Store Location.ppt 5ar3r

Store location  Trading area analysis  Site analysis

Objectives  Importance of store location for a retailer and to outline the process of choosing a store location  Concept of a trading-area and its related components  Types of locations available to a retailer: isolated stores, unplanned business districts, and planned shopping centers  Decisions necessary in choosing a general retail location

Location, Location, Location  Little flexibility once a site is chosen  Involves a sizeable investment

 Store fixtures at an old site cannot be transferred to a new site  Requires extensive decision making….

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

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

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

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 (e.g. labour availability, supplier location, transportation)

Trading-Areas of Current and Proposed Outlets Net increase in sales = Revised sales of existing stores + Sales of new store – Previous sales of existing store

GIS Software in T-A analysis Geographic Information Systems Combine digitized mapping with key location-specific data to graphically depict trading-area characteristics such as: population demographics data on customer purchases listings of current, proposed, and competitor locations

GIS Software in T-A analysis Till GIS: Retailers placed different colour pins on paper maps to show current and proposed locales, competitors’ sites and had to collect and analyse data

With GIS: Firms can access computer-generated maps and quickly research the attractiveness of different locations

GIS Software in Action The analysis examines the relationship between total purchase behaviour and the distance each customer travels to patronize the store

GIS Software in Action Impact on existing customers if the location of a store/site is changed

Red and yellow polygons represent a 9-minute drive around each location – 80% of customer base

GIS Software in Action The correlation between purchase behavior of customers and lifestyle segment of the neighborhood in which they live

GIS Software in Action No. of customers and their spending for one retail site – customer database is “geocoded”

Technology in Retailing ShopperTrak (www.shoppertrak.com) has 70,000 shopper traffic- counting devices that have been installed in 70 countries around the world. ShopperTrak devices count shopper visits and can refine the counts to exclude children and retail employees from its overall count. Their traffic counts are between 96 percent and 98 percent accurate. ShopperTrak’s new FlashTraffic system conveys traffic data on an hourly basis to retailers’ point-of-sale systems to enable retail managers to adjust and optimize store staffing levels.

Example GFK GeoMarketing offers GIS software services that assist international retailers wanting to expand into such countries as China. The firm recently did a location analysis in Peking to determine

customer buying power for a German clothing firm seeking to do business in China: “Using the GIS software RegioGraph, population data were prepared, analysed and differentiated according to region. With the help of these data, consumer potential was determined. This served as a foundation for the company to gain insight into the proposed location’s full market potential. Further calculations on location-related factors were carried out, including site location

characteristics, accessibility, nearby competition, and the nature and structure of existing businesses in the immediate vicinity. The results yielded detailed information regarding the most suitable locations,

as well as regions to be avoided.”

The Segments of a Trading-Area

The Size and Shape of Trading-Areas 

Primary trading-area (50-80% of a store’s customers)

It is the area closest to the store and possesses the highest density of customers to population and the highest per capita sales. There is little overlap with other trading areas.

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Secondary trading-area (15-25% of a store’s customers)

It is located outside the primary area, and customers are more widely dispersed.

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Fringe trading-area (all remaining customers)

includes all the remaining customers, and they are the most widely dispersed. The fringe trading area typically includes some outshoppers who travel greater distances to patronize certain stores.

Delineating Trading-Area Segments The GIS map clearly depicts primary, secondary and fringe trading areas of a store

Size and shape of Trading Areas Trading areas do not usually follow such circular patterns. They adjust to the physical environment.

The size and shape of a trading area are influenced by store type, store size, the location of competitors, housing patterns, travel time and traffic barriers and media availability.

Destination Versus Parasite Stores Two stores can have different trading areas even if they are in the same shopping district or shopping center

Destination stores

Parasite stores

Have a better assortment, promotion, and image

 Do not create their own traffic and have no real trading-area of their own

Generate trading-areas much larger than competitors

 These stores depend on people who are drawn to area for other reasons

Trading Areas and Store Types As a store or center gets larger, its trading area usually increases, because store or center size generally reflects the assortment of goods and services.

Largest

TRADING AREAS

Supermarkets

Department stores

Apparel stores Smallest

Convenience stores

Trading-Area of a New Store A trading area with less-defined shopping and traffic patterns must be evaluated in of opportunities rather than current patronage and traffic patterns. Tools are:  Trend analysis - by examining government and other data for predictions about population, location, auto registrations, new housing, public transport, etc.  Consumer surveys – information is gathered about the time and distance people would be willing to travel to various possible retail locations, the factors attracting people to a new store, the addresses of those most apt to visit a new store, etc.  Computerized trading-area analysis models

Computerized Trading-Area Analysis Models

Analog Model Potential sales for a new store are estimated on the basis of revenues for similar stores in existing areas, competition at a prospective location, new store’s expected market share at that location, size and density of the location’s primary trading area.

