CHAPTER -1

1
 CHAPTER-1

INTRODUCTION

Retailing consists of those business activities involved in the sale of goods and services to
consumers for their personal, family or household use. It is the final stage in a channel of
distribution, which comprises all of the businesses and people involved in the physical
movement and transfer of ownership of goods and services from producer to consumer.
Retailing involves

 Interpreting needs of the consumers

 Developing good assortments of merchandise

 Presenting them in an effective manner so that consumers find it easy and

attractive to buy.
Retailing differs from marketing in the sense that it refers to only those activities, which
are related to marketing goods and/or services to final consumers for personal, family or
household use. Whereas marketing, according to American Marketing Association, refers
to ‘the process of planning and executing the conception, pricing, promotion and
distribution of ideas, goods and services to create exchanges that satisfy individual and
organizational objectives.”
Organizational buyers purchase in order to perform a task or sell a product effectively,
efficiently and at a profit. They could be industrial buyers or intermediary buyers.
Industrial buyers are those who purchase goods and services to be used in or to aid
manufacturing process. Intermediary buyers are those (i.e. wholesalers and retailers) who
buy merchandise for resale. Retailers include street vendors, local supermarkets,
department stores, restaurants, and hotels. Barbershops, airlines and even bike and car
showrooms. Still retailing may or may not involve the use of a physical location. Mail
and telephone orders, direct selling to consumers in their homes and offices and vending
machines - all fall within the purview of retailing. In addition to it, retailing mayor may

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not involve a “retailer.’ Manufacturers, importers, non-profit firms and wholesalers are
acting as retailers when they sell goods and/or services to final consumers.
Whatever the form of retailing, a retail marketing strategy defines the execution of the
marketing process and facilitation of customer satisfaction.
This retail marketing strategy involves selecting a retail target market (i.e. the
carefully/exactly identified group of final consumers that a retailer seeks to satisfy) and
then implementing the corresponding retail marketing mix (i.e. a combination of product.
price, promotion and distribution strategies that will satisfy the retail target market). The
elements of the marketing mix encompass the facets shown in the table below. The table
depicts consumer service as the crux of the whole activity.
The choice of a store location has a profound effect on the entire business life of a retail

operation. A bad choice may all but guarantee failure, a good choice success. This aid

takes up site selection criteria, such as retail compatibility and zoning, which the small

storeowner manager must consider after making basic economic, demographic, and

traffic analyses. It offers questions the retailer must ask (and find answers to) before

making the all important choice of store location. The first step in choosing a retail

business location takes place in your head. Before you do anything else, define your type

of business in the broadest terms and determine your long-term objectives. Write them

down. This exercise will help you later in choosing a retail location. In picking a store

site, many storeowners believe that it's enough to learn about the demographics ("people

information" like age, income, family size, etc.) of the population, about the kind of

competition they'll be facing, and about traffic patterns in the area they're considering.

Beyond a doubt these factors are basic to all retail location analysis. Once you've spotted

a tentative location using these factors, however, you've only done half the job. Before

you make a commitment to moving in and setting up, you must carefully check several

3
more aspects of the location to help insure your satisfaction with -- and most importantly

your success at - the site you've chosen.

BACKGROUND
The retail industry is continuously changing as the global and regional economies are
transforming worldwide. Our research team virtually traces every activity in the retail
industry and provides the latest update in retail industry blogs. Our industry experts study
these developments to give critical analysis alongwith their personal opinion. Our blogs
on retail industry encompasses retail industry aspects as diverse as organized retailing,
retail channels like supermarkets, convenience store, and retail products (food and non-
food).

Retail Sector is the most booming sector in the Indian economy. Some of the biggest
players of the world are going to enter into the industry soon. It is on the threshold of a
big revolution after the IT sector. Although organized retail market is not so strong as of
now, but it is expected to grow manifolds by the year 2010. The sector contributes 10%
of the GDP, and is estimated to show 20% annual growth rate by the end of the decade.
The current growth rate is estimated to be 8.5%, but CRISIL report says that the retail
market is most fragmented in the world and only 2% of the entire retailing business is in
the organized sector. There are about 300 new malls, 1500 supermarkets and 325
departmental stores being built in the cities very soon.
The retail boom will face a strong competition from the 12 million mom-and-pop stores,
which are easily accessible and approachable and provide services like free home
delivery and goods at credit. But buying from Malls, Supermarkets and Department
stores like Subhiksha, Marks & Spencers, etc gives a different feeling and the
environment of pick and choose from a variety of products. A number of retail giants are
also going to explore the market such as Reliance Retail Ltd and Wal-mart. The
revolution is driven by large expectations where both domestic and international players
will be channel through which other large stores in India are spreading themselves across
the country.

4
 NEED OF THE STUDY

The choice of a store location has a profound effect on the entire business life of a retail

operation. A bad choice may all but guarantee failure, a good choice success. This aid

takes up site selection criteria, such as retail compatibility and zoning, which the small

storeowner manager must consider after making basic economic, demographic, and

traffic analyses. It offers questions the retailer must ask (and find answers to) before

making the all important choice of store location. The first step in choosing a retail

business location takes place in your head. Before you do anything else, define your type

of business in the broadest terms and determine your long-term objectives. Write them

down. This exercise will help you later in choosing a retail location. In picking a store

site, many storeowners believe that it's enough to learn about the demographics ("people

information" like age, income, family size, etc.) of the population, about the kind of

competition they'll be facing, and about traffic patterns in the area they're considering.

Beyond a doubt these factors are basic to all retail location analysis. Once you've spotted

a tentative location using these factors, however, you've only done half the job. Before

you make a commitment to moving in and setting up, you must carefully check several

more aspects of the location to help insure your satisfaction with -- and most importantly

your success at - the site you've chosen.

5
 SCOPE OF THE STUDY

The study will help in understanding the Location strategy and site selection for new
retail outlet and what are the things you need to know about selecting a retail location and
the main factors which affect or influence the location of retail outlet. Study will reveal
which are important factors in customer’ point of view so that by adding new service
elements along with providing better quality in delivering current service, difference may
be created.

OBJECTIVE

 To Formulate the Location strategy and site selection for

New Retail outlet.

 What are the things you need to know about selecting a

Retail Location?

 What are the LOCATIONAL FACTORS that influence

the Location of Retail Stores?

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 CHAPTER-2

LITERATURE REVIEW

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 CHAPTER-2

LITERATURE REVIEW

Retailing in India is receiving global recognition and attention and this emerging
market is witnessing a significant change in its growth and investment pattern. It is
not just the global players like Wal-Mart, Tesco and Metro group are eying to capture
a pie of this market but also the domestic corporate behemoths like Reliance, KK
Modi , Aditya Birla group, and Bharti group too are at some stage of retail
development. Reliance, announced that it will invest $3.4 billion to become the
country's largest modern retailer by establishing a chain of 1,575 stores by March
2007. The last couple of years have been rosy for real estate developers and the
retailers are finding suitable retail space in prominent locations. The industry is
buoyant about growth and the early starters are in expansion mood. There is
increased sophistication in the shopping pattern of consumers, which has resulted in
big retail chains coming up in most metros; mini metros and towns being the next
target. Consumer taste and preferences are changing leading to radical alteration in
lifestyles and spending patterns which in turn is giving rise to new business
opportunities. Companies need to be dynamic and proactive while responding to the
ever-changing trends in consumer lifestyle and behavior.

Retailing in India is currently estimated to be a USD 200 billion industry, of which

organised retailing makes up 3 percent or USD 6.4 billion. By 2010, organised retail
is projected to reach USD 23 billion and in terms of market share it is expected to
rise by 20 to 25 per cent. The report also predicts a stronger retailer growth than that
of GDP in the coming five years.

The generic growth is likely to be driven by changing lifestyles and by strong surge
in income, which in turn will be supported by favorable demographic patterns. Rapid
growth in international quality retail space brings joy to shoppers and shopping malls
are becoming increasingly common in large cities, and announced development

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plans project at least 150 new shopping malls by 2008. The number of department
stores is growing at a much faster pace than overall retail, at 24 per cent annually.
Supermarkets have been taking an increasing share of general food and grocery trade
over the last two decades.

Development of mega malls in India is adding new dimensions to the booming retail
sector. Shopping experience in the nation of shopkeepers is changing and changing
very fast. There is significant development in retail landscape not only in the metros
but also in the smaller cities. Even ITC went one step ahead to revolutionize rural
retail by developing ‘Choupal Sagar’ a rural mall. On one hand there are groups of
visionary corporate working constantly to improve upon urban shopping experience
and on the other hand some companies are trying to infuse innovative retail
experience into the rural set up.

The Larger Picture

Indian economy has shown an impressive growth of over 6 per cent for last five
years and continues to surge ahead. GDP growth rate in 2003-04 recorded a fifteen
year high of 8.5% and subsequently maintained a steady growth for the next two
years. Real GDP growth accelerated from 7.5 per cent during 2004-05 to 8.4 per cent
during 2005-06 on the back of buoyant manufacturing and services activity
supported by a recovery in the agricultural sector. The central bank forecasts similar
growth of 7.5-8 percent during 2006-07. With strong economic growth consumerism
is increasing in the country and India is the fourth largest economy as far as
purchasing power parity is concerned, just behind USA, Japan and China.

Consumer Trend
India is currently having the largest young population in the world and 54 per cent of
India’s population is below 25 years of age and 80 per cent are below 45 years. As
per India’s Marketing Whitebook (2006) by Businessworld, India has around 192
million households. Of these only a little over six million are ‘affluent’ – that is, with

9
household income in excess of INR215, 000. Another 75 million households are in
the category of ‘well off’ immediately below the affluent, earning between
INR45,000 and INR215,000. This is a sizable proportion which offers excellent
opportunity for organized retailers to serve.

AC Nielsen’s Retail and Shopper Trends 2004 Report made the following
observations on shopper’s behaviour in India:

(1) Indian shoppers spend an average of INR2500 on food, groceries and personal
care items every month and

(2) convenience stores are booming in most markets, as the number of such stores
exceeds 80,000.

According to the report, 48 per cent of shoppers in India admit that they ‘love to try
new things’, making them the most novelty seeking shoppers around the region and
total average monthly expenditure is only $50, of this, $21 is spent on fresh food,
comprising 42 per cent of the entire monthly spend. Indians also appear to spend
more on groceries and personal care items.

Business communities believe that sizable disposable income in India is concentrated

in the urban areas and well off and affluent classes; income distribution is unequal
compared to other Asian economies. In fact, the 20 million middle class home in
rural India equal the number in urban India and thus have the same purchasing
power. Therefore, there is significant and considerable opportunity for organized
retailers in the rural areas. There is no denying that the rural market holds immense
promise for the organized retail but companies ponder over how to serve that market
profitably.

Unlike the urban market, it is less developed in terms of infrastructure and facilities.
More than any thing else, the larger issue is to find out a suitable business model and
retail format to fit local taste and preference. Of course cost of doing business in
rural market would be lesser compared to urban market but reaching out to the mass
is a concern. It is not impossible but a bit more difficult. For example the most
successful and the largest incorporation Wal-Mart started in the rural market where

10
as competition started in the urban market. This retailer has proved that it is
important to understand how do you operate your business model rather than where
you do it.

Given the increasing urban exposure of rural India, the urban and the rural upper-
income groups can form an interesting continuum market, giving it a scale of 23
million households, or 115 million consumers. In 2006-07, the consuming class
would be about 60 million households, or 300 million consumers.

NCAER data shows that for 1998-99, for a basket of 22 FMCG products it tracks, a
total of over Rs 91,500 crore was spent. Of this, 37% was spent by the two lowest-
income groups in rural India, and only about 20% by the top two income groups in
urban areas. This is, perhaps, the best and only statement of the structure and
potential of the Indian market. Hence, marketers have to worry about purchasing
power of consumer not where he is living. For example there are nearly 42,000 rural
haats, average number of sales outlets per haat is 300 and average sales per outlet is
INR 900 and average foot fall in a haat is about 4,500. In rural India there are 50
million Kisan Credit Card (KCC) holders and in 2002-03, LIC sold 50 percent of its
policies in rural India. These are some of the indicators how rural India is
performing.

Drivers of Retail
On one hand favorable demographic and psychographic changes in the Indian
consumer class, rising income, international exposure, availability of quality retail
space, wider brand choice and better marketing communication are some of the
factors driving Indian retail. On the other side a lot depends on the preparedness of
Indian retailers in terms of having suitable formats, scalable business model,
appropriate technology and relevant organization capability for the success.

Currently the country has a population of over one billion, 60% of which is under 30
years of age. This means majority of the population is young and working class with
higher purchasing power. The low median age of population means a higher current

11
consumption rate which augurs well for the retail sector. Consumer spending in India
has grown at over 12 percent since mid-1990s and 64 per cent of Indian GDP is
accounted for by private consumption. Over the last decade, the average Indian
spending has gone up from INR 5,745 in 1992-93 to INR 16,457 in 2003-04 and is
expected to grow around its trend rate of 12 per cent

There are fundamental but significant changes underway in this country. In January
2006, the government announced that foreign companies can own up to 51 percent of
a single-brand retail company, such as Nike or Adidas. This decision would certainly
encourage retailers such as Zara and Gap to enter this market. Tesco is planning to
enter the market through a partnership with Home Care Retail Mart Pvt Ltd and
expects to open 50 stores by 2010.

Retail Space Development

Through the 1990s, organised retail in India added just 1 million sq. ft of space a
year. Then, from 2001, the pace quickened dramatically. In 2003 alone, 10 million
sq. ft was added by this fledgling industry. Now the story is completely different and
the mall boom is all set to alter the competitive dynamics. Over 130 to 180 million sq
ft of new mall space are estimated to come up in the country in the next 3-5 years.
Nearly 70% of the total new mall space coming up in FY07 and FY08 will be in the
major cities reducing catchment areas for existing retailers. Key retail location like
Mumbai (up 203% to 15mn), Delhi (up 527% to 23.2mn), Bangalore (up 128% to
4.1mn), Hyderabad (up 163% to 5.3mn), and Pune (up 188% to 23.2mn) are all
seeing a mall construction boom and this space availability shall lower the barriers to
entry. A state like Punjab is in the midst of mall boom. By the end of 2005 one single
mall was operational with GRA of 1.2 lakh sq ft and by the end of 2008 there will be
37 malls operating with gross leasable area (GLA) of 15.2 million sq ft. Ludhiana is
leading the way with 11 malls and GLA of 5 million sq ft..

