retail location analysis

8/2/2019 Retail Location Analysis

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Marketing Selection and Retail Location

Analysis

Marketing Selection and Retail Location

Analysis

Chapter 7

Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.


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Learning Objectives

Learning Objectives

Explain the criteria used in selecting a target market.

Identify the different options, both store-based andnonstore-based, for effectively reaching a targetmarket and identify the advantages and disadvantagesof business districts, shopping centers, andfreestanding units as sites for retail location.

Define geographic information systems (GIS) anddiscuss their potential uses in a retail enterprise.


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Learning Objectives

Learning Objectives

Describe the various factors to consider in identifyingthe most attractive geographic market for a new store.

Discuss the various attributes to consider inevaluating retail sites within a retail market.

Explain how to select the best geographic site for astore.


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Selecting a Target Market


Home Page

Is the introductory or first material viewers see whenthey access a retailers Internet site. It is the equivalentto a retailers store-front in the physical world.

Virtual Store

Is the collection of all the pages of information on theretailers Internet site.

Ease of Access

Refers to the consumers ability to easily and quicklyfind a retailers Web site in cyberspace.

LO 1


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Market Segmentation

Identifying a Target Market

LO 1


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Market Segmentation

Is dividing of a heterogeneous consumer population into smaller,more homogenous groups on demographic, economic,

psychographic, and behavioral characteristics. Market segment should be measurable.

Market should be accessible.

Market should be substantial enough to be profitable.

Target market

Is the group of customers that the retailer is seeking to serve

LO 1


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Ease of AccessEase of Access

LO 1:Exhibit 7.1

Number of Web Sites

Difficulty FindingDesired Site

Through Search

Engine


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Target MarketTarget Market

The Limited has a well-defined target market:the moderate-income,

career-oriented womanwho is fashionconscious.

LO 1


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Location of Store-Based RetailersLocation of Store-Based Retailers

Store-Based Retailers operate from a fixed storelocation that requires customers to travel to the storeto view and select merchandise or service.

Nonstore-Based Retailers intercept customers athome, at work, or at a place other than a store wherethey might be susceptible to purchasing.

LO 2


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Retail Formats for Accessing a Target MarketRetail Formats for Accessing a Target Market

LO 2:Exhibit 7.2

Retail Formats

Store-Based Nonstore-Based

Freestanding

Business

District

Nontraditional

Shopping

Centers/Malls

Interactive

TV

Mail-Order

Internet

Automated

Merchandising

Systems

Direct

Selling

Street

Peddling


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Central Business Districts (CBD) usually consists ofan unplanned shopping area around the geographicpoint at which all public transportation systems

converge; it is usually in the center of the city andoften where the city originated historically.

Secondary Business District (SBD) is a shopping areathat is smaller than the CBD and that revolves aroundat least one department or variety store at a major

street intersection.

LO 2


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Neighborhood Business District (NBD) is a choppingarea that evolves to satisfy the convenience-orientedshopping needs of a neighborhood, generally contains

several small stores (with the major retailer being asupermarket or a variety store), and its located on amajor artery of a residential area.

Shopping Center (or mall) is a centrally owned ormanaged shopping district that is planned, has

balanced tenancy (the stores complement each otherin merchandise offerings), and is surrounded byparking facilities.

LO 2


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Anchor Stores are the stores in a shopping center thatare the most the most dominant and are expected todraw customers to the shopping center.

Free-Standing Retailer generally locates along majortraffic arteries and does not have any adjacentretailers to share traffic with.

LO 2


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Shopping Center Advantages over a CBDShopping Center Advantages over a CBD

Heavy traffic resulting from the wide range of productofferings.

Cooperative planning and sharing of common

resources.

Access to highways and availability of parking.

Lower crime rate.

Clean, neat environment.

LO 2


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Shopping Center DisadvantagesShopping Center Disadvantages

Inflexible store hours (open during mall hours only).

High rents.

Restrictions as to what merchandise the retailer maysell.

Inflexible operations and required membership in thecenters merchant organization.

Possibility of too much competition and the fact that

much of the traffic is not interested in a perticularproduct offering.

Dominance of the smaller stores by the anchortenants.

LO 2


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Advantages of Freestanding RetailingAdvantages of Freestanding Retailing

Lack of direct competition.

Generally lower rents.

Freedom in operations and hours.Facilities that can be adapted to individual needs.

Inexpensive parking.

LO 2


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Limitations of Freestanding RetailingLimitations of Freestanding Retailing

Lack of drawing power from complementary stores.

Difficulties in attracting customers for the initial visit.

Higher advertising and promotional costs.Operating costs that cannot be shared with others.

Stores that may have to be built rather than rented.

Zoning laws that may restrict some activities.

