1. Selecting appropriate market and location
- Prof. Hitesh A. Patel

2. “The way employees treat the customers is a direct result of how they themselves feel they are treated.”

3. Chapter objectives
Processes involved in selecting a retail market and site
Analyze a retail trading area
Various types of sites available to retailers
Difference between a planned and an unplanned shopping district
Various characteristics that influence retailer’s site selection

4. Selecting a market area and specific location are two important decisions for a retailer
The ultimate goal is maximum customer access
Market and location selection depends upon target market
Retailer need to understand who its current customers are, who its competitors customers are and who makes up the potential customer bases
People who are alike tend to live in neighborhood and have similar behavior and psychographic traits
Geographic location matter because cost-effective product delivery and adaptation of websites to fit local market interests/ needs are necessary

5. Selection of right location
3 step process of:
Regional analysis,
Trade area analysis and
Actual site analysis
Regional analysis:
A region represents a large geographical area. It could be a part of the country, state, city, designated market area
Designated market area is composed of countries assigned exclusively to that market area
DMAs were developed by A. C. Nielsen Company to help measure media reach, and are defined according to population’s total TV viewing hours

6. Trading area analysis
Trading area means ‘a geographic area containing customers of a particular firm for specific goods/ services’.
A trade area should account for more than 50% or higher sales
Trade area can be a nation/ single neighbor block
Size of area depends on retailer’s objectives, like, how many customers are needed to achieve profitability? What sales is required to achieve breakeven?
Ray Kroc of McDonald’s insisted that franchisees live in trading area so they would understand the local market
Often the trading area is broken down in primary, secondary, tertiary or fringe areas
Primary area should produce at least 60% of business, secondary area additional 15-20% and fringe areas the remainder

7. Main thing to look for in a trading area is a customer base that matches target market. Other variables include;
Population of trading area
Availability of labor force for clerical, managerial and line works
Rules/ laws that govern the area
Types of schools
Area’s economy
Number and size of competitors
Promotion network
Transport facilities
Supplier proximity

8. Geographic Information Systems
GIS is used to determine trading area and making location decisions
GIS software programs allow retailers to identify key geographic areas and to combine with psychographic/ demographic information
Data may include information on competitors, consumer purchase behavior, no. of consumers, effective buying income
Geographic barriers such as bridges, tunnels, rivers are included in such systems

9. Approaches for defining trading area: Reilly’s law of retail gravitation
Establishes ‘point of indifference’ between two cities’ locations that help the retailer project the physical trading area
Argues that a customer living between two cities will consider both trading areas for shopping based on distance of each area from home and the size of each area
inventory and selection may be more important than distance, so the consumer will travel little more to get to the bigger city
Travel distance being equal, consumer will choose the city with more population because more product assortment is available
The point of indifference is the distance at which the consumer is indifferent about shopping at either location

10. Reilly’s law of retail gravitation:
Dab = d / (1 + √Pb / Pa)
Where,
Dab = point of indifference between cities a and b
Pa = population of city a
Pb = population of city b
d = distance along most traveled route between cities a and b

11. Huff’s Gravity Model
Huff’s gravity model/ huff’s law of shopper attraction states that consumers will shop at a store more often if the size of the store is increased and the distance to shopping area is decreased.
The theory says that because the center is larger, it may have larger/ wider assortment of goods and services
Distance has the opposite effect on probability of patronage
All things being equal, consumer wants a shopping area close to home

12. Huff’s Gravity Model (Huff’s Law of Shopper Attraction n
PiJ = (SJ / TiJλ) / ∑ (SJ / TiJλ) Where;
j=1
PiJ = Probability of consumer traveling from origin (i) to given shopping center or store (j)
SJ = sq. ft. of selling space in shopping location, expected to be devoted to particular product being sold
TiJ = travel time
λ = exponent reflecting effect of travel time on different types of shopping trips (i.e. one may travel more for medical product)
n = no. of shopping locations available

