Chapter 7
Marketing Selection and Retail Location Analysis
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Selecting a Target Market
The Internet is becoming a major force in retailing, with sales expected to reach a little more than 5 percent of total retail sales over the next decade.
Reaching the target market can be achieved through a:store-based location in which the consumer travels to
the store orthrough a nonstore retailing format in which products
and services are offered to the consumer at a more convenient or accessible location.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Selecting a Target Market
Home page - Introductory or first material viewers see when they access a retailer’s Internet site. It is the equivalent of a retailer’s storefront in the physical world.
Virtual store - Collection of all the pages of information on the retailer’s Internet site.
Ease of access - Consumer’s ability to easily and quickly find a retailer’s Web site in cyberspace.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Selecting a Target Market
Market segmentationTarget market - Group of
customers that the retailer is seeking to serve.
It is not easy to reach every target market, because each
target market is different from the other.
LO 1
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Criteria to reach target market
Seek a measurable market segment.
Accessibility or the degree to which the retailer can target its promotional or distribution efforts to a particular market segment.
Segment should be substantial or large enough to be profitable for the retailer.
LO 1
Selecting a Target Market
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 7.2 - Retail Formats for Accessing Your Target Market
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Location of Store-Based Retailers
Central businessdistrict (CBD)
Advantages Disadvantages
An unplanned shopping area around the geographic point where all public transportation systems converge; it is usually in the center of the city and often where the city originated historically.
Easy access to public transportation.
Wide product assortment.
Variety in images, prices, and services.
Proximity to commercial activities.
Inadequate and usually expensive parking.
Older stores.High rents and taxes.Traffic and delivery
congestion.Potentially high crime
rate.Decaying conditions of
inner cities.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Location of Store-Based Retailers
Secondary business district (SBD)
Shopping area that is smaller than the CBD and that revolves around at least one department or variety store at a major street intersection.
Neighborhood business district (NBD)
Shopping 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 is located on a major artery of a residential area.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Location of Store-Based Retailers
Shopping center ormall
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.
Anchor stores Stores in a shopping center that are the most dominant and are expected to draw customers to the shopping center.
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Location of Store-Based Retailers
Advantages of shopping centres Disadvantages of shopping centres
Heavy traffic resulting from the wide range of product offerings
Cooperative planning and sharing of common costs
Access to highways and available parking
Lower crime rateClean and neat environment
Inflexible store hoursHigh rentsRestrictions as to what merchandise or
services the retailer may sell Inflexible operations and required
membership in the center’s merchant organizationPotentially too much competition and
much of the traffic is not interested in a particular product offering
An anchor tenant’s dominance of the smaller stores
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Location of Store-Based Retailers
Freestanding retailer
Advantages Disadvantages
Locates along major traffic arteries and does not have any adjacent retailers to share traffic.
Lack of direct competition
Lower rentsFreedom in operations
and hoursFacilities that can be
adapted to individual needs
Inexpensive parking
Lack of drawing power from complementary stores
Difficulties in attracting customers for the initial visit
Higher advertising and promotional costs
Operating costs cannot be shared with others
Stores may have to be built rather than rented
Zoning laws may restrict some activities
LO 2
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 7.5 - Selecting a Retail Location
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market Identification
Retail location theoriesMarket demand potential Market supply factors
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Retail Location Theories
Retail store saturation
There are 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.
Understored The number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor.
Overstored Where the number of stores in relation to households is so large that to engage in retailing is usually unprofitable or marginally profitable.
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market Demand Potential
Major components are:Population characteristicsBuyer behavior characteristicsHousehold incomeHousehold age profileHousehold compositionCommunity life cyclePopulation densityMobility
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Market Supply Factors
Square feet per storeSquare feet per employeeGrowth in storesQuality of competition
LO 4
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Site Analysis
An evaluation of the density of demand and supply within each market with the goal of identifying the best retail site(s).
Description of trading areaRetailers can access, at a relatively low cost,
information concerning the trading area for various retail locations and the buyer behavior of the trading area.
LO 5
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Site Analysis
Demand density - The extent to which the potential demand for the retailer’s goods and services is concentrated in certain census tracts, ZIP code areas, or parts of the community.
Supply density - The extent to which retailers are concentrated in different areas of the market under question.
LO 5
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 7.10 - Demand Density Map
LO 5
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 7.11- Store Density and SiteAvailability Map
LO 5
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 7.12 - Checklist for SiteEvaluations
LO 5
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 7.12 - Checklist for SiteEvaluations
LO 5
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Exhibit 7.12 - Checklist for SiteEvaluations
LO 5
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Site Selection
100 percent location - When there is no better use for a site than the retail store that is being planned for that site.
The traffic that passes a site, whether it is vehicular or pedestrian, can be an important determinant of the potential sales at that site.
LO 6
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Nature of Site
Two traffic-related aspects of the site should be evaluated.Availability of sufficient
parking, either at the site or nearby.
Whether direction of traffic is relative to the shopping area.
LO 6
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Nature of Site
Type of neighborsStore 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.
Retail clusters - Groups of stores closely located that share similar characteristics.Once potential customers identify a need for a line of merchandise or
service, they don’t need to decide on the specific store to visit; they just need to decide to travel to the retail cluster.
It allows customers to walk from store to store, comparing prices, products, and service.
LO 6
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Terms of Purchase or Lease
The retailer should review:Length of leaseExclusivity clauseGuaranteed traffic rateAnchor clause
LO 6
© 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Expected Profitability
The final step in site-selection analysis is construction of a pro forma (expected) return-on-asset model for each possible site.
The return-on-asset model comprises of net profit margin, asset turnover, and return on assets.
LO 6