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Development of Retail Formats
It is difficult to fit a successful international format directly and expect a similar
performance in India. The lessons from multinationals expanding to new geographies
too point to this. For example, Wal-Mart is highly successful in USA but the story is
different in Asian countries like China. Therefore, it is important for retailer to look
at local conditions and insights into the local buying behaviour before shaping the
format choice. Considering the diversity in terms of taste and preferences existing in
India the Leading Spanish fashion retail chain operates the eight store formats –
Zara, Berschka, Massimo Dutti, Pull & Bear, Stradivarius, Kiddy's Class, Oysho and
Zara Home. By the end of November 2005 it had a total of 2,643 stores in 60
countries.

Gap Inc. is one of the world's largest specialty retailers, with more than 3,000 stores
and fiscal 2005 revenues of $16 billion. The retailer offers clothing, accessories and
personal care products for men, women, children and babies under the Gap, Banana
Republic, Old Navy and Forth & Towne brand names. Gap brand includes Gap,
GapKids, babyGap and GapBody. The company also operates Gap Outlet, Banana
Republic Factory Outlet and Old Navy Outlet stores.

Retailers may go for experimentation to identify the winning format suited to

different geographies and segments. For example, the taste in south is different from
that in north and this brings challenges to the retailers. Therefore, most of grocery
retailers are region-centric at this point in time. Now a number of retailers are in a
mode of experimentation and trying several formats which are essentially
representation of retailing concepts to fit into the consumer mind space. Apart from
geography even rural and urban divide poses different kind of challenge to the
retailer. Pantaloon Retail India is experimenting with several retail formats to cater to
a wide segment of consumers in the market. Some of the new formats are Fashion
Station (popular fashion), Blue Sky (fashion accessories), aLL (fashion apparel for
plus-size individuals), Collection i (home furnishings), Depot (books & music) and
E-Zone (Consumer electronics). The retailer is trying to segment the market with the
help of format. The retailer developed another new format in the form of Wholesale

13
Club to sell a segment of consumer who purchase on bulk and look out for discounts
and offers. The new format is going to be kind of wholesale club which is likely to
be located close to Food Bazaar. Consumers who are interested to purchase on bulk
can take benefit from this format. Similarly the Land mark group also operates
multiple formats such as hypermarket (Max), departmental store (Lifestyle),
Shoemart and Funcity etc. Such experimentation and identification of an appropriate
format for the local conditions would separate winners from losers in India, possibly
implying multiple formats could be the reality in the long run.

Malls

Mall development is phenomenal in India. The mall mania is spreading fast and
entering even the second tier cities in India. Real estate developers are jumping very
fast to take this further from Metro cities to smaller cities and corporate houses like
ITC and Sriram group are making steady progress to make this phenomena feasible
in rural market also. There is no denying that the top notch cities like Mumbai, Delhi,
Bangalore, Hyderabad, Kolkata, Chennai and Pune are leading the way but the
second tier cities like Ludhiana, Chandigarh, Nagapur and Surat are catching the eye
of all retailers. Retail developers are in such a mood that they may over ride the
requirement in a specific city.

Large format malls are increasingly getting prominent with adequate retail space
allocated to leisure and entertainment. Some states like Punjab have lifted
entertainment tax on multiplexes till 2009. This boosted the confidence of the mall
developers to accommodate entertainment players like PVR, Waves, Adlab and Fun
Republic in large malls. A study conducted by Knight Frank India indicates that by
2007, approximately 75 million sq ft of mall space would be available in India. Of
this, Mumbai, Pune, NCR (including Gurgaon, Noida, Greater Noida, Faridabad &
Ghaziabad), Bangalore & Hyderabad will have a 74% share. The balance 26% will
be made up by the cities like Kolkata, Chennai, Ahmedabad, Jaipur, Nagpur,
Lucknow, Indore, Ludhiana & Chandigarh. With such quantum of new format retail
space in the pipeline, innovation, striking the right tenant mix, effective mall

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management and provision of ample parking space are components that will decide
the future success of mall developments.

Department Store

A department store offers an extensive assortment (width and depth) of goods and
services that are organized into separate departments for the purpose of efficient
buying, assortment, promotion and above all ease of shopping for the consumer.
Such a format provides the greatest selection of any general merchandize and very
often serves as the anchor store in shopping mall or shopping centre. In India, the
number of department stores is less compared to other retail formats such as
supermarkets and discount stores. Shoppers' Stop is the first one to open a
department store in the early 1990s and currently operates 19 stores in 10 different
cities in India. The store strongly focuses on lifestyle retailing and mainly divides
into five departments such as apparel, accessories, home décor, gift ideas and other
services. Shopper’s Stop is getting stronger and stronger year after year. It attracts
more than 12 million shoppers every year with a conversion rate of 38 per cent. In
the end of FY2000 this retailer had 5 stores and is in the process of reaching 39
stores with retail space of 2,502,747 sq ft by FY08. Another operator Lifestyle India
began operations in 1998 with its first store in Chennai in 1999 and in March 2006 it
opened one of the largest department stores in the same city. The store spreads over
75,000 sq. ft and store provides customers a great shopping experience with three
floors of apparel, footwear, products for children, household furniture and decor,
health and beauty products.

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 Hypermarket

Hypermarkets have emerged as the biggest crowd pullers due to the fact that regular
repeat purchases are a norm at such outlets. Hypermarkets not only offer consumers
the most extensive merchandise mix, product and brand choices under one roof, but
also create superior value for money advantages of hypermarket shopping. With
product categories on offer ranging from fresh produce and FMCG products to
electronics, value apparels, house ware, do it yourself (DIY) and outdoor products,
the hypermarkets are becoming popular formats in India.. Number of players
operating hypermarket format are increasing day by day.

One of the leading players in this format is Pantaloon Retail India Limited which
operates 32 Big Bazaars in twenty cities. In early 2006, the K. Raheja Corp (C.L.
Raheja Group) has introduced it’s value retail concept Hypercity which is the
country’s largest hypermarket at 118000 sq ft. Hypercity carries product range varies
from Foods, Homeware, Home Entertainment, Hi-Tech, Appliances, Furniture,
Sports, Toys & Clothing. Hypercity Retail plans to open 55 hypermarkets by 2015.
Reports in media indicate that Reliance is set to open its hyper market format called
‘Reliance Mart’ in Ahmedabad in December 2006 in 1.5 lakh sq ft of space.

As the market is expanding and consumers are in a mood to accept changes,

hypermarkets are getting overwhelming response from consumer. Currently there are
about 40 odd hypermarkets in India but this format holds a great potential for
growth. Hypermarkets can offer whole lot of benefits to consumer. As all
hypermarkets use food and grocery as crowd puller, the price plays major role. Apart
from price, other things retailers need to worry about are offering right product mix
at right price and right place. Ideally, a 40:60 mix of food to non-food should yield a
blended gross margin of around 18-19 per cent.

Hypermarkets will be successful if the retailers understand the shopper better and
design product offering tailor made for specific segment of consumer. Retailers have
to use efficient sourcing and merchandising process to bring down cost of operation.
The most important one is to phase out inefficiencies from the supply chain and pass

16
on a part of that benefit to consumer. Another way of improving margin is to increase
percentage of private label or store brand.

Supermarket

Unlike western countries where supermarkets are prominently visible, in our country
this is lacking. The supermarkets largely concentrate on selling food related products
and are considerably smaller in size compared to hypermarkets. Their value
proposition is also different from the hypermarkets. The supermarkets offer relatively
less assortments but focus on specific product categories. They do not play the game
on price rather use convenience and affordability as their salient features. In India
this role is played by the provision stores and sweet shops. Interestingly the fresh
vegetables and fruits are sold on the foot path and in open markets. Traditionally
consumers feel conservative to buy fruits and vegetables from air conditioned
supermarkets. They prefer to buy either from the local mobile vegetable sellers or
from the nearest sabji market. Probably that works as deterrent factor for the growth
of supermarkets in India. But the situation is changing and slowly supermarket
operators are coming to their own.

A supermarket normally sells grocery, fresh, cut vegetables, fruits, frozen foods,
toiletries, cosmetics, small utensils, cutlery, stationery and Gift items. In India Food
World, Food Bazaar, Nilgiri (30 plus stores), and Adani are the leading super market
operators. One of the biggest super market operators in the western India is Adani
Retail Limited which operates Adani super market plans to continue its journey to
reach total 19 cities with the store strength of 60 plus in the state of Gujarat. ARL
also plans to expand its operation in the neighbouring states of Rajasthan, Madhya
Pradesh, Maharashtra and Chhattisgarh. Subhiksha is one of the leading super market
operators, who largely operates in the southern part of India is expanding to western
India. One more retailer Reliance Retail is on the move and this retailer opened its
Reliance Fresh-a super market chain with 11 stores in Hyderabad in November 2006
and is planning to enter 70 more cities within 2 years. Fabmall a part of Trinetra

17
Super Retail Limited is also expanding. By June 2006 Fabmall had 28 super markets
in some cities and the retailer is planning to open 25 outlets in Kerala by March
2007.

Food Bazaar operates in major cities in India with a floor space ranging from 6,000
sq ft to 16,000 square feet and the format sells both food and non-food items. The
non-food items contribute about 22 per cent of total sales and rest is contributed by
the food related items. A Food Store stocks an average of 7,000 stock keeping units
(SKUs) and over 50,000 articles. The SKU's are divided into the broad categories -
staples, fresh produce and branded foods, home & personal care products. Staples
include groceries like rice, wheat, dal, spices and oils. Fresh produce comprise of
fruits and vegetables, which are sold loose through the concessionaire arrangement.
Along with national brands and local brands the store keeps private labels in some
product categories such as utensil cleaners, preservatives and bakery products. For
example in utensil cleaner category private label gives the highest margin about 25
per cent and commands a share of 50 per cent in the store. The private labels offer
flexibility to both the retailer and the consumer on price front. The objective of the
store is to offer variety at affordable price in each category. Food Bazaar is made the
transition from a just grocery retailer to developing emotional bonding with shoppers
by providing some value added services to the shoppers. Some of these initiatives
include:

Live chakki: which allows customers to buy fresh wheat and have it grinded there at
the store

Fresh Juice counter: This provides customer to have fresh juices.

Live dairy: This provides customers with fresh milk and milk products.

Live kitchen: Customers have the option of buying vegetables, getting them
chopped, cooked fully or partly. Soups, salads and sandwiches are also available

18
 Convenience Stores

A Convenience store offers location advantage for the shoppers and provides ease of
shopping and customized service to the shoppers. It charges average to above
average prices, depending on the product category and carries a moderate number of
stock keeping units (SKUs). Normally it remains open for long hours and shoppers
use it for buying fill-in merchandize and emergency purchases. In India,
Convenience stores occupied 23 thousand sq. meter of retail space with sales of
about Rs 1347 million in 2005 and are expected occupy 85 thousand square meter of
selling space by 2010 . During the same period, sales is expected to touch Rs 5271
million and number of outlets are likely to grow from 510 to 2434. Twenty Four
Seven a new format of convenience store is operational in Delhi from June 2005.
Twenty Four Seven's portfolio comprises 3,500 stock keeping units (SKUs) of
branded fast-moving consumer goods and another 3,500 SKUs of prescription and
over-the-counter drugs besides 300 private labels products across food, focusing on
staples such as pulses and rice. The promoter of this format, the Modi group, plans to
set up 500 convenience stores in Delhi and Mumbai by 2007.

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 Discounters

Wal-Mart, the largest retailer in the world is a discounter. Practically the discounters
offer several advantages such as lower price, wider assortment and quality assurance.
The discounters like Wal-Mart and Aldi were able to quickly build scale and pass on
benefits to the consumer. However, in the long run success depends on the
operational efficiency and consistent value delivery to the consumer. The same
retailer Wal-Mart struggles in Asian countries like China but extremely successful in
USA. It is believed that the average Indian consumer is highly price-sensitive and
looks for savings in term of money in her grocery purchase. So price-value equation
is a critical component in most of the grocery purchases. Despite this, there is hardly
any national level discount chain operating in India. But retailers such as Aldi and
Lidl are extremely successful in Europe. Due to regulatory issues no such retailers
are allowed to sale their products directly to consumer. But they can sell in a cash
and carry format which is exclusively B2B context. If these retailers are allowed to
operate in India through their retailer stores they may find it extremely difficult in the
early stages because of lack of experience in the grocery retailing in this market.
Unlike the western markets where retailers largely depend on private labels to offer
price advantage, here the concept of private label is very early stage. Some of the
food retailers like Food-world and Adani sell private labels but they are not
discounters. Soft discounters are present in India, although their influence on grocery
retailing in 2005 was very minimal with a value share at less than half a percentage
point.

The absence of strong discounters and the lack of local retailer’s initiatives in
discounters have several reasons. Unlike most Western countries, Indian retailers are
mainly small stores and do not have much bargaining power with manufacturers in
order to negotiate terms. Due to low economies of scale, retailers are unable to offer
significant discounts on their own. Consequently, the presence of discounters is
much smaller than that of supermarkets. According to Euro-monitor (2006) report, in
India there are 410 discount stores with 63 thousand sq, meter selling space and by

20
2010 that figure is going to be 555 discount retail outlets with 85 thousand selling
space. Subhiksha, the Chennai based discount retail chain is going national. By July
2006 the retail chain had around 150 stores and planning to open 350 more by March
2007. The National Capital Region (NCR) is going to get a fair share of 145 stores.
Apart from the NCR the retail chain is actively looking at markets in Maharastra,
Gujarat, Andhra Pradesh and Karnataka. The retail chain already started operation in
Ahmedabad but the stores are largely selling fruits and vegetables at this point of
time. They claim that they sell at a lower price compared to other places in the local
market.

Branded Store

The major apparel brands in India are Madura Garments, Zodiac, Raymonds, Colour
Plus and Arvind Mills. Some of branded apparel stores prominent in India are
Madura Garments (140 stores), Weekender (75 stores), Benetton (100 stores),
Grasim (110 exclusive showrooms), Madura Garments (40 stores), Wills Life style
(40 stores), Lee (59 stores), Newport (500 stores), Wrangler (37 stores), John Players
(80 stores) and Raymond. Raymond a nation wide retail chain has 260 Raymond
shops deals in fabrics, apparels and accessories. In addition to that its distribution
network includes 20 exclusive Park Avenue Parx stores, and 1,000 multi-brand
outlets. These specialty stores sell the well known brands like Park Avenue, Parx,
Manzoni and Be. Park Avenue is an up-market brand, while Parx and Manzoni are
targeted at the casual wear and the premium ranges respectively. 'Be:' is especially a
brand for women’s wear. Similarly BK Birla’s Century Textile plans to increase its
number of outlets from 60 currently to 100 by next year.