LO 2


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Nonstore-based Retail FormatsNonstore-based Retail Formats

Direct Selling

Street Peddling

Interactive TVMail-Order

Internet

Automated Merchandising Systems

LO 2


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ISCS Shopping Center DefinitionsISCS Shopping Center Definitions

LO 2


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ISCS Shopping Center DefinitionsISCS Shopping Center Definitions

LO 2


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Typical Size & Trading Area of Shopping CentersTypical Size & Trading Area of Shopping Centers

LO 2

Type of Shopping

Center

Neighborhood

Gross Leasable

Square Feet

30,000 to 150,000

Primary Trade Area3 Miles


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LO 2

Type of Shopping

Center

Community

Gross Leasable

Square Feet

100,000 to 350,000

Primary Trade Area3-6 Miles


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LO 2

Type of Shopping

Center

Regional

Gross Leasable

Square Feet

400,000 to 800,000



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LO 2

Type of Shopping

Center

Super-Regional

Gross Leasable

Square Feet

800,000



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Question to PonderQuestion to Ponder

Given the wide variety of locations available to targetspecific consumer groups, what new locations willprovide the greatest opportunities for the retailers of

tomorrow?


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Geographic Information SystemsGeographic Information Systems

Thematic Maps

Uses of GIS

LO 3


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Geographic Information System (GIS) is acomputerized system that combines physicalgeography with cultural geography.

Culture is the buffer that people have created betweenthemselves and the raw physical environment andincludes the characteristics of the population, humanlycreated objects, and mobile physical structures.

LO 3


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Thematic Maps use visual techniques such as colors,shading, and lines to display cultural characteristics ofthe physical space.

LO 3


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GIS ComponentsGIS Components

LO 3:Exhibit 7.4

Data

Inputs

Physical GeographyLatitude/LongitudeLand/Water

TerrainRainfall/SnowTemperature

Cultural GeographyDemographicsManmade StructuresConsumption Patterns

Work PatternsLeisure BehaviorDeviant Behavior

GIS

(Data Aggregation and

Analysis via Computer)

Output

Maps and Other

Displays of Information


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Uses ofGISUses ofGIS

Market selection.

Site analysis.

Trade area definition.New store cannibalization.

Advertising management.

Merchandise management.

Evaluation of store managers.

LO 3


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Market IdentificationMarket Identification

Retail Location Theories

Market Demand Potential

Market Supply Factors

LO 4


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Selecting a Retail LocationSelecting a Retail Location

LO 4:Exhibit 7.5

Identify the most attractive

markets in which to operate

Select the best site(s)

available

Identify the most attractive

sites that are available

within each market


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Market IdentificationMarket Identification

Trading Area

Is the geographic area from which a retailer, or groupof retailers, or community draws its customers.

LO 4


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Retail Location TheoriesRetail Location Theories

Retail Gravity Theory

Saturation Theory

Buying Power Inde

x

LO 4


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Retail Gravity Theory

Suggests that there are underlying consistencies inshopping behavior that yield to mathematical analysis

and prediction based on the notion or concept ofgravity.

LO 4


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Reillys Law of Retail Gravitation based on Newtoniangravitational principles, explains how large urbanizedareas attract customers from smaller rural

communities.

LO 4

Dab

d

1 +Pb

Pa

=

whereDab is the breaking point from city A, measured in miles along theroad to city B;

dis the distance between city A and city B along the major highway;

Pa is the population of city A; and

Pb is the population of city B.


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Point of Indifference

Is the extremity of a citys trading area wherehouseholds would be indifferent between shopping in

that city or an alternative city in a differentgeographical direction.

LO 4


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Trading Area for City ATrading Area for City A

LO 4:Exhibit 7.6

City B

(Population 14,000)

3.5 miles

City A(Population 240,000)

City C

(Population 21,000)

1

4.5m

iles

1.3 miles

X

YZ 3.7 miles

3.2 miles

City D

(Population 30,000)


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Saturation Theory

Examines how the demand for goods and services of apotential trading area is being served by current retail

establishments in comparison with other potentialmarkets.

LO 4


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Retail Store Saturation is a condition where there isjust enough store facilities for a given type of store toefficiently and satisfactorily serve the population andyield a fair profit to the owners.

Understored is a condition in a community where thenumber of stores in relation to households is relativelylow so that engaging in retailing is an attractiveeconomic endeavor.

Overstored is a condition in a community where thenumber of stores in relation to households is so largethat engaging in retailing is usually unprofitable ormarginally profitable.

LO 4


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Index of Retail Saturation (IRS) is the ratio of demandfor a product (households in the geographic areamultiplied by annual retail expenditures for a particularline of trade per household) divided by availablesupply (the square footage of retail facilities of aparticular line of trade in a geographic area).

LO 4

IRS = (H X RE)/RF

Where IRS is the index

of retail saturation for and area;H is the number of households in the area;RE is the annual retail expenditures for a particular line of tradeper household in the area;RF is the square footage of retail facilities of a particular line oftrade in the area (including square footage of the proposedstore).


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Buying Power Index (BPI) is an indicator of a marketsoverall retail potential and is composed of theweighted measures of effective buying income(personal income, including all nontax payments suchas social security, minus all taxes), retail sales, andpopulation size.

