type of business district is situated on the
major street(s) of its residential area.

 An NBD offers a good location, long store hours, good parking, and a
less hectic atmosphere than a CBD or SBD.

 But there is a limited selection of goods and services, prices tend

to be higher because competition is less than in a CBD or SBD.
 String
 A string is an unplanned shopping area comprising a group of retail
stores, with similar or compatible product lines, located along a
street. There is little extension of shopping onto perpendicular
streets.

 May start with an isolated store, success then breeding competitors.

Car dealers, apparel retailers often situate in strings.

 Unlike an isolated store, a string store has competition at its location.

This draws more people to the area. It means less control over prices
and less loyalty toward each outlet.

 An individual store’s increased traffic flow, due to being in a

string rather than an isolated site, may be greater than the
customers lost to competitors.
 Isolated Stores
A freestanding retail outlet located on either a street or a highway. There
are no adjacent retailers with which this type of store shares traffic.

Advantages Disadvantages
* No competition * Difficulty attracting customers
* Low rental costs * Travel distance
* Flexibility * Lack of variety for customers
* Good for convenience stores
* High advertising expenses
* Better visibility
* No cost sharing
* Adaptable facilities
* Easy parking * Restrictive zoning laws

Large-store formats (e.g. Big Bazaar) and convenience-oriented retailers are usually the
retailers best suited to isolated locations because of the challenge of attracting a target
market.
 Planned Shopping Centers
Consists of a group of architecturally unified commercial
establishments on a site that is centrally owned or managed, based on
balanced tenancy, and accompanied by parking facilities. Its
location, size, and mix of stores are related to the trading area
served.
Advantages Disadvantages
* Well-rounded assortments * Limited flexibility
* Higher rent
* Strong suburban population
* Restricted offerings
* One-stop, family shopping
* Competition
* Cost sharing * Requirements for
* Transportation access association memberships
* Pedestrian traffic * Too many malls
* Domination by anchor
stores
Characteristics of Centers
 Location/Site Evaluation Checklist

The

Optimum

Site

for a

Particular

store
Pedestrian Traffic
 The most crucial measures of a location/site’s value are
the number and type of people passing by

 Proper 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

 Different for:
 convenience stores
 outlets in shopping centers
 petrol pumps
 suburban areas with limited pedestrian traffic

 Some retailers count only homeward-bound traffic, some

exclude vehicles on the other side of a divided road

 Retailer should study the extent and timing of congestion

(from traffic, detours, and poor roads). People normally
avoid congested areas and shop where driving time and
driving difficulties are minimized.
Parking Considerations

 Number and quality of spots

 Distance of spots from stores

 Price to charge customers for parking

 Employee parking
 Transportation

 Closeness to public transport is important for people who do

not own cars, who commute to work, or who would not
otherwise shop in an area with traffic congestion.

 The availability of buses, taxis, subways, trains, and other

kinds of public transport is a must for such areas.
 Store composition
 If the stores at a given location (be it an unplanned district or
a planned center) complement, blend and cooperate with one
another, affinity exists. When affinity is strong, the sales of
each store are greater due to the high customer traffic than if
the stores are apart.

 Proper retail balance occurs when the number of store

facilities for each merchandise or service classification is
equal to the location’s market potential, there is an adequate
assortment within any category, and there is a proper mix of
store types (balanced tenancy).
 Specific site
 Visibility is a site’s ability to be seen by pedestrian or
vehicular traffic. High visibility aids store awareness.

 Placement in the location is a site’s relative position in the

district or center. A corner location may be desirable because
it is situated at the intersection of two streets and has “corner
influence.”

 When a retailer buys or rents an existing building, its size

and shape should be noted. The condition and age of the
building should be studied.
Terms of Occupancy Considerations

 Ownership versus leasing (ownership is more

common in small stores or at inexpensive
locations)
 Operations and maintenance costs
 Taxes
 Voluntary regulations (prevalent in planned
shopping centers; include required membership in
merchant groups, uniform hours, cooperative
security forces)
 Ownership vs. leasing
 Ownership Advantages:
 There is no chance that a property owner will not renew a lease or double the
rent when a lease expires.
 Operations are flexible; a retailer can break down walls.
 Property value will appreciate over time resulting in a financial gain if the
business is sold.
 Ownership Disadvantages:
 High initial costs, the long-term commitment, inability to readily change sites.
 Leasing advantages:
 Minimizes the initial investment, reduces risk, allows access to prime sites that
cannot hold more stores, leads to immediate occupancy and traffic, and
reduces the long-term commitment.
 Retailers feel they can open more stores or spend more on other aspects of
their strategies by leasing.
 Leasing disadvantages:
 Firms that lease accept limits on operating flexibility, restrictions on subletting
and selling the business, possible nonrenewal problems, rent increases, and not
gaining from rising real-estate values.
Overall rating

 (1) Each location under consideration is given an overall

rating based on the criteria.

 (2) The overall ratings of alternative locations are

compared, and the best location is chosen.

 (3) The same procedure is used to evaluate the

alternative sites within the location.
 Conclusion

 It is often difficult to compile and compare composite

evaluations because some attributes may be positive while
others are negative.

 The general location may be a good shopping center, but the

site in the center may be poor, or an area may have excellent
potential but take two years to build a store.

 The attributes should be weighted according to their

importance.
Computation