International brands like Tommy Hilfinger are also present in India through franchise
arrangements with Arvind Murjani Brand Private Limited (AMBPL) and its first
store was opened at Banjara Hills, Hyderabad. The 3,840 sq ft store retails wide
variety of products such as men’s denim wear & sports wear, women’s sportswear,
junior jeans and accessories like handbags, belts and watches. Apart from the new

21
store in Hyderabad, Tommy Hilfinger is also available in its exclusive stores in New
Delhi, Gurgaon, Chandigarh, Bangalore and Mumbai.

There is no major Indian retailer in the sports and foot wear category. Reebok (85
stores) is the market leader here in India and there is no clear-cut winner in the
second place. In fact, this segment is dominated mainly by foreign labels – Levis,
Lee Cooper, United Colors of Benetton, Lacoste, Adidas (76 stores), Nike (62
stores), and Woodland (58 stores), etc. Indian labels are few and far between –
Proline is the best-known Indian brand and the other brands are more local in nature.
The other Indian retailer which is making some sort of impact is Wills Sports with 29
stores across different cities in India.

Category Killer

The category killer concept originated in the U.S. due to abundance of cheap land
and the dominant car culture. Category Killer is a kind of discount specialty store
that offers less variety but deep assortment of merchandise. By offering a deep
assortment in a category at comparative low prices, category specialist can be able to
“kill’ that specific category of merchandize for other retailers. Generally such kind of
retailers uses a self service approach. They use their buying power to negotiate low
prices, excellent terms and assured supply when items are scarce. In India this kind
of retail stores are not prevalent at this point of time. But there is scope for such kind
of format. In India, Mega-Mart is one sort of category killer which sells apparel
products.

Dollar Stores

Dollar stores have their roots in America's homey five-and- dimes, the general stores
that offered a range of products at low prices. But modern dollar-store retailers are
having more sophisticated operations; leveraging their growing buying power to

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strike special deals with vendors and continuously striving for unique advantage of
both convenience and price. Some chains sell all their goods at $1 or less. Others
offer selected items at higher prices. Most sell a combination of paper products,
health and beauty supplies, cleaning products, paper and stationery, household
goods, toys, food and sometimes clothing. Both private-label and brand-name goods
fill the shelves. They are looking for employing technology to manage large
distribution networks. US based My Dollar Store started operation in Mumbai
through master franchise arrangements with Sankalp Retail Value. The store opened
with a floor space of about 4,000 sq ft of space in Nirmal Lifestyle and offers wide
range of products ranging from shampoos-to-juice-toys16. In September 2005,
Mallz99 chain of dollar stores has also started operation in Malviya Nagar, South
Delhi and the retailer has a plan to open 200 stores (both franchised & company
owned) in India by 2009. The store offers over 1000 imported products that are
priced at INR 99. Major product categories sold at the store are cleaning, health &
beauty, hardware, plastic ware, kitchenware, candles, flowers, household items,
home-décor, automobile, stationary, disposables, party supplies, fashion jewelry,
glassware, chocolate & confectionary, gifts, toys, products for pets, melamine ware,
novelties, socks and fashion accessories. For keeping the store attractive for shoppers
the store adds new products on a weekly basis. Mulund boasts of three dollar shops
on SL Road, and one in Mulund (E) near the station. Royal Shoppe on SL Road
offers everything from crockery to towels, shoes, curios, lamps, etc. Royal Shoppe
now offers goods ranging from Rs 29 to over Rs 1,699.

Internet Retailing
The importance of internet retailing is growing all over the world. Some internet
retailers such as ebay and rediff.com are providing a platform to vendors to sell their
products online and they do not take the responsibility of delivering the product to
buyer. They provide virtual shopping space to the vendors. On the other hand online
retailers like amazon.com and walmart.com have to maintain their warehouse to
stock products and take the responsibility of delivering products to the buyer. So,
most of the brick and mortar stores are entering into online retailing as they have

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physical infrastructure and they can use that to capture additional consumer wallet.
All the big retailers like Target, Sears and Kmart are operating online shop and some
manufactures also operate online. For example Apple Inc. operates through
apple.com and Dell Inc. sells its products online through dell.com.

In India internet retailing is growing by 29% CAGR and Euromonitor report

estimates that the a CAGR 48 per cent and in value term it going to touch INR 27
billion by 2010 from INR 4 billion in 2005. The report also predicts that the
contribution of internet retailing to non-store retailing to is likely to be 46 per cent by
2010. In 2005 LG Ezbuy was the major internet retailer in value terms with a
commanding share of close to 23 per cent. Other major players in terms of value
share are Times Internet (indiatimes.com), Yahoo Web services (yahoo.com), India
Online (Rediff.com), Fabmall and Sify.com. Fabmall online store offers about three
million stock keeping units and attracts about 10,000 visitors per day and on average
ships over 20,000 orders per month. Fabmall sells major product categories
jewellery, Electronics, Books, Movies, Music and Gifts.

Beyond Format
Retailers need to think about shoppers not just about formats as understanding the
shoppers’ dynamic holds key to such a business. Retailers must understand what
value shopper is looking for and how the retailers can deliver that desired value to
the customer. However, most retailers look for what they are offering and how
shoppers can fit into retailer’s scheme of offerings. In the long run such strategies
may not be viable. Sam Walton and Jack Welch share a same line of thinking that
consumer is the source of competitive advantage and one of leading UK based
retailers Tesco Inc. has shown how understanding consumer can be a source of
redefining business and gaining sustainable advantage. The retailer operates four
different retail formats namely Express (546), Super store (446), Metro (160) and
Extra (100) to cater consumer need. The Group also has an additional 527 stores
under the One Stop fascia. All the formats are profitable and each format is tailor
made to fulfill customer need. It is the value offering which makes Tesco so popular

24
and profitable. Similarly in India Pantaloon Retail runs several formats and for value
retailing Big Bazaar is receiving exceptional response from the consumer.

Retailing in India is completely different from western countries for that matter even
from Asian counter parts. Studies show that upgraded Kirana stores are growing at
the same rate as organized retailers. Even though the format remains the same, the
value delivery has changed. In the changing retailing environment understanding the
psyche of consumer is critical to business. Aggregate level picture may mislead, so
individual level understanding is desirable. Finally, it is not the format gives business
sustainability rather it is one of the vehicles to deliver value to the consumer. Some
of the Kirana store owner view there is no competition from the big retailers because
they know their customer better. Even some Kirana stores go one step ahead to
define their target segment by residents of the nearest society or colony.

Challenges Ahead
Infrastructure
Even though there is huge investment coming especially in the area of retail space
development in the form of mall development, the challenges remain same from a
retailer’s view point as the cost to acquire retail space in mall is increasing.
Researchers from Knight Frank India, a real estate consultancy, cipher that rentals in
established malls in top metros have jumped by 20-30 % in the last six months.
Generally retailers work out a rent-to-revenue ratio with developers at which they
feel they can sustain their business. Normally, this figure varies between 4% for a
hypermarket (that is, rent will constitute 4% of revenues) and 10% for a department
store, to nearly 20% for very niche retailers. But, at a monthly rate of Rs 200 per sq
ft, a department store might have to make Rs 2,000 per sq ft per month just to break
even. In such a scenario the reality of retail business could change and sustaining
profitable business could pose the highest threat of its kind.

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Technology
Technology is going to play a major role in retail development in India. Retailers are
going to experience the impact of technology in retail. Currently most of the retailers
are operating almost everything manually. A country where almost 97 percent of
retailing is in the hand of unorganized retailers it is predictable that the retailers are
going have operational inefficiency. They face several challenges like maintaining
inventory, ordering and above all keeping track of customer by maintaining
consumer data base. Technology can be useful in this aspect. Most of the organized
retailers are using available and affordable technology to capture consumer
information. Modern retailers are using scanner data to figure out answer to lot of
questions. Through technology retailers can capture a whole lot of segmentation
variables and subsequently use them for shopper segmentation. Technology helps to
take better decision in some critical areas such as new product introduction, suitable
product offering, quicker ordering and assortment planning. Retailers use shopper’s
loyalty data to design customized promotional offering for different set of customers.

Supply chain
Till now most retailers in India have invested majorly into the front end but relatively
little on the back end and supply chain. Even in countries like the USA, Germany
and England where organized retail is highly developed supply chain efficiency is a
concern. The nature of retail sector in India is different from other countries around
the world. The biggest retailer in India, Pantaloon Retail is yet to open stores in each
& every major city in India. Probably that is an indication of how the retail
concentration is happening mainly in big cities. The sector is highly fragmented and
organized retail contributes hardly 3-4 percent of total retailing pie. There are huge
inefficiencies in the supply chain. For example Indian supply chain for food products
is characterized by extensive wastage and poor handling. The wastage occurs
because of multiple points of manual handling, poor packaging, and lack of
availability of temperature controlled vans. The most important part of retailing
business is to find a balance between investing in front-end and back-end operations.
The channel dynamics is going to change over next couple of years as the retailers

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start growing in size and their bargaining power is likely to increase. Probably that
would bring some kind of mutual understanding between manufactures and retailers
to develop strong supply chain network. In such a scenario, both the existing
operators and new operators must put collaborative efforts to phase out inefficiencies
in the supply chain network. In a special lecture series at Indian Institute of
Management, Ahmedabad, honorable minister for Railway, Mr. Laloo Prasad Yadav
raised his concern over safe transportation of food. The minister is looking forward
to use railway infrastructure to carry fresh fruits and vegetables in temperature
controlled containers from various nodal points essentially opened in railway stations
to different parts in India. Probably that would help a lot in reducing wastage in the
supply chain and retailers would be happy to use railway infrastructure rather than
spending huge amount of money in developing infrastructure. New entrants like
Reliance Retail is believed to be investing substantially in the supply chain
especially cold chain as it is set to start its venture by opening ‘Reliance Fresh’
stores. Size of the store is likely to be around 4000 sq. ft. and expected to sell fruits
and vegetables. Fresh Plus, another format is likely to have size between 4000 sq. ft
and 10000 sq. ft.

Human resource
Even though AT Kearny places India as most attractive retail market for the second
consecutive year in a row but it is lagging behind in the retail labor index and
positioned in the 8th place. At this point of time talent is in short supply and
employee churn has been high for all players. It is very difficult to get experienced
store managers to run stores. For example, currently Pantaloon Retail India is
operating around 48 Food Bazaars across the county and planning to increase the
number to over 80 stores by the end of 2006. The retailer is ready with retail space in
different malls and high traffic retail location but availability of qualified and
experienced personnel is still a big concern for the retailer. Almost all retailers are
indulged in poaching which is not a permanent solution. There is absolutely no issue
in getting retailing space in prime locations but the bigger concern is to find
additional store managers. The way the sector is growing in terms of opening stores

27
it is very predictable that there is going to be huge scarcity of professionals to
manage stores. Reliance Retail is planning to employ half a million work force in
various levels in next five years. Currently the sector is facing a shortage of human
resources. It is very difficult to develop human capital in a short time span of five
years. If we look at the human resources employed by global retailers like Wal-Mart,
Carrefour, Tesco, Home Depot and Ahold, we find that none other than Wal-Mart
exceeds half a million. Considering our robust policies for retaining and developing
workforce, retailers should not worry about shortage of talent pool in the long run.
The country also possesses a rapidly growing cadre of promising professional
managers, a large educational system, and there is a cultural willingness among
employees to work cooperatively with management. If, we use these resources
properly we can develop a large talent pool to fulfill the growing demand for various
positions in the retail organization.

Foreign Direct Investment

Though talk of opening up the retail sector for FDI has been making the rounds for
quite some time now, no major breakthrough has happened yet. The country is
expecting a strong economic growth of about 8-10% per year and this can be
achieved by raising the rate of investments as well as by generating demand for the
increased goods and services produced. Retail contributes about 10% to the national
GDP and is expected to increase over the next decade or so. PricewaterhouseCoopers
estimates that Indian retail will get USD 412 by 2011and majority of investment will
be directed toward the two most popular retail formats: hyper markets and
supermarkets.

Growth of this sector holds paramount importance to the Indian economy, so any
augmentation of this sector will have a resultant growth effect on the economy.
Although at this point in time FDI in retailing is receiving mixed reaction, but our
feeling is that FDI would bring a lot of positive changes both for the operators and
the consumer. The infusion of much-needed foreign investment would result in:

(1) Retail consolidation and increase in the share of the organised retail sector,

28
(2) increase in employment in retail

(3) Increase supply chain efficiency which would lead to lower prices, superior
quality for consumers,

(4) Enhanced opportunity for domestic operators to join hand with global retail
players to bring in technical know how and global practices,

(5) Making shoppers feel international shopping experience.

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Emerging Trends in Modern Retail
Formats & Customer Shopping

Behavior in Indian Scenario

India has witnessed a frenetic pace of retail development over the past five years.
Goldman Sachs has estimated that the Indian Economic growth could actually exceed
that of China by 2015. It is believed that the Country has potential to deliver the faster
growth over the next 50 years.
As we all know that India has been a nation of Dukandars, having –approximately 12
million retailers. Obviously retailing is in our blood –either as a shopkeeper or as a
shopper. The Indian Retail market is estimated to grow from the current US $ 330 billion
to US $ 427 billion by 2010 & U. S. $ 637 by 2015. Retail which contributes 10% of our
GDP is the largest source of employment after agriculture.