Regression Model Series of mathematical equations showing the association between potential store sales and several independent variables at each location, such as population size, average income, number of households, nearby competitors, transportation barriers and traffic patterns.

Gravity Model People are drawn to stores that are closer and more attractive than competitors’ stores. The distance between consumers and competitors, the distance between consumers and a given site, and store image are included in this model.

Reilly’s Law of retail gravitation Reilly’s law establishes a point of indifference between two cities or communities so that the trading-area of each can be determined Point of indifference is the geographic breaking point between two cities (communities) at which consumers are indifferent to shopping at either.

Assumptions: 1. Two competing areas are equally accessible from a major road 2. Retailers in the two areas are equally effective. 3. Other factors (such as population dispersion) are held constant or ignored.

Computation

Limitations of Reilly’s Law

 Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets  Distance traveled does not reflect travel time. Many people are more concerned with time traveled than with distance

Chief Factors to Consider in Evaluating Retail Trading-Areas

Population Size and Characteristics Availability of Labor Closeness to Sources of Supply Economic Base

Competitive Situation Availability of Store Locations Regulations

Chief Factors to Consider in Evaluating Retail Trading-Areas

Population Size and Characteristics  Total size and density  Age distribution  Average educational level  Percentage of residents owning homes  Total disposable income  Occupation distribution  Trends

Chief Factors to Consider in Evaluating Retail Trading-Areas

Availability of Labor  Management

 Management trainees  Clerical

Chief Factors to Consider in Evaluating Retail Trading-Areas

Closeness to Sources of Supply  Delivery costs  Timelines  Number of manufacturers  Number of wholesalers  Availability of product lines  Reliability of product lines

Chief Factors to Consider in Evaluating Retail Trading-Areas

Economic Base  Dominant industry  Extent of diversification  Growth projections  Economic and seasonal fluctuations  Availability of credit and financial facilities

Chief Factors to Consider in Evaluating Retail Trading-Areas

Competitive Situation  Number and size of existing competition  Evaluation of competitor strengths and weaknesses  Short and long-run outlook  Level of saturation

Chief Factors to Consider in Evaluating Retail Trading-Areas

Availability of Store Locations  Number and type of store locations  Access to transportation

 Owning versus leasing opportunities  Costs

Chief Factors to Consider in Evaluating Retail Trading-Areas

Regulations  Taxes

 Licensing  Operations  Minimum wages

Site analysis

Overview  Step 1: Determine what type of location is desirable  Step 2: Select the general location

 Step 3: Evaluate alternative specific store sites

Three Types of Locations

Isolated Store

Planned Shopping Center Unplanned Business District

Unplanned Business Districts and Isolated Locations

Isolated Stores A freestanding retail outlet located on either a street or a highway. There are no adjacent retailers with which this type of store shares traffic.

Advantages

Disadvantages

* No competition

*

Difficulty attracting customers

* Low rental costs

*

Travel distance

* Flexibility

*

Lack of variety for customers

*

High advertising expenses

* Adaptable facilities

*

No cost sharing

* Easy parking

*

Restrictive zoning laws

* Good for convenience stores * Better visibility

Large-store formats (e.g. Big Bazaar) and convenience-oriented retailers (Spencer’s Super) are usually the retailers best suited to isolated locations because of the challenge of attracting a target market.

Unplanned Business Districts Two or more stores situate together (or in close proximity) in such a way that the total arrangement or mix of stores is not due to prior long-range planning.

Central Business District

Secondary Business District

Neighborhood Business District

String

Central Business District  CBD is the hub of retailing in a city.  It exists where there is the greatest density of office buildings and stores.  Both vehicular and pedestrian traffic are very high.  Shoppers are drawn from the whole urban area and include all classes of people.  The arrangement of stores follows no pre-set format; it depends on history (first come, first located), retail trends, and luck.

Secondary Business District  This format is now more important because cities have “sprawled” over larger geographic areas.  SBD is an unplanned shopping area in a city or town that is usually bounded by the intersection of two major streets.  The kinds of goods and services sold in an SBD mirror those in the

CBD.  An SBD has smaller stores, less width and depth of merchandise assortment, and a smaller trading area (consumers will not

travel as far), and it sells a higher proportion of convenienceoriented items.  Parking problems, travel time, and congestion are less for the SBD

Neighbourhood Business District  NBD is an unplanned shopping area that appeals to the convenience shopping and service needs of a single residential area.  An NBD contains several small stores, such as a stationery store, a barber shop and/or a beauty salon, a dry cleaner and a restaurant. The leading retailer is typically a supermarket or a large drugstore. This type of business district is situated on the major street(s) of its residential area.  An NBD offers a good location, long store hours, good parking, and a

less hectic atmosphere than a CBD or SBD.  But there is a limited selection of goods and services, prices tend to be higher because competition is less than in a CBD or SBD.

