Retail Site Location

Factors that affect the choice of suitable retail site location: Economic conditions Strategic fit Competition Operating costs

Site Location – 3 Levels of Analysis

Trade Area Issues

Attractiveness of trade area How many outlets:

More stores increases economies of scale and reduces costs

More stores also result in more cannibalization and less sales per store

Trade Area Issues

Factors affecting the demand Demographic and lifestyle

characteristics of customers Business climate Retailers’ perspective to manage

multiple stores competition

Factors Affecting Attractiveness of a Site

Match between trade area demographics and retailer’s target market

Likelihood of customers coming to location Convenience Other attractive retailers at location

Principle of Cumulative Attractiveness: A cluster of similar and complementary retailing

activities will have greater drawing power.

Location Convenience Factors

Macro perspective: Road pattern and condition Natural and artificial barriers

Micro perspective: Visibility Traffic flow Parking Congestion Ingress/egress traffic

Location Within a Center

In High Traffic Areas Near Anchor Center of Shopping Area

Near Stores Selling Complementary Merchandise Clustering Specialty Stores Appealing to

TeenagersBetter locations cost more

Demand Estimate for New Location

Definition of the Trade Area Primary zone: 60 to 65% of customers Secondary: 20% of customers Tertiary Zones: Occasional shoppers

Approaches for Estimating Demand Analog Approach Regression Approach Huff Gravity Model

Analog Approach

Describe the site and trade area characteristics for its most successful existing/operating stores

Find a site with similar characteristics

Regression Approach

Assumes that factors (independent variables) affecting the revenues (dependent variable) of existing stores in a chain will have the same impact on stores located at new sites

Huff Gravity Model

Estimates sale of a retail store based on: Size of store (larger store has more

pulling power) Time taken to travel to the store (store

that take more time to travel, has less pulling power)

Huff Gravity Model Probability of a customer going to

a specific store location:

Pxy=

Where: Pxy= probability that customer x shops at location y S = size of the store at location y T = travel time for customer x to get to location y ᾳ = exponent ᾳ reflects the relative effect of travel time vs store size

Huff Gravity Model

Existing storeSize: 5000sft

New StoreSize: 10000sft

KoramangalaMarket size: Rs20million

MadiwalaMarket size: Rs30million

10 minutes5

min

ute

s

5 minutes

15 minutes

= 2 for the store locations

Factors Defining Trade Areas

Accessibility Natural & Physical Barriers Type of Shopping Area Type of Store Competition Parasite Stores

Sources of Information

Customer Spotting Census Data Geodemographic Information

Systems ACORN

Information on Competition Yellow Pages

Customer Spotting

Credit card or checks Customer loyalty programs Manually as part of the checkout

process Automobile license plates

Negotiating a Lease

Types of Leases: Percentage leases: rent based on % of sales Fixed rate lease

Terms of the Lease: Prohibited use clause (bars, massage parlors,

betting establishments) Exclusive use clause (type of outlets) Escape clause: To exit if sales do not meet

certain levels