In the year 2004, ratio of organized-Unorganized retail was 3:97 which is expected to be
9:91 by 2010. It is not just the global players like Wal-Mart, Tesco and Metro group are
eying to capture a pie of this galloping market but also the domestic corporate behemoths
like Reliance, NeelKamal, KK Modi, Aditya Birla group, and Bharti group too are at the
same stage of retail development...
There is increased sophistication in the shopping pattern of customers, which has resulted
to the emergence of big retail chains in most metros; mini metros and towns being the
next target. Customer taste and preferences are changing leading to radical transformation
in lifestyles and spending patterns which in turn is giving rise to new business
opportunities.
The generic growth is likely to be driven by changing lifestyles and by strong surge in
income, which in turn will be supported by favorable demographic patterns.
Development of mega malls in India is adding new dimensions to the booming retail
sector. There is significant development in retail landscape not only in the metros but also
in the smaller cities. Even ITC went one step ahead to revolutionize rural retail by
developing ‘Choupal Sagar’; a rural mall, for the Rural India. On one hand there are

30
groups of visionary corporate working constantly to improve upon urban shopping
experience and on the other hand some companies are trying to infuse innovative retail
experience into the rural Set up. Given the situation we can say that Indian Retailing is at
boom.

The Macro Picture:

Retailer inspired by the wall-mart story of growth in small town America, are tempted to
focus on smaller towns and villages in India. However, a careful analysis of the town
strata-wise population, population growth, migration trends of customer spending
analysis reveals a very different picture of India

As per the NCAER estimates the share of the 35 towns with a present population of
greater than 1 million in India’s total population would grow much faster than their
smaller counterparts, from 10.2 % today to reach 14.4 % by 2025.

Simultaneously, the share of these towns in retail market would grow from 21 % today to
40 % by 2025. Within these top 35 towns, an estimated 70 to 80 % of retail trade would
be in the organized sector. This is similar to the experience in China where in cities like
Sanghai and Beijing, the organized sector accounts for 70 to 80 % of overall retails trade
in certain categories. Retailers should therefore focus on top 37 towns in the next decade,
as the opportunity in smaller towns and rural India would be smaller and more
fragmented as compared to the larger towns. But again this is the one side of the coin.
only.

Classification of India (Customers) on the basis of Research: Research Conducted by

Future Group future group2 research classifies Indian Customers into three sets and
provides a base to the retailers in segmenting the Indian market. The research shows that
serving class consists of approximately 55% of the population, the major one & only 14%
are in the upper middle class, regarded as consuming class.

31
It indicates that retailers should target this segment (India 2) rather than focusing on India
one only, and should formulate their strategies according to the needs and expectations of
serving class, to flourish in the market

Classification of Customers

India 1 India 2 India 3

Consuming Class Serving Class Struggling class
• Constitutes only 14 % • Includes people like • It lives hand-to-mouth
of the country’s drivers, house hold existence, so can not
population helpers, office peons, afford to even aspire for
• Most of these customers liftmen, washer man etc. good living.
have a substantial • These people make life • Unfortunately this
disposable income and easier and more segment will continue to
they form part of comfortable for the be on the peripheries of
usually called as the consuming class or the consumption cycle
upper middle and the India 1. in India, in years to
lower middle class • Research indicates that come.
for every India one at
least three India Twos
are there, making up
approx. 55 % of the
population but due to
low income they have a
very little disposable
income to spend on
buying aspirational
goods & services .
Source: Future Group Research, Published in the Book “It Happened in India” by Kishore Biyani, 2007 issue.

Emerging Trends in Consumers’ Income & Consumption Pattern: NCAER study

and some other data published by different research & consulting sources indicate the
following trend in Consumer income and put the following projections about the Indian
retailing:

1) Growing Prosperity: Making Indian Consumers Great: As

per India’s Marketing White book (2006)3 by Business world,
India has around 192 million households. Of these, only a little

32
 over six million are ‘affluent’ – that is, with household income in
excess of INR215, 000. Another 75 million households are in the
category of ‘well off’ immediately below the affluent, earning
between INR45, 000 and INR 2, 15,000.
2) Increase in the Sizable Disposable Income: Business communities believe that
sizable disposable income in India is concentrated in the urban areas and well off and
affluent classes; income distribution in India is unequal compared to other Asian
economies. In fact, the 20 million middle class home in rural India equals the number in
urban India4 and thus have the same purchasing power.

Therefore, there is significant and considerable opportunity for organized retailers in the
rural areas as well. There is no denying that the rural market holds immense promise for
the organized retail but companies ponder over, how to serve that market profitably.
Unlike the urban market, it is less developed in terms of infrastructural facilities.

3) Place is no more important: The Major issue is to find out a suitable business model
and retail format to fit local taste and preferences. Of course, cost of doing business in
rural market would be lesser, as compared to urban market but reaching out to the mass is
a concern. For example the most successful and the largest incorporation, Wal-Mart
started in the rural market where as competition started in the urban market. This retailer
has proved that it is important to understand how do you operate your business model
rather than where you do it. Given the increasing urban exposure of rural India, the urban
and the rural upper-income groups can form an interesting continuum market, giving it a
scale of 23 million households, or 115 million consumers.

4) Increasing Potential in Rural Markets: NCAER data shows that for 1998-99, for a
basket of 22 FMCG products it tracks, a total of over Rs 91,500 crore was spent. Of this,
37% was spent by the two lowest-income groups in rural India, and only about 20% by
the top two income groups in urban areas.
This is, perhaps, the best and only statement of the structure and potential of the Indian
market. Hence, marketers have to worry about purchasing power of consumers not where

33
do they reside. For example there are nearly 42,000 rural haats, average number of sales
outlets per haat is 300 and average sales per outlet is INR 900 and average foot fall in a
haat is about 4,500. In rural India there are 50 million Kisan Credit Card (KCC) holders.
These are some of the indicators how rural India is performing well & coming up.

5) As per NCAER data no. of Household having income of < 90,000 per annum in
2005-06 was 1,32,249 ( 000) is projected to come down to 1,14,394 by 2009-10 which
indicates that middle class is growing and they are emerging as real customers.(
Annexure:1,2,3,4)

6) Higher Proportionate Rural Expenditure: While an average City-dweller may be

spending almost twice than his counter-part in rural areas but in terms of allocation of his
budget to key segments, the villager has sprung a few surprises. According to the latest
data on household Consumption expenditure, rural India is allocating almost 10% of the
monthly household Budget for fuel & Lighting while an average urban household spends
9% under the same head. (Annexure: 11) .Still it remains attractive because of intense
competition in Urban India.
In value terms, however there is a sharp difference with rural Indian households
earmarking Rs. 60 a month as consumption expenditure, compared to Rs.110 in cities and
towns. After all, at Rs.19 a day or Rs. 625 a month, the average consumption spending
too is low in rural areas, compared to Rs. 39 a day or Rs.1171 a month in urban India.
The rapid rise in incomes will lead to an even faster increase in demand for consumer
durables and expendables. Result by; the ownership of goods will also go up significantly
by getting empowered through rise in the size of the great Indian middle class.

7) Young Population: By 2010 almost half of our citizens will be in the working age
group of 20-24 years. A youthful, exuberant generation, bred on success will not drive the
productivity but also set a spiraling effect on consumption & generation of income.
Currently the country has a population of over one billion, 60% of which is under 30
years of age. This means majority of the population is young and working class with
higher purchasing power. The low median age of population means a higher current

34
consumption rate which augurs well for the retail sector. Consumer spending in India has
grown at over 12 percent since mid-1990s and 64 per cent of Indian GDP is accounted for
by private consumption. Over the last decade, the average Indian spending has gone up
from INR 5,745 in 1992-93 to INR 16,457 in 2003-04 and is expected to grow around its
trend rate of 12 per cent per annum.

8) Fundamental Changes in Indian Economy: There are fundamental but significant

changes underway in our economy. In January 2006, the government announced that
foreign companies can own up to 51 percent of a single brand retail company, such as
Nike or Adidas. This decision would certainly encourage retailers such as Zara5 and Gap6
to enter this market. Tesco is planning to enter the market through a partnership with
Home Care Retail Mart Pvt Ltd and expects to open 50 stores by 2010.7

35
 CHAPTER – 3
RESEARCH METHODOLOGY

36
 CHAPTER-3

RESEARCH METHODOLOGY

Most sciences have their own specific scientific methods, which are supported by

methodologies (i.e., rationale that support the method's validity).

The social sciences are methodologically diverse using qualitative, quantitative, and mixed-

methods approaches. Qualitative methods include the case study, phenomenology, grounded

theory, and ethnography, among others. Quantitative methods include hypothesis testing, power

analysis, met analysis, observational studies, re sampling, randomized controlled trials,

regression analysis, multilevel modeling, and high-dimensional data analysis, among others.

Types of Research

The research study under consideration is exploratory type.

Basically there are two broad kinds of researches

 Exploratory Research : This seeks to discover new relationships.

 Conclusive Research : It is designed to help executive choose the various

Course of action.

37
As research design applicable to exploratory studies are different from objectives firmly in

mind while designing the research. Which searching for hypothesis, exploratory designs are

appropriate; when hypothesis have been established and are to be listed, conclusive designs are

needed. It should be noted however, that the research process tends to become circular over a

period of time. Exploratory research may define hypothesis, which are then tested by

conclusive research; but a by product of the conclusive research may be a suggestion of a new

opportunity or a new difficulty.

Other characteristics of exploratory research are flexibility and ingenuity, which characterize

the investigation. As we proceed with the investigating it must be on the alert to recognize new

ideas, as it can then swing the research in the new direction until they have exhausted it or have

found a better idea. Thus they may be constantly changing the focus of invest as new

possibilities come to attention.

It should be added here that formal design in the researcher is the key factor.

 Study of secondary sources of information.

The reason for selecting this mode of research for this type is that it’s a probably quickest and

most economical way for research to find possible hypothesis and to take advantage of the

work of to others and utilize their own earlier efforts. Most large companies that have

maintained marketing research programs over a number of years have accumulated significant

libraries of research organizations furnishing continuing data.

38
 DATA SOURCE

Sources of information for the purpose of this project study, primary secondary data was
collected & observation study was made.
PRIMARY DATA – Data original, collected form investigation are known as primary data.
The primary data in this study was collected from the retailers for this purpose questionnaires
were framed for consumer.
SECONDARY DATA
Secondary data means data that are already available i.e. they refer to the data which have
already been collected and analyzed by someone else. When the researcher utilizes secondary
data, then he has to look into various sources from where he can obtain them. In this scale he is
certainly not confronted with the problems that are usually associated with the collection of
original data. Secondary data may either be published or unpublished. Usually published data
are available in various publications of the central, state, and local bodies. In technical and
trade journals, books magazines, newspaper, reports and publication of various associations
connected with business and industry, banks, stock exchanges etc.

Procedure
The research to be conducted to achieve the objectives is both exploratory and descriptive in
nature and involved responses collected through secondary data.

Types of Data :
Secondary: Websites, Annual reports of the companies, Magazines, CMIE data base etc.

As it is a secondary research, all the data is selected after rigorous analysis of articles from

newspapers, magazines and internet.

All the research collected is done by marketing analyst across the world and is compiled in this

project to understand this term “Study of factors that influence the location of a retail store”

more effectively.

39
 CHAPTER - 4
DESCRIPTION OF ANALYTIC FRAMEWORK/
MODEL USED

40
 CHAPTER-4

DESCRITIVE WORK

Retail Revolution is a strategic marketing firm with expertise in and passion for place-based
marketing - helping dynamic retailers get the best results from their location. Our site selection
service includes:

 Market Analysis . Complete overview of the demographic and competitive environment

of your business, including trade area analyses and customer targeting

 Location Strategy . Using the information gathered in the market analysis, a

comprehensive location strategy will be developed, including key spatial factors, square
footage ratio calculations, and .ideal. site descriptions .

 Site Specific Analyses . Once the location strategy has been determined and shared with
a commercial realtor, Retail Revolution will conduct on-site investigations of proposed
outlets, exploring things like signage site lines, pedestrian and auto traffic counts,
access, and how the site fits into the surrounding retail environment

We are dedicated to making your business work; however we will not hesitate to recommend
changes, delays, or even outright cancellation of the retail project if we feel your time or
money will be wasted.

The majority of retail locations fail . but that.s because the majority do not ever take the time to
methodically and thoughtfully explore the relationships between their product, location, and
customers. By coming to Retail Revolution you.ve already put yourself ahead of the pack.

41
CHOOSING A RETAIL LOCATION
The choice of a store location has a profound effect on the entire business life of a retail
operation. A bad choice may all but guarantee failure, a good choice success.

This aid takes up site selection criteria, such as retail compatibility and zoning, which the
small storeowner manager must consider after making basic economic, demographic, and
traffic analyses. It offers questions the retailer must ask (and find answers to) before making
the all important choice of store location.

The first step in choosing a retail business location takes place in your head. Before you do
anything else, define your type of business in the broadest terms and determine your long-term
objectives. Write them down. This exercise will help you later in choosing a retail location.

In picking a store site, many storeowners believe that it's enough to learn about the
demographics ("people information" like age, income, family size, etc.) of the population,
about the kind of competition they'll be facing, and about traffic patterns in the area they're
considering. Beyond a doubt these factors are basic to all retail location analysis.

Once you've spotted a tentative location using these factors, however, you've only done half the
job. Before you make a commitment to moving in and setting up, you must carefully check
several more aspects of the location to help insure your satisfaction with -- and most
importantly your success at - the site you've chosen.

42
LOCATION STRATEGY & SITE SELECTION FOR
NEW RETAIL OUTLETS
Retail Revolution is a strategic marketing firm with expertise in and passion for place-based
marketing - helping dynamic retailers get the best results from their location. Our site selection
service includes:

! Market Analysis . Complete overview of the demographic and competitive environment of

your business, including trade area analyses and customer targeting.

! Location Strategy . Using the information gathered in the market analysis, a comprehensive
location strategy will be developed, including key spatial factors, square footage ratio
calculations, and .ideal. site descriptions.

! Site Specific Analyses . Once the location strategy has been determined and shared with a
commercial realtor, Retail Revolution will conduct on-site investigations of proposed outlets,
exploring things like signage site lines, pedestrian and auto traffic counts, access, and how the
site fits into the surrounding retail environment.

We are dedicated to making your business work; however we will not hesitate to recommend
changes, delays, or even outright cancellation of the retail project if we feel your time or
money will be wasted.

The majority of retail locations fail .but that.s because the majority
do not ever take the time to methodically and thoughtfully explore
the relationships between their product, location, and customers.

By coming to Retail Revolution you.ve already put yourself ahead

of the pack.

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The Challenge
Opening a new retail location isn.t easy . whether it.s it is your 1st, 5th, or 125th. Independent
retailers often do not have to resources to consider the very basic needs of an outlet, such as:

! The store must be situated at a location which optimizes exposure to target consumers and is
accessible . on foot, by car, or by transit.

