Retail Store Locations - Retail Management

About, how-to, processes, decision criteria, etc on picking a Retail Store Location.
Useful for students and professionals, with inclination towards Retail.

1. 7-1

2. 7-2

3. 7-3

4. 7-4

5. 7-5

6. 7-6

7. FACTORS AFFECTING SELECTION OF
RETAIL STORE LOCATION

8. 1. TYPES OF GOODS
a. Convenience
b. Shopping
c. Specialty
2. POPULATION AND CUSTOMER
3. ACCESSIBILITY, VISIBILITY AND TRAFFIC
4. SIGNAGE, ZONING AND PLANNING
5. COMPETITION AND NEIGHBORS
6. LOCATION COSTS
7. BUILDING INFRASTRUCTURE

10. McGraw-Hill/Irwin
Retailing Management, 7/e
© 2008 by The McGraw-Hill Companies, All rights reserved.
What Size Retail Building Do Retailers Need?
•When planning retail store, the amount of selling space
will be one of the most important factors inselecting a
location.
•To get an estimate on how much selling space your
store must have, divide the planned sales volume by
your industry'ssales per square foot.
•Sales Volume ÷Sales per Square Foot = Selling Space
•Deciding How Much Space
•Make Sure You Don't Overspend

12. 7-12
Questions
■What types of locations are available to
retailers?
■What are the relative advantages of each
location type?
■Why are some locations particularly well suited
to specific retail strategies?
■Which types of locations are growing in
popularity with retailers?

13. 7-13
Elements in Retail Mix
Customer Service
Merchandise
Assortment
Pricing
Communication Mix
Store Display
And Design
Location Strategy

14. 7-14
Why is Store Location Important for a Retailer?
■Location is typically prime consideration
in customer’s store choice.
■Location decisions have strategic
importance because they can help to
develop sustainable competitive
advantage.
■Location decisions are risky: invest or
lease?
F. Schussler/PhotoLink/Getty Images

15. 7-15
Types of Retail Locations
■Free Standing Sites
■City or Town Locations
nInner City
nMain Street
■Shopping Centers
nStrip Shopping Centers
nShopping Malls
■Other Location Opportunities

16. 7-16
Selecting a particular location type
Involves evaluating a series of trade-offs between
■The size of the trade area (geographic area
encompassing most of the customers who would
patronize a specific retail site)
■the occupancy cost of the location
■The pedestrian and vehicle customer traffic
■The restrictions placed on store operations by the
property manager
■The convenience of the location for customers

17. 7-17
Types of Locations

18. 7-18
Unplanned Retail Locations
■Freestanding Sites –location for individual store
unconnected to other retailer
■Advantages:
nConvenience
nHigh traffic and visibility
nModest occupancy cost
nSeparation from competition
nFew restrictions
■Disadvantages:
nNo foot traffic
nNo drawing power
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
JCPenney, Sears, Walgreens are shifting to stand alone locations

19. 7-19
Unplanned Retail Locations
Merchandise Kiosks–small temporary selling
stations located in walkways of enclosed malls,
airports, train stations or office building lobbies.
Kent Knudson/PhotoLink/Getty Images

20. 7-20
City or Town Locations
Gentrification is bringing population back to the cities.
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
Advantage to Retailers:
•Affluence returned
•Young professionals
•Returned empty-nesters
•Incentives to move provided by cities
•Jobs!
•Low occupancy costs
•High pedestrian traffic

21. 7-21
Central Business District (CBD)
■Draws people into areas during business hours
■Hub for public transportation
■Pedestrian traffic
■Residents
■High security required
■Shoplifting
■Parking is poor
■Evenings and weekends are slow
Advantages
Disadvantages Spike Mafford/Getty Images

22. 7-22
Main Streets vs. CBDs
■Occupancy costs lower
than CBDs
■They don’t attract as
many people
■There are not as many
stores
■Smaller selections offered
■Not as much
entertainment
■Some planners restrict
store operations