LO 4

BPI = 0.5(the areas percentage of U.S. effective buying income)

+ 0.3(the areas percentage of U.S. retail sales)+ 0.2(the areas percentage of U.S. population)


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Market Demand PotentialMarket Demand Potential

Population Characteristics

Buyer Behavior Characteristics

Household Income

Household Age Profile

Household Composition

Community Life Cycle

Population Density

Mobility

LO 4


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Identifying Communities with High Demand Potential forFast-Food Drive-In RestaurantIdentifying Communities with High Demand Potential forFast-Food Drive-In Restaurant

LO 4:Exhibit 7.7


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Market Supply FactorsMarket Supply Factors

Square Feet Per Store

Square Feet PerEmployee

Growth in StoresQuality of Competition

LO 4


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Site AnalysisSite Analysis

Site Analysis

Is the evaluation of the density of demand and supplywithin each market with the goal of identifying the best

retail site(s).

Size of Trading Areas

Description of Trading Area

Demand Density

Supply Density

Site Availability

LO 5


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Site AnalysisSite Analysis

Size of Trading Areas

Description of Trading Area

Demand DensitySupply Density

Site Availability

LO 5


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Customer Spotting Map for a SupermarketCustomer Spotting Map for a Supermarket

LO 5:Exhibit 7.8City Limits

Store

4 miles from

store 3 miles from

store

1 mile from

store

2 miles from

store


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PSYTEUSA ClusterDemographicPSYTEUSA ClusterDemographic

LO 5:Exhibit 7.9


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Demand DensityDemand Density

Demand Density

Is the extent to which the potential demand for theretailers goods and services is concentrated in certain

census tracts, ZIP code areas, or parts of thecommunity.

LO 5


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Demand Density MapDemand Density Map

LO 5:Exhibit 7.10

Three-Variable Demand-Density Map

Variable 1 = Median income over $22,000Variable 2 = Households per square mile

greater than 1,200Variable 3 = Average growth in population

over last 3 years in excess of3 percent per year

Number ofVariables Met

0 1 2 3


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Supply DensitySupply Density

Supply Density

The extent to which retailers are concentrated indifferent areas of the market under question.

LO 5


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Store Density and Site Availability MapStore Density and Site Availability Map

LO 5:Exhibit 7.11


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Checklist for Site EvaluationsChecklist for Site Evaluations

LO 5:Exhibit 7.12Local Demographics

Population and/or household base

Population growth potential

Lifestyles of consumers

Income potential

Age makeup

Population of nearby special markets, that is,daytime workers, students, and tourists, if

applicable

Occupation mix


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LO 5:Exhibit 7.12Traffic Flow and Accessibility

Number and type of vehicles passing location

Access of vehicles to location

Number and type of pedestrians passing location

Availability of mass transit, if applicable

Accessibility of major highway artery

Quality of access streets

Level of street congestion

Presence of physical barriers that affect trade areashape


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LO 5:Exhibit 7.12Retail Competition

Number and types of stores in area

Analysis of key players in general area

Competitiveness of other merchants

Number and location of direct competitors in area

Possibility of joint promotions with local merchants


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LO 5:Exhibit 7.12Site CharacteristicNumber of parking spaces available

Distance of parking areas

Ease of access for delivery

Visibility of site from streetHistory of the site

Compatibility of neighboring stores

Size and shape of lot

Condition of existing building

Ease of entrance and e

xit for trafficEase of access for handicapped customers

Restrictions on sign usage

Building safety code restrictions

Type of zoning


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LO 5:Exhibit 7.12Cost Factors

Terms of lease/rent agreement

Basic rent payments

Length of lease

Local taxes

Operations and maintenance cost

Restrictive clauses in lease

Membership in local merchants association required

Voluntary regulations by local merchants


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Site SelectionSite Selection

100 Percent Location

Is when there is no better use for a site than the retailstore that is being planned for that site.

LO 6


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Site SelectionSite Selection

Nature of Site

Terms of Purchase or Lease

Expected Profitability

LO 6


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Nature of SiteNature of Site

Traffic Characteristics

Types ofNeighbors

LO 6


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Nature of SiteNature of Site

Store Compatibility

Exists when two similar retail businesses locate nextto or nearby each other and they realize a sales

volume greater than what they would have achieved ifthey were located apart from each other.

LO 6


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Terms of Purchase or LeaseTerms of Purchase or Lease

Length of lease

Exclusivity clause

Guaranteed traffic rate

Anchor clause

LO 6


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Expected ProfitabilityExpected Profitability

Net profit margin

Asset turnover

Return on assets

LO 6


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If Retailers Could Select TheirNeighborsIf Retailers Could Select TheirNeighbors

LO 6

Fast-food restaurant Gas service stationHealth food store Fitness center, medical center

Recycled merchandise Supercenter Home improvement store Supercenter Hardware store Wholesale club, supermarketZales Jewelry Sears, JCPenney, MervynsRecord Giant Wal-Mart; Kmart

Payless Shoes Supercenters, KinderCareLongs Drug Stores TJMaxx, KmartCato Fashion Kmart; Wal-MartBennetton Nordstron; BloomingdalesNursery and Crafts Toys R Us; Circuit City

Retailer Next to

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