! The store must generate enough revenue per square foot to cover the cost of rent; insurance;
any applicable parking fees; any applicable sprinkler, trash or sewage fees; any applicable
taxes; any heating, ventilating and air conditioning (HVAC) costs; any common area
maintenance (CAM) costs; and the wages of employees. Issues

! In addition to covering costs, it is necessary for the store to turn a profit within a reasonable
amount of time in order to make the venture worthwhile and to justify the tremendous
investment made by owners and managers. A thorough marketing analysis and solid location
strategy will position your new outlet for success, both financially/logistically as well as in
relation to competitors.

Three important factors determine a retailer.s success:

Location, Location, Location.

Marketing Analysis

Before a successful location strategy can be developed, a full assessment of the market
conditions must be carried out. We accomplish this by analyzing three sets of information:
1. Strategic Context
This is determined through 1-2 in-person meetings with the client, as well as continual
communication over the course of the project. This process gives us direction by determining:
a. Vision/mission of the store . What do you want it to be and do?
b. Your strengths and weaknesses

44
c. The opportunities and threats that you face.
2. Environmental/Situational Context
This analysis is done through external secondary research and provides an overview of larger
forces that will affect your business, including:
a. Legal/regulatory issues
b. Economic/political/social issues
c. Cultural and Vancouver-specific trends

3. Market Research
The most important step: determining the nature of your industry, customers, and competition.
This includes:
a. The location strategy of other thrift stores . where they are, what populations do they serve,
how big are their sales?
b. The market segments that would shop at your store . who are they and what are their spatial
characteristics?
c. An industry-specific trade area analysis, mapping the size and nature of the existing thrift
store market in Vancouver.

Once the marketplace is understood, a detailed and precise location

strategy is possible.

Location Strategy

This is when tough decisions must be made. Where do we want the store? How big will it be?
And most importantly: Is this a viable project? Using the data from the marketing analysis as
well as further consultation with the client, the location strategy outlines:

! Key Factors
What are the main geographic and real estate .related criterion for the success of the new store?

45
! Square Footage Ratios
There is a well-defined and extremely important relationship between your inventory, your
costs and the square footage of your store. We help you find the best balance for your specific
situation. The best store size is the one that finds an equilibrium between sales/sq.ft and costs
per sq.ft. (and eventually, a profit/sq.ft).

FIGURE NO 1
! .Ideal. Site List
Given the key factors and revenue/cost/square footage calculations, we provide a description of
your model location; including specific areas, neighbourhoods and streets in Vancouver where
it would be located. This is meant to give the client points of reference to evaluate the strategy.
It is also meant to help the commercial realtor in the search for a site.

With a Location Strategy in place, we being work with a commercial realtor to

find existing sites for lease that best match the defined criteria.

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47
48
Specific Site Analysis

For each site found by the commercial realtor, Retail Revolution carries out a full onsite
evaluation of the following:
! Site lines for signage
! Pedestrian and auto traffic counts
! Access points, including parking lots, transit routes, sidewalks, etc.
! The neighbourhood retail environment, including an analysis of generative stores and non
industry competition

At the end of the site analysis we answer the question:

Does this site fit enough of the key factors to make it viable, and are its physical and
demographic characteristics good enough to make the store a success?

If yes, we recommend the client take the location. If not, we keep looking. The length of time
spent searching for a suitable site is at the discretion of the client, however if we feel that the
current real estate environment is not suitable for your project at this point in time, we will
recommend delaying until there are more favorable conditions.

We do not believe in settling for a mediocre location. Opening a store

without careful deliberation is a wa
ste of everyone.s time and money .
especially yours.
We are dedicated to defining and subsequently finding the best possible site
for your business.

7 Things You Need To Know About Selecting a Retail Location

49
Selecting a location for your retail store is one of the most important decisions you will make
as a small business owner. Picking the right location can lead to success and profits – choosing
the wrong spot for your retail operation could put you out of business.

1. Type of Business.

Well before hitting the streets to look for a location, take a hard look at the type of business
you will be operating. For example, how many different kinds of products will you be selling?
Your product mix will have an impact on such things as the amount of square footage and
storage space required at the location. If you are a service provider, factors such as office space
will be an important consideration.

Start brainstorming or "white-boarding" ideas of what your target audience might expect when
they enter your store - make a list of all the factors you can think of including display space, #
aisles, aisle width, shipping/receiving area, storage space, office space, in-store traffic flow, etc.
Once you visualize what the shopping experience looks like for your customer, you will gain a
better idea of what will be required in a location.

2. Demographics.

Another critical component of retail location selection is understanding your target market,
both in terms of your target shopper and the geographic area surrounding your proposed
location. Once you have established your target market i.e. gender, age, income level. etc. start
researching some of the following information:

* What neighborhoods are home to your target market?

* How far will prospective customers travel to shop at your location?
* What are the statistical trends in a proposed location i.e. population growth; income growth;
aging trends, etc? How might this affect your store 5 or 10 years after locating?
* What are the employee demographics in particular areas? With labour shortages becoming an
ongoing challenge for retailers, does your proposed location have access to potential full time
and part-time employees?

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3. Competition.
Make sure that you have thorough knowledge of all the competitors in a proposed location,
good and bad.

Bad competitors are those that will have a negative effect on your business. Some examples
might include retail stores that might be selling the exact same products (at a discount) or
stores that attract the opposite target audience as your retail operation.

Good competitors are retail stores that compliment your business by drawing a similar target
audience to your store's surrounding area. A good example are retail "pockets" that exist in
many cities - shopping destinations that attract larger numbers of consumers by offering
complimentary stores in close proximity to one and other i.e. fashion districts, areas with a
high concentration of art galleries, auto malls, etc.

4. Traffic Patterns.
It's also important to know how vehicle and pedestrian traffic patterns might affect business at
a proposed location. Some things to look for include:
• Access to the store by traffic moving in both directions (both by car and on foot).
* Number of cars passing the store location.
* Number of pedestrians walking by the location.
* Proximity to public transit.

David Gray, Principal of DIG360, a retail consulting firm in Vancouver, BC,

shares some suggestions about scoping out store locations in a recent article in
BC Business. “If you’re savvy about it, you do a whole lot of looking. You’d be in
a car and do it, and then you’d be on foot. And you’d go weekends and weekdays,
just to make sure there’s not a big traffic difference. Find out which side is the
busy side of the street, and check out where the parking is."

5. Merchant Associations.

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An often overlooked factor when considering a location is the presence and strength of a local
merchant association. According to the The BC Women's Enterprise Centre, merchant
associations can offer a number of benefits to your retail operation:

* A strong merchant's association can promote and maintain business in a given area.
* The presence of an effective merchants' association can strengthen your business and save
you money through group advertising programs, group insurance plans, and collective security
measures.
* A strong merchants association can accomplish through group strength what an individual
store owner couldn't even dream of. Some associations have induced city planners to add
highway exits near their shopping center. Other have lobbied for -- and received -- funds from
cities to remodel their shopping centers, including extension of parking lots, refacing of
buildings, and installation of better lighting.
* Merchants' associations can be particularly effective in promoting of stores using common
themes or events and during holiday seasons. The collective draw from these promotions is
usually several times that which a single retailer could have mustered.

6. City By-Laws, Zoning and Planning.

Understanding all the "rules" and plans your municipality has laid out is very important when it
comes to selecting a location - your retail store's long term success could depend on it. Some
things to consider are:
* Zoning - Are there any restrictions that might prevent you from doing specific renovations or
leasehold improvements?
* By-Laws - What are some of the laws that might have an affect of your retail operation? For
example, are you able to use the space in front of your store for promotions...are you restricted
from operating during certain hours, etc?
* Planning - Are there any major development plans that could impact your retail operation? Is
there any major road construction planned close to your store?

7. Don't Rush - Be Patient.

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It's very tempting to jump at a location you fall in love with - but just like in residential real
estate, "head over heart" is the best approach when it comes to picking a retail location.

David Gray cautions those who want to act on impulse. "You could just destroy your business
being in a bad location. A bad spot might well be (a real trendy area); it might be that you can’t
take a left turn or there’s no parking, so don’t rush into anything until you know it's perfect, or
close to it."

53
 LOCATIONAL FACTORS

Where you choose to locate your retail business will have a major impact on everything your
shop does. The difference between selecting the wrong location and the right site could be the
difference between business failure and success.

Before choosing a retail store location, define how you see your business, both now and in the
future.

• What do your customers look like?

• Can you visualize your building?
• Do you know what you want to sell and what you want your business to be known
for?
• Have you determined how much retail space, storage area, or the size of the office
you need?

Without the answers to these basic questions, it will be hard to find the perfect location for
generating the maximum amount of profit for your retail store.

 Type of Goods

Examine what kind of products you sell, as some goods will require certain types of locations.
Would your store be considered a convenience store, a specialty shop or a shopping store?

Convenience goods require easy access, allowing the customer to quickly make a purchase. A
mall would not be a good location for convenience goods. This product type is lower priced
and purchased by a wide range of customers.

Specialty goods are more unique than most products and customers generally won't mind
traveling out of the way to purchase this type of product. This type of store may also do well
near other shopping stores.

54
A shopping store usually sells items at a higher price which are bought infrequently by the
customer. Furniture, cars and upscale clothing are examples of goods found at a shopping store.
Because the prices of theses items are higher, this type of customer will want to compare prices
before making a purchase. Therefore, retailers will do well to locate their store near like stores.

 Population and Your Customer

If you are choosing a city or state to locate your retail store, research the area thoroughly
before making a final decision. Read local papers and speak to other small businesses in the
area. Obtain location demographics from the local library, chamber of commerce or the Census
Bureau. Any of these sources should have information on the area's population, income and
age. You know who your customers are, so make sure you find a location where your
customers live, work and shop.

 Accessibility, Visibility and Traffic

Don't confuse a lot of traffic for a lot of customers. Retailers want to be located where there are
many shoppers but only if that shopper meets the definition of their target market. Small retail
stores may benefit from the traffic of nearby larger stores.

• How many people walk or drive past the location.

• Is the area served by public transportation?
• Can customers and delivery trucks easily get in and out of the parking lot?
• Is there adequate parking?

Depending on the type of business, it would be wise to have somewhere between 5 to 8

parking spaces per 1,000 square feet of retail space.

When considering visibility, look at the location from the customer's view point. Can the store
be seen from the main flow of traffic? Will your sign be easily seen? In many cases, the better
visibility your retail store has, the less advertising needed. A specialty retail store located six
miles out of town in a free standing building will need more marketing than a shopping store
located in a mall.
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  Signage, Zoning and Planning

Before signing a lease, be sure you understand all the rules, policies and procedures related to
your retail store location. Contact the local city hall and zoning commission for information on
regulations regarding signage. Ask about any restrictions that may affect your retail operation
and any future planning that could change traffic, such as highway construction.

 Competition and Neighbors

Other area businesses in your prospective location can actually help or hurt your retail shop.
Determine if the types of businesses nearby are compatible you're your store. For example, a
high-end fashion boutique may not be successful next door to a discount variety store. Place it
next to a nail or hair salon and it may do much more business.

 Location Costs

Besides the base rent, consider all costs involved when choosing a retail store location.

• Who pays for lawn care, building maintenance, utilities and security?
• Who pays for the upkeep and repair of the heating/air units?
• If the location is remote, how much additional marketing will it take for customers
to find you?
• How much is the average utility bill?
• Will you need to make any repairs, do any painting or remodeling to have the
location fit your needs?
• Will the retailer be responsible for property taxes?

The location you can afford now and what you can afford in the future should vary. It is
difficult to create sales projects on a new business, but one way to get help in determining how
much rent you can pay is to find out what sales similar retail businesses are making and how
much rent they're paying.

 Personal Factors
56
If you plan to work in your store, think about your personality, the distance from the shop to
home and other personal considerations. If you spend much of your time traveling to and from
work, the commute may overshadow the exhilaration of being your own boss. Also, many
restrictions placed on a tenant by a landlord, management company or community can hamper
a retailer's independence.

 Special Considerations

Your retail shop may require special considerations. Make a list of any unique characteristic of
your business that may need to be addressed.

• Will the store require special lighting, fixtures or other hardware installed?
• Are restrooms for staff and customers available?
• Is there adequate fire and police protection for the area?
• Is there sanitation service available?
• Does the parking lot and building exterior have adequate lighting?
• Does the building have a canopy that provides shelter if raining?
• What is the crime rate in the area?
• Are there (blue laws) restrictions on Sunday sales?

Don't feel rushed into making a decision on where to put your retail store. Take your time,
research the area and have patience. If you have to change your schedule and push back the
date of the store's opening, than do so. Waiting to find the perfect store location is better than
just settling for the first place that comes along. The wrong location choice could be
devastating to your retail business.

What are the factors that influence business and job growth, and what
is there relative importance?

57
Advantages to businesses in a region derive primarily from that region ís ability to provide
some factors or attributes at a better value than competing regions. It is not just the cost of
these factors that matters, but their quality as well. Greater expenses for some factors are
justified if they are more productive. Factors such as labor, land, and infrastructure (e.g.,
transportation, electricity) directly influence production costs. Other factors, such as
environmental and cultural amenities, have indirect effects that can help maintain a skilled
labor pool and other direct inputs.

The remainder of this appendix summarizes findings regarding the type and relative
importance of factors that firms consider when they choose where to locate or expand.
WHAT FACTORS MATTER?
Why do firms locate where they do? There is no single answeródifferent firms choose their
locations for different reasons. Key determinates of a location decision are a firm ís factors of
production. For example, a firm that spends a large portion of total costs on unskilled labor will
be drawn to locations where labor is relatively inexpensive. A firm with large energy demands
will give more weight to locations where energy is relatively inexpensive. In general, firms
choose locations they believe will allow them to maximize net revenues: if demand for goods
and services is held roughly constant, then revenue maximization is approximated by cost
minimization.
The typical categories that economists use to describe a firmís production function are:

1. Labor. Labor is often and increasingly

The most important factor of production. Other things equal, firms want productivity, in other
words, labor output per dollar. Productivity can decrease if certain types of labor are in short
supply, which increases the costs by requiring either more pay to acquire the labor that is
available, the recruiting of labor from other areas, or the use of the less productive labor that is
available locally.

58
2. Land.
Demand for land depends on the type of firm. Manufacturing firms need more space and tend
to prefer suburban locations where land is relatively less expensive and less difficult to
develop. Warehousing and distribution firms need to locate close to interstate highways.