13. Index of Retail Saturation Theory
It is strategically sound to access how deeply competitors are entrenched in a given market area
IRS theory helps the retailer to access the level of demand and supply in various trading areas
A trading area in which supply and demand are in equilibrium shows retail saturation
Retail saturation means consumer needs are just being met with the existing retail facilities
When that trading area has too few stores, the area is said to be under stored
If too many stores/ selling space is devoted, the area is said to be over stored
IRS is simply the sales per sq. ft. of retail space for a trading area for a given product line
If IRS high, the area is under stored; if it is low, the area is over stored

14. Index of Retail Saturation;
IRS = (H * RE) / RF
Where;
IRS = index of retail saturation for given trading area
H = no. of households in given trading area
RE = annual retail expenditure for the retailer’s line of products per household
RF = retail sq. footage of a particular product for the trading area

15. Actual site analysis and selection
3 types of sites are available;
Freestanding (isolated)
Planned
Unplanned
Freestanding sites: the retailer moves into an area with no other retailers in the immediate vicinity
Generally the store is located off the main road, highway or street
Large retailers and medical retailers utilize isolated sites
Advantage is limited competition resulting in lower rental
It is harder to attract traffic to a freestanding site

16. Planned business sites
Generally planned business site/ district is centrally managed/ owned
The key to successful planned business site is balanced tenant mix which offers complementary merchandise to the consumer
Planned business districts are developed to attract consumers from greater distances
Have at least one anchor store and enough parking space to attract traffic
3 types of planned business sites are regional centers, community centers and neighborhood/ lifestyle centers

17. Regional centers: attracts customers from an area of 5 to 15 miles
Provides general merchandise and is typically enclosed with parking space
Malls have balanced tenancy, convenient, free parking and vast selection of stores
Generally about 50 stores, besides one anchor store make up regional center
Should have about 4,00,000 sq. ft. of gross leasable area (GLA), though most regional centers are larger than this
Megamalls/ superregional centers – two of the world’s largest are – the West Edmonton Mall in Canada and the Mall of America in Minneapolis
Mall of America took $ 650 mn. to build, has 2.5 mn. sq. ft. of GLA and more than 4 mn. sq. ft. in total

18. Community shopping centers tend to be between 100,000 to 400,000 sq. ft.
House a smaller branch department store, large discount store, a category killer or combination of these stores as an anchor
Have a diverse tenant mix, that includes banks, pharmacies, hair salons and specialty stores
Neighborhood centers are planned shopping districts with a smaller anchor store and focus more on convenience goods

19. Lifestyle centers is a neighborhood center targeted to upper-income shoppers, are typically outdoors with a main street type of ambience, tenants sell nonessential items, building and landscaping costs are higher than other retail developments and parking in front of the stores
A lifestyle center is typically one-third size of a traditional regional center

20. Airport malls is a community shopping center located in an airport
2 models for airport malls: Prime model and Developer model
In Prime model, the airport is responsible for management of retail facilities whereas, in the Developer model, an outsider company serves as the mall manager and works to draw top retailers to the airport
The shops in the developer model are owned and operated by individual retailers, who do their own hiring

21. Unplanned shopping sites
Unplanned shopping sites result when two or more retailers move into the same area or in close proximity to each other
Central Business Districts are city center areas/ downtown areas of city
Secondary Business Districts generally a miniature CBD, located around major transportation intersections of cities
Neighborhood Business Districts generally relies on convenience products as the main product mix and provides shopping for a neighborhood
Strip shopping Districts have stores visible from the road and arranged in a long ‘strip’

22. Characteristics of the available site
Traffic: 2 types of traffic patterns – vehicle and pedestrian
Vehicle traffic
- look not only no. of vehicles but also types of vehicles
The easier to get to the site, more business it will generate
Quality of streets and roads surrounding the site
Level of congestion in the street
Parking facilities
Are there one way streets?
Pedestrian traffic
Heavy pedestrian traffic make excellent choices for retail location
Consider gender, their age, what are they wearing?, are they walking alone or with others?

23. Transportation considerations
Availability
Can trucks deliver inventory with ease?
Public transportation available for customers?
Site availability
Physically available?
Conditions?
Terms of rental agreement?

24. Thank you!!