Retail Management

1. WMG 19
Term 8, Retail Management
Session 9-10
Store Locations and Site evaluation
Dr. Asif Zameer

2. Objectives
• The importance of store locations
• Types of locations
• Steps involved in choosing a location
• Trade areas and their evaluation
• Evaluating a retail location

3. Location as an important tool of Retail
Strategy
• Selecting a location involves a trade-off
between cost of the site and potential of the
site.

4. Importance of location decision
• Location is a major cost factor because it :
i. involves large capital investment
ii. affects transportation costs
iii. affects human resources cost
• Location is a major revenue factor because it :
i. affects the amount of customer traffic
ii. affects the volume of business

5. 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

6. Levels of location decision and its
determining factors
• A retailer takes a location decision based on:
- selection of a city
- selection of an area or type of location within a
city
- identification of a specific site

7. Market Area Analysis
• Country
• Region
• City
• Business District
• Site

8. Factors for choosing a city
• Size of the city’s trade area
• Pop size & growth (demographic)
• Purchasing power & distribution
(demographic)
• Trade potential (economic)
• Cultural factor
• No., size & quality of competition
• Development cost (infrastructure)

9. Choosing a Store Location
Step 1: Evaluate alternate geographic (trading)
areas in terms of residents and existing retailers
Step 3: Select the location type
Step 2: Determine whether to locate as an
isolated store or in a planned shopping center
Step 4: Analyze alternate sites contained in the
specific retail location type

10. 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

11. Trade area analysis
• Trade area consists of 3 parts – primary, secondary & tertiary
or fringe
Factors determining the size and shape of trade areas:
• Store type (format and merchandise)
• Store size
• Location of competition
• Housing patterns
• Travel time
• Traffic barriers

12. The Segments of a Trading Area

13. The Size and Shape of
Trading Areas
 Primary trading area - 60-80% of a
store’s customers
 Secondary trading area - 15-25%
of a store’s customers
 Fringe trading area - all remaining
customers

14. 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,
such as transportation

15. The Trading Areas of Current and Proposed Outlets

16. Trading Areas and Store Types
Largest
TRADING
AREAS
Smallest
Department stores
Supermarkets
Apparel stores
Gift stores
Convenience stores

17. Destinations Versus Parasites
Destination stores have a
better assortment, better
promotion, and/or better
image
• They generate trading
areas much larger than
competitors
• Shoppers’ Stop:
“Shopping and beyond”
Parasite stores do not
create their own traffic
and have no real trading
area of their own
• These stores depend on
people who are drawn
to the area for other
reasons

18. Defining the Trade Area - Central
place theory
• Theory established by Christaller and Losch
Threshold
Range
- theory attempts to explain the spatial
distribution of a settlement
-central level for a store is the
minimum area from which it must
draw traffic to be viable
- range is a sphere of the settlement of
consumers traveling to the central
place
- range of a store should be at least
equal to its threshold area
- store will earn profits only if its range
is larger than its threshold

19. Reilly’s Law
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

20. Defining the Trade Area
• Reilly’s Law of Retail Gravitation :
Dab = d / ( 1+ sqrt (Pb / Pa))
Dab = Breakpoint of A
d = Distance between 2 cities A and B
Pa = population of city A
Pb = population of city B
2 major assumptions:
• 2 competing areas will be equally accessible
• Retailers in the 2 areas are equally competitive

21. Spatial interaction theory
• Theory discards the assumption made by
central place theory that behavior is explained
by consumers using the nearest offering of
goods or services
• Theory dates to 1931 from the pioneering
studies of William J. Reilly
• Likelihood that a city or shopping centre will
attract shoppers from the hinterland increases
with the size of the city or shopping centre and
decreases with distance from the city or
shopping centre

22. Limitations of Reilly’s Law
 Distance is only measured by major
thoroughfares; some people will travel
shorter distances along cross streets
 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

23. Huff’s Law
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

24. Huff’s Model Formula
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25. Huff’s Law of Shopper Attraction
• It provides probability of consumers choosing
to visit one area as opposed to another.
• It defines trade areas on the basis of product
attractiveness, time taken to travel from the
consumer’s residence to alternative shopping
centers and the sensitivity of shopping to
travel time.

26. University and Shopping Centers:
Gravity Model Illustration

27. Huff’s Model: The Solution
Pij = (1000  32 ) /
(1000  32) + (500  52) + (100  12)
Probability = .48
.48 x 12,000 students = 5,760 customers
5,760 customers x $150 = $864,000
Repeat steps 1 to 3 for the remaining areas and then sum them.