3• Local Infrastructure.
An important role of government is to increase economic capacity by improving quality and
efficiency of infrastructure and facilities, such as roads, bridges, water and sewer systems,
airport and cargo facilities, energy systems, and telecommunications.

4• Access to Markets.
Though part of infrastructure, transportation merits special attention. Firms need to move their
product, either goods or services, to the market, and they rely on access to different modes of
transportation to do this. While transportation has become relatively inexpensive compared to
other inputs, and transportation costs have become a less important location factor, access to
transportation is still critical. That long-run trend, however, could shift because of decreasing
funds to highway construction, increasing congestion, and increasing energy prices.

5• Materials.
Firms producing goods, and even firms producing services, need various materials to develop
products that they can sell. Some firms need natural resources: a manufacturing sector like
lumber needs trees. Or, farther down the line, firms may need intermediate materials: for
example, dimensioned lumber.

6• Entrepreneurship.
This input to production may be thought of as good management, or even more broadly as a
spirit of innovation, optimism, and ambition that distinguishes one firm from another even
though most of their other factor inputs may be quite similar. The supply, cost, and quality of
any of these factors obviously depend on market factors: on conditions of supply and demand

59
locally, nationally, and even globally. But they also depend on public policy. In general, public
policy can affect them through:

7•Regulation.
Regulations protect the health and safety of a community, and help maintain the quality of life.
However, simplified bureaucracies and straightforward regulations can help firms react quickly
in a competitive marketplace.

8•Taxes.
Firms tend to seek locations where they can optimize their after-tax profits. But tax rates are
not a primary location factor, they matter only after corporations have made decisions on labor,
transportation, raw materials, and capital costs. Within a region, production factors are likely to
be similar, so differences in tax levels across communities are more important in the location
decision than are differences in tax levels between regions.

9• Financial incentives.
Governments offer firms incentives to encourage growth. Generally, economic research has
shown that most types of incentives have had little significant effect on firm location between
regions. However, for manufacturing industries with significant equipment costs, property or
investment tax credit or abatement incentives can play a significant role in location decisions.
Incentives are more effective at redirecting growth within a region than they are at providing a
competitive advantage between regions. Economists have shown that firms locate in a city
because of the presence of factors other than direct factors of production. These indirect factors
include agglomerative economies, also known industry clusters, location amenities, and
innovative capacity.

10• Industry Clusters.

Firms tend to locate in areas where there is already a concentration of firms like their own. The
theory works in practice because firms realize operational savings and have access to a large
pool of skilled labor when they congregate in a single location.

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11• Quality of Life
A region that features many quality amenities, such as good weather, recreational
opportunities, culture, low crime, good schools, and a clean environment attracts people simply
because it is a nice place to be. A regionís quality of life attracts skilled workers, and if the
amenities lure enough potential workers to the region, the excess labor supply pushes their
wages down so that firms can find skilled labor for a relatively low cost.

12• Innovative capacity.

Increasing evidence suggests that a culture promoting innovation, creativity, flexibility, and
adaptability will be essential to keeping U.S. cities economically vital and internationally
competitive. Innovation is particularly important in industries that require an educated
workforce. High-tech companies need to have access to new ideas typically associated with a
university or research institute. Government can be a key part of a communityís innovative
culture, through the provision of services and regulation of development and business activities
that are responsive to the changing needs of business.

To understand how changes in public policies affect local job growth, economists have
attempted to identify the importance for firms of different locational factors. They have used
statistical models, surveys, and case studies to examine detailed data on the key factors that
enter the business location decision.

Economic theory says that firms locate where they can reduce the costs of their factors of
production (assuming demand for products and any other factors are held constant). Firms
locate in regions where they have access to inputs that meet their quality standards, at a
relatively low cost. Because firms are different, the relative importance of different factors of
production varies both across industry and, even more importantly, across type of firm.
No empirical analysis can completely quantify firm location factors because numerous
methodological problems make any analysis difficult. For example, some would argue
simplistically that firms will prefer locating in a region with a low tax rate to reduce tax
expenses. However, the real issue is the value provided by the community for the taxes collect.

61
Because taxes fund public infrastructure that firms need, such as roads, water, and sewer
systems, regions with low tax rates may end up with poor infrastructure.
Thus, the area is less attractive to firms. When competing jurisdictions have roughly
comparable public services (type, cost, and quality) and quality of life, then tax rates (and tax
breaks) can make a difference.
Further complicating any analysis is the fact that many researchers have used public
expenditures as a proxy for infrastructure quality. But large expenditures on roads do not
necessarily equal a quality road system. It is possible that the money has been spent
ineffectively and the road system is in poor condition. Although empirical analyses face many
such methodological difficulties, the studies provide much information about why firms locate
where they do.
Economists have improved their statistical techniques and use a variety of data sources to
quantify input factors. They have supplemented empirical analyses with theoretical models of
firm behavior and surveys of business managers. Governments can most easily affect tax rates,
public services, and regulatory policies. Economists generally agree that these factors do affect
economic development. The effects, however, are modest and the effects will vary since
different firms have different needs. Governments need to keep in mind that their most direct
tools do not address factors that are primary to business location decisionsóand therefore their
expectations for affecting change should be set accordingly.
An important aspect of the discussion is that firm function can matter more than the firmís
industry. A single company may have offices spread across cities, with headquarters located in
a cosmopolitan metropolitan area, the research and development divisions located near a
concentration of universities, the back office in a suburban location, and manufacturing and
distribution located where land is cheap and interstate access is good. The remainder of this
appendix discusses the factors of production, public policy, and indirect factors that influence
where firms locate. Given our conclusion that different types of operations and different
industrial sectors use different factors in different proportions, the summary that follows is
obviously generalized.

62
 • LABOR FORCE
The single most important factor to most firms deciding where to locate is laboróits cost and its
quality. For most firms, labor is the largest operating cost. Statistical models generally support
the economic theory that higher wages, for comparable skills or jobs, depress a regionís job
growth. A review of the literature suggests that a 10 percent reduction in local wages induces
between a 2 percent and 10 percent increase in local business activity. However, economists
generally believe that the models understate the importance of wages because they can not
precisely account for the cost of labor for specific industries or the quality of the labor
supplied. Prevailing wages are only part of the labor story; labor skills are equally important. A
well-educated work force is at the core of developing economies. Computers and other high
tech equipment have brought about a shift in occupations across the country. As the U.S.
evolves into a more knowledge-based economy, virtually every company requires technical
literacy at all skill levels. Firms need high-skilled workers to operate equipment at all levels,
from technician to managers. An educated workforce has become the primary location factor
for growing companies. New plants are more likely to locate where a skilled workforce exists
and then compare wage rates among those locations. As more routine production functions are
shifted to lower cost

• LAND
Land requirements depend on industry and firm type. Research and development firms often
want suburban campus locations. Manufacturing and distribution firms need to be close to
major interstate highways. High-tech manufacturing firms are more likely to be found in
suburban industrial parks than in the central city. Suburban land and buildings are generally
available at a lower cost per square foot and there is room to expand due to the higher land
assembly in suburban areas and redevelopment cost within the city core.

Research has shown that the number of employees per square foot varies widely by industry.
Offices have higher employee per square foot ratios than factories, and factories have higher
ratios than warehouses. The employee per square foot ratio in manufacturing is expected to
63
decrease (lowering job density) as factories become more automated, and rely less on human
labor. Conversely, the ratio is expected to increase for office space (rising job density) due to
increased use of computers and shared office space. Several themes are prevalent in recent
literature about industrial land demand. One is that warehousing and distribution patterns are
changing due to ìjust-in-timeî production, the advent of internet commerce, and the increasing
importance of high value-to-weight goods. Warehousing is no longer about ìstoring stuffî: it is
the ìscience of moving product, storing the bare minimum.î Flexibility, in addition to proximity
to interstate roadways, is key.

• LOCAL INFRASTRUCTURE

To stay competitive, cities must have modern and efficient physical infrastructure, including
roads, bridges, water and sewer systems, airport and cargo facilities, energy systems, and
telecommunications. The economic literature shows a strong correlation for economic growth
and transportation facilities, especially highways. The empirical analysis of the industrial
sectors identified in this study, show a positive correlation between highway expenditures and
employment growth, in every sector except Sustainable Industries.
The availability of fiber optic and other high capacity telecommunications systems are growing
in importance. Its importance depends on business function, for example, a back office relies
heavily on telecommunications. An important role of government is to increase economic
capacity by improving quality and efficiency of public infrastructure and utilities necessary to
business operation. While businesses prefer localities that offer low tax rates, they will be less
likely to choose an area if low taxes are reflected in poorly-maintained infrastructure, low
quality schools, and a substandard communications network. Locations with relatively higher
taxes but with infrastructure and public services levels comparable to low tax locations are
even less attractive to businesses. The perceived value between tax rates (costs) and quality
infrastructure (services) is a key element of a locationís competitiveness. The economic
literature suggests that if a locality ìpaysî for its tax breaks by cutting back on essential public
services, the net effect on employment will be zero or negative.

64
 • ACCESS TO MARKETS

Firms need to transport their product to the market. The type of transportation requirements
depend on firm type and industry. For example, a firmís headquarters will look for a region
with good airport access, while it ís manufacturing operations to have access to transportation
systems that can cheaply carry large volumes. Transportation costs have declined over the last
few decades. It used to be that firms had to balance costs by minimizing their raw materials
costs and their transportation costs. But because domestic transport costs have declined as the
road system has became vast, and large container ships have decreased international shipping
costs, transportation costs have become a less important input factor.
MATERIALS
As transportation costs have declined, fewer firms need to locate close to the source of their
raw materials. Other than for some very specialized industries, proximity to raw materials is no
longer an important location factor.

• REGULATIONS

Regulations exist to maintain the health, welfare, and safety of a community. They are
designed to make buildings safer, the air cleaner, and a variety of other protections. However,
firms must work with local bureaucracies to meet regulatory requirements, and some
regulations and processes can be quite onerous.
Shorter product life cycles have put pressure on companies to bring new products to market
quickly. Simplified bureaucracies and a short and predictable permitting process can help firms
react quickly in a competitive marketplaceóa factor of particular significance between
municipalities within a metropolitan area. Researchers have found that managers consider the
main problem with regulations is the difficulty of getting permits. Managers reported that they
would rather have strict regulations that were clearly specified than unclear regulations that
were less restrictive. The requirements can then be incorporated in the design of the new
facility, thereby raising costs somewhat, but not delaying the project. The attitude behind the
implementation of the local regulatory and permit system is equally important. Locations that
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work to assist development within the context of meeting the communityís regulatory
mandates fare better than locations that use their regulatory and permit system to ìkeep
undesired things from happeningî. It is the difference between viewing businesses as part of the
community or an adversary to protect the community from.
Although environmental regulations receive much attention for raising the cost of doing
business, there is little evidence that more stringent regulations negatively impact employment
growth. Environmental regulatory costs are generally a small portion of total business costs.
However, if the regulatory climate is unstable, with frequent revised or added regulations, the
costs of keeping up with the shifting ìcurrentî requirements can become a significant costóeven
if the costs of complying with the individual regulations are not significant. It is important to
note that regulations have an impact on other factors of firm location. Environmental
regulations help maintain a clean environment, and a clean environment is an important
amenity.

• TAXES

Economic theory generally supports the notion that firms will locate where they can optimize
their after-tax profits. Consistent with this theory, most recent studies indicate that, over time, a
decrease in taxes will generate an increase in local employment. The empirical analysis shows
the increased taxation discourages economic growth. But tax rates matter only at the margin,
after corporations have made decisions on labor, transportation, raw materials, and capital
costs. Within a region where production factors are likely to be similar, differences in tax levels
across communities become more important in the location decision.
Recent studies indicate that for intra-regional business location decisions, differences in tax
rates are five to ten times as important as they are for inter-regional location decisions, where
differences in tax rates do not appear to be a significant factor. It appears executives typically
choose a region first and then explore favorable tax policies. Researchers have found that
manufacturing location decisions appeared more sensitive to taxes than did non-manufacturing
location decisions.

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 • FINANCIAL INCENTIVES

Governments offer firms financial incentives to encourage growth or to achieve other public
goals. Generally economic research has shown that most types of incentives have had little
significant effect on firm location between regions. Incentives are more effective at redirecting
growth within a region than they are at providing a competitive advantage between regions.
Not withstanding the above, the existence of financial incentive programs does play a
significant role in competition among regions. While the monetary value of incentives may not
be a significant factor in location decisions among regions, merely having financial incentive
programs tends to keep a region ìin the runningî long enough for firms to evaluate and weigh
the value of the location factors which are significant to the location decision.
Having no incentive programs results in regions being dropped from consideration early in the
analysis since in many cases information on incentives is one of the first items gathered. In the
same way individuals make purchase decisions, companies frequently look at costs before they
evaluate value. The intended purpose and actual effect of incentives needs to be considered
closely. Enterprise zones provide incentives to firms that locate in a specified zone, often in the
central city, with the intent of creating job opportunities (by stimulating investment) for zone
residents and thereby reducing poverty. However, poor households in central cities may not
have the skills required for jobs made available through these programs. As a result, policies
that attempt to foster central city investment and job creation are unlikely to reduce poverty
without companion policies and programs designed to address resident education and skill
levels.
Many incentives that cities offer target capital, which will appeal to and attract more capital
intensive production functions. By itself, this is an ineffective way to encourage overall job
growth, since it provides no incentive for non capital-intensive functions or firms. Washington
stateís Department of Revenue analyzed three tax incentivesósales tax deferrals, job tax credits,
and manufacturing sales tax deferrals. The researchers reported that there was little correlation
between the amount of tax benefit received and the growth in employment which resulted.
They concluded that the tax incentives may not be a major factor in influencing the location
process for business. They also found that declining companies tended to take advantage of

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programs targeted toward distressed areas, whereas growth companies tended to locate in
nondistressed areas.