String  A string is an unplanned shopping area comprising a group of retail stores, with similar or compatible product lines, located along a

street. There is little extension of shopping onto perpendicular streets.  May start with an isolated store, success then breeding competitors.

Car dealers, apparel retailers often situate in strings.  Unlike an isolated store, a string store has competition at its location. This draws more people to the area. It means less control over prices and less loyalty toward each outlet.  An individual store’s increased traffic flow, due to being in a string rather than an isolated site, may be greater than the customers lost to competitors.

Planned Shopping Centers Consists of a group of architecturally unified commercial establishments on a site that is centrally owned or managed, based on balanced tenancy, and accompanied by parking facilities. Its location, size, and mix of stores are related to the trading area served. Advantages

Disadvantages

* Well-rounded assortments

* * * * *

* Strong suburban population * One-stop, family shopping

* Cost sharing * Transportation access * Pedestrian traffic

Limited flexibility Higher rent Restricted offerings Competition Requirements for association hips * Too many malls * Domination by anchor stores

Characteristics of Centers

Location/Site Evaluation Checklist The

Optimum

Site

for a

Particular

store

Pedestrian Traffic  The most crucial measures of a location/site’s value are the number and type of people ing 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

Vehicular Traffic  Different for:

 convenience stores  outlets in shopping centers  petrol pumps  suburban areas with limited pedestrian traffic

 Some retailers count only homeward-bound traffic, some exclude vehicles on the other side of a divided road  Retailer should study the extent and timing of congestion (from traffic, detours, and poor roads). People normally avoid congested areas and shop where driving time and driving difficulties are minimized.

Parking Considerations 

Number and quality of spots

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Distance of spots from stores

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Price to charge customers for parking

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Employee parking

Transportation 

Closeness to public transport is important for people who do

not own cars, who commute to work, or who would not otherwise shop in an area with traffic congestion.

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The availability of buses, taxis, subways, trains, and other kinds of public transport is a must for such areas.

Store composition 

If the stores at a given location (be it an unplanned district or a planned center) complement, blend and cooperate with one another, affinity exists. When affinity is strong, the sales of

each store are greater due to the high customer traffic than if the stores are apart.

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Proper retail balance occurs when the number of store facilities for each merchandise or service classification is equal to the location’s market potential, there is an adequate assortment within any category, and there is a proper mix of store types (balanced tenancy).

Specific site 

Visibility is a site’s ability to be seen by pedestrian or vehicular traffic. High visibility aids store awareness.

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Placement in the location is a site’s relative position in the

district or center. A corner location may be desirable because it is situated at the intersection of two streets and has “corner influence.”

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When a retailer buys or rents an existing building, its size and shape should be noted. The condition and age of the building should be studied.

of Occupancy Considerations  Ownership versus leasing (ownership is more common in small stores or at inexpensive locations)

 Operations and maintenance costs  Taxes  Voluntary regulations (prevalent in planned shopping centers; include required hip in merchant groups, uniform hours, cooperative security forces)

Ownership vs. leasing  Ownership Advantages:  There is no chance that a property owner will not renew a lease or double the rent when a lease expires.

 Operations are flexible; a retailer can break down walls.  Property value will appreciate over time resulting in a financial gain if the business is sold.

 Ownership Disadvantages:  High initial costs, the long-term commitment, inability to readily change sites.

 Leasing advantages:  Minimizes the initial investment, reduces risk, allows access to prime sites that cannot hold more stores, leads to immediate occupancy and traffic, and reduces the long-term commitment.

 Retailers feel they can open more stores or spend more on other aspects of their strategies by leasing.

 Leasing disadvantages:  Firms that lease accept limits on operating flexibility, restrictions on subletting and selling the business, possible nonrenewal problems, rent increases, and not gaining from rising real-estate values.

Overall rating 

(1) Each location under consideration is given an overall rating based on the criteria.

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(2) The overall ratings of alternative locations are compared, and the best location is chosen.

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(3) The same procedure is used to evaluate the

alternative sites within the location.

Conclusion  It is often difficult to compile and compare composite

evaluations because some attributes may be positive while others are negative.  The general location may be a good shopping center, but the site in the center may be poor, or an area may have excellent potential but take two years to build a store.

 The attributes should be weighted according to their importance.