28. Summarizing - Elements in Trading-Area
Selection
Population
Characteristics
Economic Base
Characteristics
Nature and Saturation
of Competition

29. Location selection criteria
• Pull of a shopping district
• Competition in that location
• Availability of access routes
• Nature of zoning laws
• Trend of growth of the city

30. Types of retail location
Types of
Types of locations
Free standing locations
 neighborhood stores
 highway stores
Unplanned business districts/ centres
 downtown or central business district
 secondary business district
 suburban business district
 strip centre
Planned shopping centres
 regional shopping centres of malls
 neighbourhood / community
 specialist markets
 periodic/ weekly markets (Flea markets)

31. Understanding various categories of shopping
centers
• A flea market is a place where vendors come
to sell or trade their goods.
• The goods are usually inexpensive and range
in quality.
• Example –
Village haats,
Weekly bazaars
in cities

32. High streets
• High Street is the generic name (and
frequently the official name) of the primary
business street of towns or cities in the United
Kingdom and Ireland.
• It is usually a focal point for shops and retailers
in the city centre, and is most often used in
reference to retailing.
• The equivalent in the United States and
Canada is Main Street.
• Examples – Connaught Place, New Delhi and
Sec 17 Chandigarh

34. Strip Malls
• A strip mall (also called a plaza or mini-mall) is an open
area shopping center where the stores are arranged in a
row, with a sidewalk in front.
• Strip malls are typically developed as a unit and have
large parking lots in front.
• They face major traffic arterials and tend to be self-
contained with few pedestrian connections to
surrounding neighborhoods

35. Community center
• As per ICSC criteria - Community center: a
shopping center of 100,000 to 350,000
square feet GLA.
• Typically anchored by a one or two discount
department, drug, food & grocery or home
improvement stores.
• They are commonly open, one-story, with
stores arranged in a single strip, L- or U-shape.
• Examples – Local shopping centers adjoining
colonies

36. Festival or themed marketplace
• Festival (or themed) marketplace: urban
entertainment and shopping center, usually
with restaurants and entertainments,
associated with a place of historic or cultural
interest.
• Example – Delhi Haat.

37. Broadly - Three Types of Locations
Isolated
Store
Planned
Shopping
Center
Unplanned
Business
District

38. Isolated Stores
• Large-store formats
– Wal-Mart
– Costco
• Convenience stores
– 7-Eleven

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

40. Planned Shopping Centers
Advantages
* Well-rounded
assortments
* Strong suburban
population
* One-stop, family shopping
* Cost sharing
* Transportation access
* Pedestrian traffic
Disadvantages
* Limited flexibility
* Higher rent
* Restricted offerings
* Competition
* Requirements for
association memberships
* Too many malls
* Domination by anchor
stores

41. Relative Advantages
of Major Retail Locations
Location City Strip Shopping Free
Issues Center Mall Standing
Large size + - + -
draws people
to area
People + + - -
working/living
in area
provided source
of customers
Source of ? - + -
entertainment/
recreation
Protection - - + -
against weather

42. Relative Advantages
of Major Retail Locations
Location CBD Strip Shopping Free
Issues Center Mall Standing
Security - - + -
Long, uniform - + + +
hours of
operation
Planned - - + -
shopping
area/balanced
tenant mix
Parking - + - +
Occupancy ? + - +
costs
(e.g. rent)

43. Relative Advantages
of Major Retail Locations
Location City Strip Shopping Free
Issues Center Mall Standing
Pedestrian + - + -
traffic
Landlord + + - +
control
Strong + + - +
competition
Tax ? ? ? ?
incentives

44. Location Evaluation: Multi-Attribute
Weighted Checklist
• No single factor or calculation is genrally
enough.
• A checklist for all significant factors is
prepared and the site is evaluated according
to the degree to which the site meets the
desired characteristics.

45. Pedestrian Traffic
The most crucial measures of a location’s and
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

46. Vehicular Traffic
• Important for
– convenience stores
– outlets in regional shopping centers
– car washes
– suburban areas with limited pedestrian
traffic

47. Parking Considerations
 Number and quality of spots
 Distance of spots from stores
 Availability of employee parking
 Price to charge customers for
parking

48. Evaluation contd..
• Other factors influence the selection of a
particular shopping centre:
 merchants’ association
 landlord’s responsiveness

49. Location/Site
Evaluation
Checklist

50. Some new locations growing in
importance
• 5-star hotels
• Airports
• Railway Stations
• Metro Stations
• Highways

51. Features of Airport Retailing
 Large group of prospective shoppers
 Captive audience
 Strong sales per square foot of retail
space
 Strong sales of gift and travel items
 Difficulty in replenishment
 Longer operating hours
 Duty-free shopping possible

52. Indian Retail Property Development
• 800,000: Forecast Organized Retail sales by 2016 (INR crores)
• 8000: Average Org Retail Sales PSF per Annum
• 700-800 million sq.ft.: Required new built-up area in India in
next 5 years
• <300 million sq.ft: Projection on mall-construction in this time.
• 400- 500 million sq.ft: Shortfall of proper retail space.
• 2000: Sq ft area which can be built in 1 crore today
• 400,000: Investment Required in Indian Retail in next 5 years
(INR crores) for building the retail space.
• 300,000: (INR crores) for retail fit-outs & related equipment.