23. 7-23
Inner City
Inner city retailers achieve high sales volume,
higher margins and higher profits
Unmet demand tops
25% in many inner city
markets
Inner city customer wants branded merchandise

24. 7-24
Shopping Centers
Shopping Center Management Controls:
•Parking
•Security
•Parking lot lighting
•Outdoor signage
•Advertising
•Special events for customers
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

25. 7-25
Types of Shopping Centers
■Neighborhood and Community Centers (Strip
Centers)
■Power Centers
■Enclosed Malls
■Lifestyle Centers
■Fashion Specialty Centers
■Outlet Centers

26. 7-26
Neighborhood and Community Centers
Attached row of stores
Managed as a unit
Onsite parking
The McGraw
-
Hill Companies, Inc./Andrew Resek, photographer
Advantages
Convenient locations
Easy parking
Low occupancy costs
Disadvantages
Limited trade area
Lack of entertainment
No protection from weather

27. 7-27
Power Centers
Shopping centers that consist primarily of
collections of big-box retail stores such as
discount stores (Target), off-price stores
(Marshall’s), warehouse clubs (Costco),
and category specialists (Lowe’s, Best Buy,
Dick’s)
■Open air set up
■Free-standing anchors
■Limited small specialty stores
■Many located near enclosed malls
■Low occupancy costs
■Convenient
■Modest vehicular and pedestrian traffic
■Convenient
■Modest vehicular and pedestrian traffic
■Large trade areas
PhotoLink/Getty Images

28. 7-28
Shopping Malls
■Regional shopping
malls (less than 1
million square feet)
■Super regional malls
(more than 1 million
square feet)
The South China Mall in Dongguan, China

29. 7-29
The Largest Shopping Malls

30. 7-30
Advantages and Disadvantages of
Shopping Malls
Advantages:
Many different types of stores
Many different assortments available
Attracts many shoppers
Main Street for today’s shoppers
Never worry about the weather
Comfortable surrounding to shop
Uniform hours of operation
Disadvantages:
Occupancy costs are high
Tenants may not like mall management control of operations
Competition can be intense
PhotoLink/Getty Images

31. 7-31
Challenge to Malls
■Time pressured society makes it impractical to wander malls
■Fashion apparel sold in malls experiencing limited growth
■Malls are getting old and rundown –unappealing to shop
■Anchor tenants are decreasing due to retail consolidation
■Strategies?
nMake shopping more enjoyable (e.g., sofas, children’s playing areas)
nGreat food destination (fast food and full-service restaurants)
nTailor make its offering to cater to changing demographics (e.g.,
repositioning older shopping centers for Hispanic markets)
nMall renovation and redevelopment

32. 7-32
Lifestyle Centers
Photo provided by ICSC and used with permission of Aspen Grove Lifestyle Center
Attractive to specialty retailers

33. 7-33
Lifestyle Centers
■Usually located in affluent
residential neighborhoods
■Includes 50K sq. ft. of upscale
chain specialty stores
■Open-air configuration
■Design ambience and
amenities
■Upscale stores
■Restaurants and often a
cinema or other entertainment
■Small department store format
may be there

34. 7-34
Fashion Specialty Centers
■Upscale apparel shops
■Tourist areas/central business
districts
■Need not to be anchored
■Décor is elegant
■High occupancy costs
■Large trade area
■Ex. Phipps Plaza in Atlanta
The McGraw
-
Hill Companies, Inc./Lars A. Niki, photographer

35. 7-35
Outlet Centers
These shopping centers contain mostly manufacturers and retail outlet stores
Courtesy of Beall’s, Inc.

