1. Chapter 8
Retail Site Location

2. Retailing Strategy Human Resource Management Chapter 9
Retail Market and Financial Strategy Chapter 5, 6
Retail Locations Chapter 7
Site Locations Chapter 8
Information and Distribution Systems Chapter 10
Customer Relationship Management Chapter 11

3. Location Chapters Chapter 7 Chapter 8
General Description of the Location Types
Advantages and Disadvantages of Different Location
Chapter 8
Considerations in Selecting Area for Locating Store
Issues in Evaluating Specific Sites

4. Factors Affecting the Demand for a Region or Trade Area

5. Economic Conditions
It is important to examine an area’s level and growth of population and employment

6. Competition Some retailers are going urban: Lack of competition
High level of disposable income
Large, untapped labor force
The McGraw-Hill Companies, Inc./John Flournoy, photographer

7. Strategic Fit Ann Taylor – High income, dual career families
Hot Topic – teen, pop culture, grunge
McDonald’s – families with kids
Royalty-Free/CORBIS
REI – outdoor enthusiasts
The McGraw-Hill Companies, Inc./John Flournoy, photographer

8. Operating Costs Varies across areas Affected by proximity of
area considered vs.
other areas
where retailer operates
Local and state legal
environment has effect
Nick Koudis/Getty Images

9. How Many Stores to Open in an Area?
Economies of Scale vs Cannabilization
One promotional costs for all stores open stores as long as
profits increase
Justifies cost of distribution center
Increases sales per store
Target needs of regional market
Management has control of market

10. Evaluating a Site
When evaluating and selecting a specific site, retailers consider:
The characteristic of the site
The characteristic of the trading area
The estimated potential sales that can be generated
Stockbyte/Punchstock Images

11. Site Characteristics

12. Traffic Flow and Accessibility
When traffic is greater, more customers shop
Good for convenience retailers
Not necessary for destination retailers
Too much can impede access to store
Accessibility to store is as important as traffic flow
PhotoLink/Getty Images

13. Convenience of Going to Site
Accessibility
Road pattern and condition
Natural and artificial barriers
Visibility
Traffic flow
Parking
Congestion
Ingress/egress
©McGraw-Hill Companies/Jill Braaten, photographer

14. What Should Retailers Consider for Parking?
Observe shopping center at various times
Employee parking availability
Shoppers that use cars
Parking by non-shoppers
Typical length of a shopping trip
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

15. Adjacent Tenants
What other retailers would Radio Shack want to be located near?
Wal-Mart, Supermarket, Best Buy?
In an enclosed mall, what retailers would Abercrombie & Fitch want to be located near?
American Eagle Outfitter, Ann Taylor, Body Shop, Electronic Boutique
Principle of Cumulative Attractiveness

16. Grouping Retailers in an Enclosed Mall

17. Cost and Restrictions Costs Restrictions Rent
Common Area Maintenance Fee/Insurance
Advertising Fee
Restrictions
Signage
Tenant MIx
Operating hours

18. Steps in Evaluating Sales Potential of a Site
Define Trade Area
Drive Time vs. Geographic Distance
Primary, Secondary, Tertiary
Estimate Sales Potential
Huff Model
Analog Approach
Regression Analysis

19. Zones in a Trade Area

20. Trade Area Primary zone - 60 to 65 percent of its customers
Secondary zone - 20 percent of a store’s sales
Tertiary zone - customers who occasionally shop at the store or shopping center
U.S. Geological Survey, ESIC

21. Factors Defining Trade Areas
Accessibility
Natural & Physical Barriers
Type of Shopping Area
Type of Store
Competition
Parasite Stores

22. Measuring Trade Areas Customer Spotting Use Census Data
Geodemographic Information Systems
Information on Competition
Yellow Pages

23. Customer Spotting
Purpose: to spot, or locate, the residences of customers for a store or shopping center.
How to obtain data:
credit card or checks
customer loyalty programs
manually as part of the checkout process
automobile license plates

24. Census Data of the U.S. Only once in 10 years.
Each household in the country is counted to determine the number of persons per household, household relationships, sex, race, age and marital status.
Ryan McVay/Getty Images

25. Geographic Information System (GIS)
GIS – a system of hardware and software used to store, retrieve, map and analyze geographic data along with the operating personnel and the data that goes into the system.
coordinate system (latitude and longitude)
spacial features (rivers and roads)
some firms offer services combine GIS with updated
census data, consumer spending patterns and lifestyles

26. GIS Map for a Store Trading Area in an MSA

27. Data from GIS on Retail Expenditures in Trade Area

28. Metro Renters Young – 20’s Well educated Professional Large cities
Median income $50,000
Spend on themselves
Surf Internet

29. Geodemographic Profile
What is the geodemographic profile for your neighborhood?

30. Location of Target Customers in Shopping Center Trade Area

31. Indices for Assessing Sales Potential
Market Potential Index (MPI)
Number of Households Purchasing a Product or Service in a Trade Area
Spending Potential Index (SPI)
Average Amount Spent on a Product or Service by a Household in a Trade Area

32. Sources for Measuring Competition
The Internet - lists current locations and future sites.
Yellow Pages
Other Sources: Directories published by trade associations, chambers of commerce, Chain Store Guide, International Council of Shopping Centers, Urban Land Institute, local newspaper advertising departments, municipal and county governments, specialized trade magazines, list brokers
PhotoDisc/Getty Images

33. Methods for Estimating Demand
Huff’s Model
Analog Approach
Regression Analysis
Royalty-Free/CORBIS

34. 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

35. Huff’s Gravity Model λ
P = S / T ij j ij Σ S λ / T j ij

36. Huff’s Gravity Model PRC = 10,000/5 2 = .889 POH = 10,000/152 = .182
10,000/52 + 5,000/52
POH = ,000/ =
10,000/ ,000/52
.889 x $3 million x $5 million = $4,910,000

37. Application of Huff Gravity Model

38. Regression Analysis and Analog Approach
MRA = Factors affecting the sales of existing stores in a chain will have the same impact on the stores located at new sites being considered.
Analog Approach = retailer describes the site and trade area characteristics for its most successful stores and attempts to find a similar site.

39. Regression Model for Estimating Store Sales
Stores sales = 275 x number of households in trade area (15 minute drive time)
+ 1,800,000 x percent of household in trade with children under 15
+ 2,000,000 x % of households in trade area in Tapestry segment “aspiring young ”
+ 8 x shopping center square feet
+ 250,000 if visible from street
+ 300,000 if Wal-Mart in center

40. Edward Beiner Optical Analog Approach Do a comp analysis
Define present trade area
Analyze trade area characteristics
Match characteristics of present area with potential sites

41. Competitive Analysis of Potential Locations

42. Competitive Analysis for Edward Beiner Optical

43. Trade Area for Edward Beiner Optical

44. Potential Locations for Edward Beiner Optical

45. Types of Leases Percentage Fixed - Rate
Percentage leases – lease based on a % 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.

46. 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.

47. 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.

48. 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, massage parlors and pornography retailers.

49. Exclusive Use Clause Escape Clause selling competing merchandise
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.