Retailing Topics Retailing MKTG 6211 Professor Edward Fox Cox School of Business/SMU

Retail Site Selection Openings Expansions Closings What are the effects of proposed changes in retail sites on the revenues of new and existing stores?

Why Retail Site Selection Why Does It Matter? Access to consumers  Number  Characteristics  Growth Locations of other stores  Cannibalization – own stores  Agglomeration Competition Complementarity According to Wal-Mart’s Real Estate group, the difference between good and bad locations exceed $25 million in gross profit

How Retail Site Selection How Is It Done? Select:  Geographic market  Site within the geographic market  If an opening or expansion, the format/size of the store to be opened

Retail Site Selection Agglomeration Agglomeration Agglomeration captures the countervailing effects of complementarity and competition among retailers  Intra-type - Stores of the same type locating near one another Facilitates consumer search Examples: “motor miles” and “restaurant rows”  Inter-type - Stores of different types locating near one another Facilitates multi-purpose shopping, virtual one-stop- shopping, and offers a wider variety of goods to choose from Examples: shopping centers and shopping malls Recognizes that consumers may use multiple stores to meet their needs - shopping strategically!!

“Trip chaining” – Make unrelated purchases on the same trip Price search – Search until you find an attractive price “Cherry picking” – Visit multiple stores for their bargain prices Retail Site Selection Agglomeration

Retail Site Selection Where Do Consumers Work? Another consideration in retail site selection is where consumers work  Do shopping trips begin from home?  From work?

Trip chains Trip chains reflect the routing problem faced by shoppers  Consumers minimize shopping costs by reducing travel, subject to fulfilling diverse product/service needs Price search Price search  Our research incorporates price uncertainty, allowing shoppers to terminate or continue a shopping trip (unplanned) Data limitations require that we:  Consider visits only to selected store formats  Assume that shopping trips begin from the consumer’s home Retail Agglomeration Trip Chains

Retail Site Selection Agglomeration How does retail location affect multi-store shopping? RETAIL LOCATION Relative to customers Relative to other stores Retail Competition Destination Effect Specifically, how are retailer revenues affected by nearby supermarkets, drug stores, mass merchandisers and supercenters, dollar stores and warehouse clubs?

Retail Agglomeration Preliminary Model - Data Description

Retail Agglomeration Preliminary Model Results – Travel Times Travel times have the expected negative effect for own-store; cross-store travel time parameters have smaller positive effects We observe symmetric competition among grocery stores in terms of location Revenues at EDLP stores—Food Lion and Wal-Mart Supercenter— are least sensitive to distances that their customers have to travel

Retail Agglomeration Preliminary Model Results - Agglomeration Wal-Mart Discount stores are most affected by locating near other stores Wal-Mart Supercenters are not affected by the concentration of other stores nearby Locating near club stores does not affect retailers in our sample

Multi-Channel Retailing C OME IN. C ALL IN. L OG ON.

Multi-Channel Retailing How “big” is the Internet -- milestones  Mid : online population of the United States was 35 million  Mid : online population became 72.6 million  April 1999: more than 83 million users online above age 16  2000 Census: 42% of US households have internet access >50% of US households have computers Source: Levy & Weitz and Census Bureau

Multi-Channel Retailing How “big” is the Internet?

Multi-Channel Retailing How “big” is Internet retail? Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales: 4th Quarter 1999–2nd Quarter 2007 Percent of Total

Multi-Channel Retailing What do shoppers buy on the Internet? Source: PCDataonline Jan 00-Jan 01

Multi-Channel Retailing What do shoppers buy on the Internet? Selected Product Categories' Sales Growth, 2004 and 2005 (%) Growth Apparel and accessories36 Computer software (excludes PC games)36 Home and garden32 Toys and hobbies32 Jewelry and watches27 Event tickets26 Furniture24 Flowers, greetings, and gifts23 Notes: 1. Sales exclude auctions and large corporate purchases. 2. Sales are non-travel online consumer spending. Source: comScore, 2006