36. 7-36
Theme/Festival Centers
■Located in places of
historic interests or for
tourists
■Anchored by
restaurants and
entertainment facilities

37. 7-37
Larger, Multi-format Developments:
Omnicenters
■Combines enclosed malls, lifestyle center, and
power centers
■Larger developments are targeted
nto generate more pedestrian traffic and longer
shopping trips
nTo capture cross-shopping consumers

38. 7-38
Mixed Use Developments (MXDs)
■Combine several
different uses into one
complex, including
shopping centers, office
tours, hotels, residential
complexes, civic centers,
and convention centers.
■Offer an all-inclusive
environment so that
consumers can work,
live, and play in a
proximal area

39. 7-39
Other Location Opportunities
■Airports
■Resorts
■Store within a Store
■Temporary or pop-up stores

40. 7-40
Alternative Locations
Airports
Airports: Why wait with nothing to do?
Rents are 20% higher than malls
Sales/square ft are 3-4 times higher than malls
Best airports are ones with many connecting flights
Kim Steele/Getty Images

41. 7-41
Alternative Locations
Resorts
Captive audience
Well-to-do customer
Customers have time to shop
Royalty-Free/CORBIS

42. 7-42
■Located within other, larger stores
■Examples:
nGrocery store with service providers (coffee bars,
banks, clinics, video outlets)
nSephora in JCPenney
Alternative Locations
Store within a Store

43. 7-43
Alternative Locations
Hospitals
Patients cannot leave
Gifts are available
Royalty-Free/CORBIS

44. 7-44
Matching Location to Retail Strategy
The selection of a location type must reinforce the retailer’s
strategy
be consistent with
nthe shopping behavior
nsize of the target market
nThe retailer’s position in its target market
■Department Stores èRegional Mall
■Specialty Apparel èCentral Business District, Regional
malls
■Category Specialists èPower Centers, Free Standing
■Grocery Stores èStrip Shopping Centers
■Drug Stores èStand Alone

45. 7-45
Shopping Behavior of Consumers
in Retailer’s Target Market
■Factors affecting the location choice
nConsumer Shopping Situations
•Convenience shopping
•Comparison shopping
•Specialty shopping
nDensity of Target Market
•Ex. Convenience stores in CBD; comparison
shopping stores next to Wal-Mart
nUniqueness of Retailing Offering
•Convenience of locations is less important
•Ex. Bass Pro Shop

46. 7-46
Convenience Shopping
Minimize the customer’s effort to get
the product or service by locating
store close to where customers are
located
The McGraw
-
Hill Companies, Inc./Andrew Resek, photographer

47. 7-47
Comparison Shopping
Customers have a
good idea of what
type of product they
want, but don’t
have a strong
preference for
brand, model or
retailer.
Ryan McVay/Getty Images
Typical for furniture,
appliances, apparel,
consumer electronics,
hand tools and
cameras.
Competing retailers locate
Near one another

48. 7-48
Category Specialists
Offer the benefits of comparison shopping
Consumers can see almost all brands and models in one store
Destination stores
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

49. 7-49
EnvironmentalIssues
“Above-ground” risks-such as asbestos-containing
materials or lead pipes used in construction.
Hazardous materials-e.g. dry cleaning chemicals,
motor oil, that have been stored in the ground.
Retailers’ Protection
Stipulate in the lease that the lessor is responsible
for removal and disposal of this material if it’s
found.
Retailer can buy insurance that specifically
protects it from these risks.

50. 7-50
Other Legal Issues
Zoning and Building Codes
Zoning determines how a particular site can be
used.
Building codes determine the type of building,
signs, size, type of parking lot, etc. that can be used
Signs
Restrictions on the use of signs can also impact a
particular site’s desirability
Licensing Requirements
Some areas may restrict or require a license for
alcoholic beverages

51. Evaluate
Alternate
Geographic
(Trading)
Areas
Select
General
Location
Analyze
Alternate
Sites
Determine
Type of Location
Site Selection Steps

52. Site Selection Steps

53. Site Selection Steps

54. The farthest distance consumers are willing to
travel to purchase retail goods and services.
The size of a retail trade area depends on the
variety of goods and services offered in the
community and its proximity to competing
retail markets.
Trading Area

55. Trade area analysis and mapping tell you:
•Where a store's customers are coming from
•How many customers you have in a trade area
•Where to look for more customers
Why Trading Area Analysis is important?