• INDUSTRY CLUSTERS

A key characteristic that economists consistently deem important in the location decision is so
called ìagglomerative economiesî or industry clusters. The agglomeration theory states that
executives tend to locate their firms in areas where there is already a concentration of firms
like their own. The theory works in practice because firms realize operational savings when
they congregate in a single location. Researchers have shown that new firm births are more
likely in an area where a cluster already exists. Industry clusters occur for three reasons:
benefits of a pooled labor supply, access to specialized inputs, and information flows between
people and firms.
• Firms that require a specially skilled labor force locate where that labor force already exists.
An easy way for firms to identify the presence of that labor pool is the presence of similar
firms. The new firm draws from the same labor pool that the pre-existing firms helped to train.
The cluster of similar firms also attracts skilled workers. An individual with the necessary
skills will find it advantageous to relocate to that area because the chances of employment rise
with the number of firms that need his or her skills. The two forces work together to create a
large skilled labor force and many firms to employ them.

• As similar firms cluster together, firms that supply specialized products and services to these
firms are also likely to locate in the cluster. Industry clusters save transport costs by proximity
to these input suppliers.

• Industry clusters encourage knowledge spillovers. The exchange of information occurs in the
work place, such as when suppliers work with their buyers to develop more efficient products,
but it also occurs informally. As workers in one firm socialize with their counterparts from
other firms, they talk shop. They exchange knowledge and ideas, and new ideas take shape.
Economists have shown that knowledge spillovers are particularly important in innovative
industries and industries that employ college graduates. Industry clusters are a network of

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interdependent firms, and the clusters cannot be neatly defined. Many different types of firms
make up a cluster.
The complexity of clusters makes it difficult to describe but provides an important lesson to
policy makers. Many communities are actively pursuing clusters as an economic development
method. As communities work to establish and encourage clusters, they should recognize that a
cluster does not necessarily mean a single industry. A cluster is many different industries
interacting with each other, some firms compete, others complement.

• QUALITY OF LIFE

The factors that impact an areaís quality of life, such as good schools, low crime rate, a clean
environment, and recreational opportunities draw workers to the region, and firms follow the
workers. Households are attracted to regions by amenities that wages cannot provide. If
amenities lure a large number of households to an area, the excess labor supply can exert
downward pressure on wages. Firms benefit by saving on labor costs.
Many high-skilled technical workers can choose where they want to live, they can apply their
skills to a variety of industries or have the ability to telecommute. Because they can pick and
choose their locations, they choose those with quality amenities. Researchers have found that
high-tech plants located in communities that rank low on a livability scales have difficulty
attracting technical and managerial personnel. Cities can build their economic base by focusing
on whatís desirable to technology workers. Factors that matter to high-skilled technical
workers include good elementary and secondary schools, recreational activities, safety, and
natural amenities. Natural amenities appear to be important for firms that employ high-skilled
technical workers, such as engineers and computer scientists who place a high value on good
weather and a clean environment. Amenities matter to firms as more than a way to cash in on
their depressive effect on wages. People manage firms, and managers like to live in nice places
just as much as workers do. In the survey literature, executives consistently rank both labor
supply and quality of life as top location factors. Despite its damp climate, Oregon rates well in
terms of amenities. Surveys of adults whoíve recently moved to Oregon indicate that about 44
percent did so primarily to take advantage of its quality of life. Furthermore, these new
residents tended to have higher levels of education than current residents and they often were

69
willing to accept reduced earnings to live in the Pacific Northwest. One study estimated that
workers in this region generally would not relocate elsewhere in the U.S. unless they received
an increase in wages around 10ñ15 percent.

• INNOVATION

Increasing evidence suggests that a culture promoting innovation, creativity, flexibility, and
adaptability will be essential to keeping U.S. cities economically vital and internationally
competitive. Innovation is particularly important in industries that require an educated
workforce. High-tech companies need to have access to new ideas typically associated with a
university or research institute. Government can be a key part of a communityís innovative
culture, through the provision of services and regulation of development and business activities
that are responsive to the changing needs of business.

Entrepreneurs channel innovative ideas into new firms. Numerous studies have shown that new
firms locate where the founder lives. The entrepreneur who establishes a new business already
has roots in a community, and is likely to want to stay there.

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 LOCAL FACTORS

We have grouped the local factors that influence the location and expansion of firms into six
categories. In this section, we organize the location factors described in this appendix into the
six local factors. We have organized the section by the six local factors, and discuss the
location factors as they fit into each category.

1. BUILDING SPACE

Land. Firms needs land for buildings and associated uses, and the built space itself. Location,
cost, and quality of the space matter to all firms, but needs vary widely by industry.

2. WORKFORCE

Labor. For most firms, labor is the largest operating cost, and the single most important factor
to most firms deciding where to locate is the cost and quality of the local labor force.

3. ACCESS TO MARKETS

Access to Markets. Companies access their markets by moving people and goods via
transportation systems. Excellent transportation systems can overcome physical distance to
markets. Telecommunications systems are also important. Local Infrastructure. Cities must
have modern and efficient physical infrastructure, including roads, bridges, airport and cargo
facilities, and telecommunications. An important role of government in economic development
is to maintain and improve the quality and efficiency of public infrastructure. Materials.
Companies not only need to access the market for their products, but the market for their inputs
or aw materials and the labor pool.

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4. BUSINESS ENVIRONMENT

Regulation. Permitting procedures and environmental regulations have an impact on the

monetary cost of doing business and on the amount of time it takes to brings a product to
market. Taxes. Tax rates for businesses and individuals, as well as unemployment insurance
and worker compensation costs, affect the cost of doing business in a given location. Financial
Incentives. Governments offer firms financial incentives to encourage growth or other public
goals. Incentives are typically tax breaks for firms that locate in a specific area. Local
Infrastructure. The cost of transportation and telecommunications systems is important to
firms, as is the cost of utilities like water, sewer, and energy systems.

5. BUSINESS FORMATION AND ACCELERATION

Industry Clusters. New firms tend to locate in areas where there is already a concentration of
firms like their own. Innovative Capacity. Economic research has shown that a business culture
promoting innovation, creativity, flexibility, and adaptability leads to economic growth.
Entrepreneurship. Entrepreneurs channel innovative ideas into new firms, and new firms tend
to locate where the founder lives. If existing residents have entrepreneurial skills, they are
likely to create new businesses.

6. QUALITY OF LIFE

Quality of Life. All the factors that contribute to an areaís quality of life, such as educational
quality, crime rate, and the environment, can affect the ability of the business to attract
qualified labor. Workers want to live in a stable, pleasant community, and will be attracted to
jobs in regions with a high quality of life.

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FACTORS TO BE CONSIDERED

Three factors confront you as an owner-manager in choosing a location: selection of a city;

choice of an area or type of location within a city; and identification of a specific site.

If you are going to relocate in another city, naturally you consider the following factors:

1. Size of the city's trading area.

2. Population and population trends in the trading area.
3. Total purchasing power and the distribution of the purchasing power.
4. Total retail trade potential for different lines of trade.
5. Number, size, and quality of competition.
6. Progressiveness of competition.
In choosing an area or type of location within a city you evaluate factors such as:

1. Customer attraction power of the particular store and the shopping district.
2. Quantitative and qualitative nature of competitive stores.
3. Availability of access routes to the stores.
4. Nature of zoning regulations.
5. Direction of the area expansion.
·6. General appearance of the area.

Pinpointing the specific site is particularly important. In central and secondary business
districts, small stores depend upon the traffic created by large stores. Large stores in turn
depend on attracting customers from the existing flow of traffic. (However, where sales depend
on nearby residents, selecting the trading area is more important than picking the specific site.)
Obviously, you want to know about the following factors when choosing a specific site:

· Adequacy and potential of traffic passing the site.

· Ability of the site to intercept traffic en route from one place to another.
· Complementary nature of the adjacent stores.
· Adequacy of parking.

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· Vulnerability of the site to unfriendly competition.
· Cost of the site.

TYPES OF CONSUMER GOODS

Another factor that affects site selection is the customers' view of the goods sold by a
store.Consumers tend to group products into three major categories: convenience, shopping,
and specialty goods. Convenience goods usually mean low unit price, purchased frequently,
little selling effort, bought by habit, and sold in numerous outlets. Examples: candy bars,
cigarettes, and milk.

For stores handling convenience goods, the quantity of traffic is most important. The corner of
an intersection, which offers two distinct traffic streams and a large window display area, is
usually a better site than the middle of a block. Downtown convenience goods stores, such as
low-priced, ready-to-wear stores and drugstores, have a limited ability to generate their own
traffic. In merchandising convenience goods, it is easier to build the store within the traffic
than the traffic within the store. Convenience goods are often purchased on impulse in easily
accessible stores.

In addition, the greater the automobile traffic, the greater the sales of convenience goods for
catering to the drive-in traffic. For the drive-in store selling low-priced convenience goods, the
volume of traffic passing the site is a most important factor in making a site decision. The
consumer purchases these goods frequently and wants them to be readily available. Consumers
are reminded when passing a convenience goods store that he or she needs a particular item.

If consumers must make a special trip to purchase such convenience staple goods as food and
drug items, they want the store to be close to home. One study of food store purchases in the
central city area revealed that nearly 70 percent of the women patronized stores within one to
five blocks of their homes. Another study of food stores indicated that for suburban locations
the majority of customers lived within three miles of the stores, while the maximum trading
area was five miles. For rural locations, the majority of consumers lived within a ten-minute
drive to the store, with the maximum trading area within a twenty-minute drive.

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Shopping goods usually mean high unit price, purchased infrequently, more intensive selling
effort usually required on the part of the storeowner, price and features compared, and sold in
selectively franchised outlets. Examples: men's suits, automobiles, and furniture.

For stores handling shopping goods, the quality of the traffic is more important. While
convenience goods are purchased by nearly everyone, certain kinds of shopping goods are
purchased by only certain segments of shoppers. Moreover, it is sometimes the character of the
retail establishment rather than its type of goods that governs the selection of a site. For
example, a conventional men's wear store should be in a downtown location close to a traffic
generator like a department store. On the other hand, a discount store handling men's wear
would prefer an accessible highway location.

In many cases, buyers of shopping goods like to compare the items in several stores by
traveling only a minimum distance. As a result stores offering complementary items tend to
locate close to one another. An excellent site for a shopping goods store is next to a department
store or between two large department stores where traffic flows between them. Another good
site is one between a major parking area and a department store.

A retailer dealing in shopping goods can have a much wider trading area. Without a heavily
trafficked location -- but with the help of adequate promotion -- this more expensive type of
store can generate its own traffic. In this case, a location with low traffic density but easy
accessibility from a residential area is a satisfactory site. The consumer buys these goods
infrequently and deliberately plans these purchases. Consumers are willing to travel some
distance to make shopping comparisons.

If you offer shopping goods, however, you should not locate too far away from your potential
customers. One study of a discount department store showed that 79.6 percent of the shoppers
lived within five miles of the store and another 16.1 percent lived within a ten-mile radius. A
customer survey, automobile license checks, sales slips, charge account records, store
deliveries, and the extent of local newspaper circulation can determine the magnitude of the
trading area for a shopping goods store.

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Specialty goods usually mean high unit price, although price is not a purchase consideration,
bought infrequently, requires a special effort on the part of the customer to make the purchase,
no substitutes considered, and sold in exclusively franchised outlets. Examples: precious
jewelry, expensive perfume, fine furs, and so on, of specific brands or name labels.

Consumers who are already “sold” on the product, brand, or both often seek specialty goods.
Stores catering to this type of consumer may use isolated locations because they generate their
own consumer traffic. Stores carrying specialty goods that are complementary to certain other
kinds of shopping goods may desire to locate close to the shopping goods stores. In general,
the specialty goods retailer should locate in the type of neighborhood where the adjacent stores
and other establishments are compatible with his or her operation.

RETAIL COMPATIBILITY
How important is retail compatibility? For a small retail store in its first year of operation, with
limited funds for advertising and promoting, retail compatibility can be the most important
factor in the survival of the store.

Will you be located next to businesses that will generate traffic for your store? Or will you be
located near businesses that may clash with yours?

For example, if you offer shopping goods, the best location is near other stores carrying
shopping goods. Conversely, locating your shopping goods store in a convenience goods area
or center is not recommended.
Take a look at shopping centers in your area. Invariably, you'll find a clothing or shoe store – in
trouble – in an otherwise convenience goods shopping center.

On the other hand, with the advent of the mall and regional shopping center, shopping goods
and convenience goods outlets may now be found co-existing easily under the same roof. In
this situation, it is still important to be located in a section of the shopping complex that is
conducive to what you're selling. For example, a pet store should not be located immediately
adjacent to a restaurant, dress shop, or salon. You would want to locate a gift shop near places

76
like department stores, theaters, restaurants -- in short, any place where lines of patrons may
form, giving potential customers several minutes to look in the gift shop's display windows.

MERCHANTS' ASSOCIATIONS
Most first time business owners have no idea how effective a strong merchant's association can
be in promoting and maintaining the business in a given area. Always find out about the
merchant's association. The presence of an effective merchants' association can strengthen
your business and save you money through group advertising programs, group insurance plans,
and collective security measures.

A strong merchants association can accomplish through group strength what an individual store
owner couldn't even dream of. Some associations have induced city planners to add highway
exits near their shopping center. Other have lobbied for -- and received -- funds from cities to
remodel their shopping centers, including extension of parking lots, refacing of buildings, and
installation of better lighting.

Merchants' associations can be particularly effective in promoting of stores using common

themes or events and during holiday seasons. The collective draw from these promotions is
usually several times that which a single retailer could have mustered.

How can you determine if the retail location you're considering has the benefit of an effective
merchants' association? Ask other storeowners in the area. Find out:
· How many members the association has
· Who the officers are;
· How often the group meets
· What the yearly dues are; and
· What specifically, it has accomplished in the last 12 months.

Ask to see a copy of the last meeting's minutes. Determine what percentage of the members
was in attendance.
What if there is no merchants' association? Generally (though not always) a shopping area or

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center with no merchants' association, or an ineffective one, is on the decline. You'll probably
see extensive litter or debris in the area, vacant stores, a parking lot in need of repair, and
similar symptoms. You should shun locations with these warning signs. With a little on-site
investigation, they're easy to avoid.

RESPONSIVENESS OF THE LANDLORD

Directly related to the appearance of a retail location is the responsiveness of the landlord to
the individual merchant's needs. Unfortunately, some landlords of retail business properties
actually hinder the operation of their tenants' businesses. They are often, in fact, responsible for
the demise of their properties.

By restricting the placement and size of signs, by foregoing or ignoring needed maintenance
and repairs, by renting adjacent retail spaces to incompatible -- or worse, directly competing --
businesses, landlords may cripple a retailer's attempts to increase business.

