1. Location Strategy

2. Location, Location, Location!!!

Importance of location decision:

Requires complex decision making

Costs lots of money

Little flexibility once a location has been
chosen

Attributes of location have a strong
impact on the retailer’s strategy

3. Criteria to be considered:

Size & 
Property costs
characteristics of 
Length of agreement
population (if lease)

Level of competition 
Population trends

Access to 
Legal restrictions
transportation

Availability of parking

Attributes of nearby
stores

4. Site Evaluation

Accessibility

Locational advantages

Terms of occupancy

Legal considerations (e.g. environmental
considerations, zoning restrictions,
building codes, signs, licensing
requirements)

5. Checklist for Site Evaluations
Local 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

6. Checklist for Site Evaluations
Traffic 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 area shape

7. Checklist for Site Evaluations
Retail 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

8. Checklist for Site Evaluations
Site Characteristic
• Number of parking spaces available
• Distance of parking areas
• Ease of access for delivery
• Visibility of site from street
• History of the site
• Compatibility of neighboring stores
• Size and shape of lot
• Condition of existing building
• Ease of entrance and exit for traffic
• Ease of access for handicapped customers
• Restrictions on sign usage
• Building safety code restrictions
• Type of zoning

9. Checklist for Site Evaluations
Cost 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

10. Site Selection

Trade area -- continuous geographic area
that accounts for the majority of a store’s
sales and customers

Primary trade zone -- Usually 3-5 mile
radius; generates 50-70% of customers

Secondary trade zone -- Usually 3-7 mile
radius; generates 20-30% of customers

Tertiary trade zone -- Usually 15 - 50 mile
radius

11. Steps in selecting a site:

Evaluate alternative geographic areas in terms
of the characteristics of residents and existing
retailers (trading-area analysis)

Determine whether to locate as stand-alone,
unplanned business district or planned
shopping center

Make a decision about location type

Analyze alternate sites

12. Types of Leases
• Percentage
• Fixed - Rate
Percentage leases - rent is based on a
percentage of sales.
• Retailers also typically pay a maintenance
fee based on a percentage of their square
footage of leased space.
• Most malls use some form of percentage
lease.

13. Variations of Percentage Leases
Percentage lease with specified maximum -
percentage of sales up to a maximum amount.
• Rewards retailer performance by allowing retailer to
hold rent constant above a certain level of sales
Percentage lease with specified minimum - retailer
must pay a minimum rent no matter how low sales are.
Sliding scale - percentage of sales as rent decreases as
sales go up.

14. Fixed Rate Leases
Fixed rate leases - used by community and
neighborhood centers.
• Retailer pays a fixed amount per month over the
life of the lease.
• Not as popular as percentage leases
Graduated lease - a variation of the fixed rate lease
• Rent increases by a fixed amount over a specified
period of time.

15. Percentage or Fixed Rate Leases
Maintenance-increase-recoupment lease -
used with either a percentage or fixed rate lease.
• Rent increases if insurance, property taxes, or
utility bills increase beyond a certain point.
Net lease - retailer is responsible for all maintenance
and utilities.

16. Prohibited Use Clause
• Limits the landlord from leasing to certain
tenants
• Some tenants take up parking spaces and don’t
bring in shoppers: bowling alley, skating rink, meeting
hall, dentist, or real estate office.
• Some tenants could harm the shopping center’s
wholesome image: bars, pool halls, game parlors, off-
track betting establishments, etc.

17. Exclusive Use Clause
Prohibits the landlord from leasing to retailers
selling competing merchandise
• Specify no outparcels
• Specify if certain retailer leaves center, they can
terminate lease.
Escape clause
• Allows the retailer to terminate its lease if sales don’t
reach a certain level after a specified number of years,
or if a specific co-tenant in the center terminates its
lease.

18. Environmental Issues
“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.

19. 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

20. Retail Location Theories
1. Retail Gravity Theory
2. Saturation Theory
3. Buying Power Index

21. Retail Location Theories
Retail gravity theory
suggests that there are underlying
consistencies in shopping behavior that
yield to mathematical analysis and
prediction based on the notion or
concept of gravity.

22. Huff’s Gravity Model
Based on the premise that the probability that a
given customer will shop in a particular store
or shopping center becomes larger as the size
of store or center grows and distance or
travel time from customer shrinks

23. Huff’s Law

Assumptions:

The proportion of consumers patronizing a given
shopping area varies with the distance from the
shopping area

The proportion of consumers patronizing various
shopping areas varies with the breadth and depth of
merchandise offered by each shopping area

The distance that consumers travel to various
shopping areas varies for different types of products
purchased

The “pull” of any given shopping area is influenced
by the proximity of competing shopping areas

24. Retail Location Theories
Saturation theory
examines how the demand for goods and
services of a potential trading area is
being served by current retail
establishments in comparison with
other potential markets.

25. Retail Location Theories
Index of retail saturation (IRS)
is the ratio of demand for a product (households in
the geographic area multiplied by annual retail
expenditures for a particular line of trade per
household) divided by available supply (the
square footage of retail facilities of a particular
line of trade in a geographic area).

26. Retail Location Theories
Index of Retail Saturation (IRS)
IRS = (H X RE)/RF
where IRS is the index of retail saturation
H is the number of households in the area
RE is the annual retail expenditures for a particular line of trade per
household in the area
RF is the square footage of retail facilities of a particular line of
trade in the area (including square footage of the proposed
store)

27. Retail Location Theories
Buying power index (BPI)
is an indicator of a market’s overall retail
potential and is composed of the
weighted measures of effective buying
income (personal income, including all
nontax payments such as social
security, minus all taxes), retail sales,
and population size.