56. •Identify gaps or overlaps in the market coverage of your
existing store network, and make corrections by opening,
closing or moving stores
•Define a geographic area to analyze for market potential,
market penetration, and competitive threats
•Become more efficient and effective at target marketing by
reaching out only to those customers and prospects in a store's
trade area
•Use as a key input intocustomer profiling
•Promotional Activity Focus can be determined
•Proper Number of Stores can be calculated
Benefits of Trade Area Analysis

57. ¯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,
such as transportation
Benefits of Trade Area Analysis

58. •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
Characteristics of Trade Area

59. Various Zones of Trading Area

60. Various Zones of Trading Area
Primary Secondary Tertiary
-55-70% of
customers originate
-15-20% of
Customers
-5-15% of Customers
Main Trade Area
(MTA)
Beyond Trade Area
(BTA)

61. Size and Shape of Trading Area
•Not Concentric
•Two Stores in Same Area Can Have Different
Trading Areas (TA)

62. Trading Area Analysis Benefits
•Consumer Characteristics Detailed
•Promotional Activity Focus Determined
•Proper Number of Stores Calculated
•Geographic Weaknesses Highlighted

63. Trading Area Influencers
•Store Size
•Competitors’ Locations
•New Stores
•Residential Housing Patterns
•Travel or Driving Time
•Promotion-impact is temporary

64. Factors Affecting Demand for a
Trading area
•Competition
•Business climate
•Demographic and lifestyle characteristics
•Economies of scale versus cannibalization

65. DECISION MAKING MODEL FOR
TRADING AREA SELECTION

66. How to delineate Trading Areas

67. A.Concentric Circles or Ring Studies
B.Drive Time
C.Zip Code Tabulation
D.Point of Sale Data
E.Traffic Flow
F.Commuting time to work
1. Analogue Models

68. A. Concentric Circles or Ring Studies
Within 8 kms
8-10 kms
11-15 kms
16-20 kms
>20 kms

69. • Defines the trade area based on the amount of time it
takes to drive to a community or retail location.
• Drive time trade area will always be irregularly shaped
because of the layout of road systems, difference in speed
limits on roads/freeways and geographic barriers.
This methodology is often used in urban setting with high
population density.
A rule-of-thumb used in retail industry is that consumers
will typically drive 20 minutes to shop.
B. Drive Time

70. • Tabulate the number of customers by their zip codes.
• Zip code collection can be built into point-of-sale machines.
• Customer’s zip code can be input to a cash register and
then downloaded into a ready-to-use spreadsheet format.
• Once zip codes are in spreadsheet format, this information
can be summarized by the number and percentage of people
originating in each zip code.
• When the zip code percentages are known, they can be
categorized into a trade area.
• Trade area is defined as those zip codes that comprise
about 75% of the customers.
C. Zip Code Tabulation

71. Customer point-of-sale (POS) data is collected by:
-In-store surveys
-Courtesy card programs
-License plate surveys
-Credit card transactions
-Through raffles
-Business card collection
From this information a trade area map can be developed to
provide a very accurate and precise picture of the spatial
distribution and characteristics of store trade areas
D. Point of Sale Data

72. is the random canvassing of parking lots at major locations
in town at different times on different days and over several
weeks.
The locations might include the various identified areas,
major shopping destinations such as shopping malls and
centers, Big Bazars, Reliance Marts, Home Depot, and
other popular establishments in town.
E. Traffic Flow

73. Commuting time to work by local residents is another way of
delineating a community’s retail trade area.
Converting commuting time to work into spatial distances or
miles and plotting these data on a map, provide a visual
picture of the geographic size of its trade area.
F. Commuting Time to Work

74. •Select store performance measure & variables
used to predict performance.
•Solve the regression equation and use it to
project performance for future sites
2. Regression Analysis

75. aka Spatial (flows between locations) Interaction
Model
A spatial interaction is arealized movementof
people, freight or information between an origin and
a destination.
The gravitymodelis based on the assumption
thatinteraction between two locations is
proportional to their size and inversely proportional
to their distance (or impedance).
3. Gravity Models

76. Reilly’s law of retail gravitation, a traditional means
of trading-area delineation, establishes a point of
indifference between two cities or communities,
so the trading area of each can be determined
City
A
City B
30 Kms10 Kms
Point of indifference
Population 10,000
Population 90,000
1. Reilly’s Law

77. •According to Reilly's "law," customers are willing to travel longer distances
to larger retail centers given the higher attraction they present to
customers.
•The law allows us to draw trade area boundaries around cities using the
distance between the cities and the population of each city.
•Reilly realized that the larger a city the larger a trade area it would have
and thus it would draw from a larger hinterland around the city.
•Two cities of equal size have a trade area boundary midway between the
two cities.
•When cities are of unequal size, the boundary lies closer to the smaller
city, giving the larger city a larger trade area.
•Reilly called the boundary between two trade areas the breaking point (BP).
On that line, exactly half the population shops at either of the two cities

78. Limitations of Reilly’s Law
Reilly’s law rests on 2 assumptions:
Competing areas will be accessible from the major road
–Distance is only measured by major thoroughfares;
some people will travel shorter distances along cross
streets
Retailers in the two areas will be equally effective.
Other factors such as dispersion of population are ignored.
Travel time does not reflect distance traveled. Many people
are more concerned with time traveled than with distance
Actual distance may not correspond with perceptions of
distance

79. “The principal retail districts within a metropolitan
trading area attract trade from the residential sections of
the area approximately in direct proportion to the size of
the retail districts and in inverse proportion to the square
of the driving time distance from each residential section
to the retail districts” (Ellwood, 1954 in Carn, et al. 1988,
p.190).
Where,
B= percentage of consumer want to visit shopping center
S= retail area
T= travel time
a, b= two shopping centers (a and b)
Although Ellwood has modified the Reilly’s law, the equation can analyze only two shopping
centers.
2
2. Elwood’s Modification

80. Huff’s law of shopper attraction delineates trading areas on the
basis of product assortment (of the items desired by the
consumer) carried at various shopping locations, travel times from
the shopper’s home to alternative locations, and the sensitivity of
the kind of shopping to travel time.
Where,
P (Cij) = the probability that a consumer living at site i will shop at retail center j
Sj = the size of the retail center j
Tij = the travel time from site i to retail center j
n = the numver of retail center in the immediate area
l = a parameter that reflects the effect of travel time on different kinds of shopping trips
(Huff discovered values of 3.19 for furniture and 2.72 for clothing)
3. Huff’s Law

81. Huff model have advantage, which could measure the
shoppers’ image to competitiveness among shopping
center and their response.
However, the weakness of this model is assumed that
demography characteristic of shoppers are equal and they
have similar shopping behavior.

82. GIS Software
vGeographic Information Systems
–digitized mapping with key locational data
to graphically depict trading-area
characteristics such as
•population demographics
•data on customer purchases
•listings of current, proposed, and competitor
locations

83. GIS Software in Action -A

84. GIS Software in Action -B

85. Private Firms Offering
Mapping Software
Claritas
ESRI
GDT
GeoVue
Mapinfo
SRC

86. Delineating Trading-Area Segments

87. Trading Areas and Store Type
Largest
TRADING
AREAS
Smallest
Specialty Stores
Department stores
Apparel stores
Supermarkets
Gift stores
Convenience stores

88. Delineating The Trading Area Of
An Existing Store
Store records or special study can be used to measure the trading area.
Primary, secondary and fringe areas can be described in terms of:
•Frequency with which people from various geographic areas shop at
a particular store.
•The average rupee purchase at a store by people from given
geographic areas.
•The concentration of a store’s credit card holders from given
geographic areas.

89. Delineating Trading Area of New
Store
Different tools must be used when an area
must be evaluated in terms of
opportunities rather than current
patronage and traffic patterns
–Trend analysis
–Consumer surveys
–Computerized trading area analysis models

90. Analog model
•Define current trade area
•Match characteristics of current store with
potential new stores location to determine
the best site

91. 7-91