Sometimes landlords lack the funds to maintain their properties. Rather than continuing to
"invest" in their holdings by maintaining a proper appearance for their buildings and
supporting their tenants, they try to "squeeze" the property for whatever they can get.
To find out if a landlord is responsive to the needs of the retail tenants talk to the tenants
before you commit to moving in yourself. Ask them:

1) Does the landlord return calls in a reasonable period and send service people quickly?
2) Is it necessary to nag the landlord just to get routine maintenance taken care of?
3) Does the landlord just collect the rent and disappear, or is he or she sympathetic to the needs
of the tenants?
4) Does the landlord have any policies that hamper marketing innovations?

In addition to speaking with current tenants, talk to previous tenants of the location you have in
mind. You'll probably come up with a lot of helpful information. Find out what businesses they
were in and why they left. Did they fail or just move? What support or hindrances did the
landlord provide? If the opportunity presented itself, would they be retail tenants of this
landlord again?

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ZONING AND PLANNING
Your town's zoning commission will be happy to provide you with the latest "mapping" of the
retail location and surrounding areas that you are considering. Here are some questions to
consider:
· Are there restrictions that will limit or hamper your operations?
· Will construction or changes in city traffic or new highways present barriers to your store?
· Will any competitive advantages you currently find at the location you're considering be
diminished by zoning changes that will be advantageous for competitors or even allow new
competitors to enter your trade area?

Most zoning boards, along with economic/regional development committees, plan several
years in advance. They can probably provide you with valuable insights to help you decide
among tentative retail locations.

LEASES
Directly related to zoning is your intended length of stay and your lease agreement. Before you
enter into any rigid lease agreement, you must get information on future zoning plans and
decide how long you wish to remain at the location under consideration:
· Do you plan to operate the business in your first location indefinitely or have you set a given
number of years as a limit?
· If your business is successful, will you be able to expand at this location?
· Is your lease flexible, so that you have an option to renew after a specified number of years?
(On the other hand, is the lease of limited duration so, if need be, you may seek another
location?)
· Study the proposed lease agreement carefully. Get advice from your lawyer or other experts.

Does the agreement:

· Peg rent to sales volume (with a definite ceiling) or is rent merely fixed?
· Protect you as well as the property owner?

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· Put in writing the promises the property owner has made about repairs, construction and
reconstruction, decorating, alteration, and maintenance?
· Contain prohibitions against subleasing?
· Consider these factors before you settle on a location.

OTHER CONSIDERATIONS

A host of other considerations have varying importance in choosing a retail location, depending
on your line of business. The following questions, while they certainly don't exhaust all
possibilities, may help you decide on a retail location:
· How much retail, office, storage, or workroom space do you need?
· Is parking space available and adequate?
· Do you require special lighting, heating or cooling, or other installations?
· Will your advertising expenses be much higher if you choose a relatively remote location?
· Is the area served by public transportation?
· Can the area serve as a source of supply of employees?
· Is there adequate fire and police protection?
· Will sanitation or utility supply be a problem?
· Is exterior lighting in the area adequate to attract evening shoppers and make them feel safe?
· Are customer restroom facilities available?
· Is the store easily accessible?
· Does the store have awnings or decks to provide shelter during bad weather?
· Will crime insurance be prohibitively expensive?
· Do you plan to provide pick up or delivery?
· Is the trade area heavily dependent on seasonal business?
· Is the location convenient to where you live?
· Do the people you want for customers live nearby?
· Is the population density of the area sufficient?

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SHOPPING CENTERS
Shopping centers are distinctly different from the other two major locations -- that is,
downtown and local business strips. The shopping center building is pre-planned as a
merchandising unit for interplay among tenants. Its site is deliberately selected by the
developer for easy access to pull customers from a trade area. It has on-site parking as a
common feature of the layout. The amount of parking space is directly related to the retail area.
Customers like the shopping center's convenience. They drive in, park, and walk to their
destination in relative safety and speed. Some shopping centers also provide weather protection
and most provide an atmosphere created for shopping comfort. For the customer, the shopping
center has great appeal.

For the merchant making a decision whether or not to locate in a shopping center, these "plus"
characteristics must be related to the limitations placed upon you as a tenant. In a shopping
center, a tenant is part of a merchant team. As such, you must pay your pro rata share of the
budget for the team effort. You must keep store hours, light your windows, and place your
signs within established rules.

WHAT ARE YOUR CHANCES?

Whether or not a small retailer can get into a particular shopping center depends on the market
and management. A small shopping center may need only one children's shoe store, for
example, while a regional center may expect enough business for several. The management
aspect is simple to state: Developers and owners of shopping centers look for successful
retailers.

In finding tenants whose line of goods will meet the needs of the desired market, the
developerowner first signs on a prestige merchant as the lead tenant. Then, the developer
selects other types of stores that will complement each other. In this way, a "tenant mix" offers
a varied array of merchandise. Thus, the center's competitive strength is bolstered against other
centers as well as supplying the market area's needs.

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To finance a center, the developer needs major leases from companies with strong credit
ratings. The developer's own lenders favor tenant rosters that include the triple-A ratings of
national chains. However, local merchants with good business records and proven\
understanding of the local markets have a good chance of being considered by a shopping
center developer. But even so, a small independent retailer can sometimes play "hard to get."

When most spaces are filled, the developer may need YOU to help fill the rest of them. If you
are considering a shopping center for a first-store venture you may have trouble. Your financial
backing and merchandising experience may be unproved to the owner-developer. Your problem
is to convince the developer that the new store has a reasonable chance of success and will help
the "tenant mix."

WHAT CAN THE CENTER DO FOR YOU?

Suppose that the owner-developer of a shopping center asks you to be a tenant. In considering
the offer, you would need to make sure of what you can do in the center. What rules will there
be on your operation? In exchange for the rules, what will the center do for you?

Even more important, you must consider the trade area, the location of your competition, and
the location of your space in the center. These factors help to determine how much business
you can expect to do in the center.

In a Neighborhood Shopping Center, the leading tenant is a supermarket or drug store. The
typical leasable space is 50,000 square feet but may range from 30,000 to 100,000 square feet.
The typical site area is from 3 to 10 acres. The minimum trade population is 2,500 to 40,000. In
a Community Shopping Center, the leading tenant is a variety/junior department store or
discount department store. The typical leasable space is 150,000 square feet but may range
from 100,000 to 300,000 square feet. The typical site area is 10 to 30 acres. The minimum
trade population is 40,000 to 150,000.

In a Regional Shopping Center, the leading tenant is one or more full-line department stores.
The typical leasable space is 400,000 square feet with a range from 300,000 to more than
1,000,000 square feet. The typical site area is 30 to 50 acres. The minimum trade population is

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150,000 or more. When the regional center exceeds 750,000 square feet and includes three or
more department stores, it becomes a SUPERREGIONAL CENTER.

The Center's Location. In examining the center's location, look for answers to questions such as
these:
· Can you hold old customers and attract new ones?
· Would the center offer the best sales volume potential for your kind of merchandise?
· Can you benefit enough from the center's access to a market? If so, can you produce the
appeal that will make the center's customers come to your store?
· Can you deal with your logical competition?

To help answer such questions, you need to check out:

· the trade area and its growth prospects;
· the general income level in the trade area;
· the number of households; and
· the share of various age groups in the population. If your line were clothes for young women,
for example, you would not want to locate in a center whose market area contains a high
percentage of retired persons.

Make your own analysis of the market, which the developer expects to reach. In this respect,
money for professional help is well spent, especially when the research indicates that the center
is not right for your type of operation.

Your Space. Determine where your space will be. Your location in the center is important. Do
you need to be in the main flow of customers as they pass between the stores with the greatest
customer pull? Who will be your neighbors? What will be their effect on your sales?

How much space is also important. Using your experience, you can determine the amount of
space you will need to handle the sales volume you expect to have in the shopping center. And,
of course, the amount of space will determine your rent. Many merchants need to rethink their\
space requirements when locating in a shopping center. Rents are typically much higher and,
therefore, space must be used very efficiently.

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"Total Rent" -In most non-shopping center locations, rent is a fixed amount, which has no
relationship to sales volume. In shopping centers the "rent" is usually stated as a minimum
guaranteed rent per square foot of leased area against a percentage. Typically, while this is
between 5 and 7 percent of gross sales, it varies by type of business and other factors. This
means that if the rent as calculated by the percentage of sales ism higher than the guaranteed
rent, the higher amount is the rent. If it is lower than the guaranteed rent, then the guaranteed
rent is the amount paid. But this guarantee is not the end. In addition, you may have to pay
dues to the center's merchant association. You may have to pay for maintenance of common
areas.
Consider your rent, then, in terms of "total rent." If, and when, this "total rent" is more than
your present rent, your space in the center, of course, will have to draw sales enough to justify
the added cost.

Finishing Out. Generally, the owner furnishes the bare space. You do the "finishing out" at your
own expense. In completing your store to suit your needs, you pay for light fixtures, counters,
shelves, painting, and floor coverings. In addition, you may have to install your own heating
and cooling units. (Your lease should be long enough to pay out your "finishing out" expense.)

An innovation is the "tenant allowance:" By this system, landlords provide a cost allowance
towards completion of space. It is for storefronts, ceiling treatment, and wall coverings. The
allowance is a percentage of their cost and is spelled out in a dollar amount in the lease.

Some developers help tenants plan storefronts, exterior signs, and interior color schemes. They
provide this service to insure storefronts that add to the center's image rather than subtracting
from it.

TYPES OF SHOPPING CENTERS

Because each planned shopping center is built around a major tenant, centers are classed, in
part, according to this leading tenant. According to tenant makeup and size, there are three
types: neighborhood, community, and regional.

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Neighborhood. The supermarket or the drugstore is the leading tenant in a neighborhood
center. This type is the smallest in size among shopping centers. It caters to the convenience
needs of a neighborhood.

Community. Variety, junior department stores, or discount department stores lead in the next
bigger type -- the community center. Here, you find room also for more specialty shops, need
for wider price ranges, for greater style assortments, and for more impulse-sale items. In recent
years the community center has also been designed around the home improvement department
store which combine hardware, lumber, electrical, plumbing, flooring, building materials,
garden supplies, and a variety of other goods under one roof. The shops that are grouped
around this type of anchor tend to be similar in character and may include custom kitchen and
bath shops, upholstery, bedding, drapery, and other such shops. While this type of center tends
to meet the Community Shopping Center definition as to floor area and site size, its market
may be more like a regional center.

Regional. The department store, with its prestige, is the leader in the regional center – the
largest type of shopping center. When you find that a second or third department store is also
locating in such a center, you will know the site has been selected to draw from the widest
possible market area. Super-Regional centers have been developed with as many as 5
department stores. You will find, too, that the smaller tenants are picked to offer a range of
goods and services approaching the appeal once found only downtown.

The latest development in regional shopping centers is the enclosed mall. This type of center is
designed to shut out the weather and to serve a larger trade area than other regional centers.
Customers enjoy the open storefronts, the easy entrance, and the "all-weather" shopping.
Tenants enjoy more center-wide promotions because of weather control.

An enclosed air-conditioned mall enables you to merchandise the full width of your store. The
whole store becomes a display area, eliminating window backing and expensive display
settings. You can rely on sliding doors or an overhead open drop grill for locking up the store.

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If you are considering a mall, you should weigh the benefits against costs. At the outset, it may
be difficult to measure savings, such as the elimination of storefronts, against costs, for
example the cost for heating and air-conditioning in the enclosed mall.

Specialty Theme Shopping Centers. In addition to the three major categories of shopping
centers new types of centers are evolving that have been called specialty or theme centers. In
general these centers do not have a major anchor tenant. There is a greater percentage of
restaurants and specialty food stores, the other stores tend to be highly specialized with more
imported goods, custom crafted goods, designer clothes etc. Also a greater number of the
merchants are independents. Unusual and interesting architectural design is a normal
characteristic and frequently a tourist market rather than a resident market exists.

HOW TO MAKE A TRAFFIC COUNT

First of all, be sure you need a traffic count. Although knowledge of the volume and character
of passing traffic is always useful, in certain cases a traffic survey may not really make any
difference. Other selection factors involved may be so significant that the outcome of a traffic
study will have relatively little bearing on your decision. When the other selection factors, such
as parking, operating costs, or location of competitors, become less important and data on
traffic flow becomes dominant, then a count is needed. Once you have determined that you
really need a traffic count, the general objective is to count the passing traffic – both pedestrian
and vehicular -- that would constitute potential customers who would probably be attracted into
your type of store. To evaluate the traffic available to competitors, you may desire to conduct
traffic counts at their sites, too.

Data from a traffic count should not only show how many people pass by but generally indicate
what kinds of people they are. Analysis of the characteristics of the passing traffic often reveals
patterns and variations not readily apparent from casual observation.

For counting purposes, the passing traffic is divided into different classifications according to
the characteristics of the customers who would patronize your type of business. Whereas a

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drugstore is interested in the total volume of passing traffic, a men's clothing store is obviously
more concerned with the amount of male traffic, especially men between the ages of sixteen
and sixty-five.

It is also important to classify passing traffic by its reasons for passing. A woman on the way to
a beauty salon is probably a poor prospect for a paint store, but she may be a good prospect for
a drugstore. The hours at which individuals go by are often an indication of their purpose. In
the early morning hours people are generally on their way to work. In the late afternoon these
same people are usually going home from work. When one chain organization estimates the
number of potential women customers, it considers women passing a site between 10 a.m. and
5 p.m. to be the serious shoppers.

Evaluation of the financial bracket of passersby is also significant. Out of 100 women passing
a prospective location for an exclusive dress shop, only ten may appear to have the income to
patronize the shop. Of course, the greater your experience in a particular retail trade, the more
accurately you can estimate the number of your potential customers. To determine what
proportion of the passing traffic represents your potential shoppers, some of the pedestrians
should be interviewed about the origin of their trip, their destination, and the stores in which
they plan to shop. This sort of information can provide you with a better estimate of the
number of potential customers.

In summary, the qualitative information gathered about the passing traffic should include
counting the individuals who seem to possess the characteristics appropriate to the desired
clientele, judging their reasons for using that route, and calculating their ability to buy.

PEDESTRIAN TRAFFIC COUNT

In making a pedestrian count you must decide: who is to be counted; where the count should
take place; and when the count should be made. In considering who is to be counted, determine
what types of people should be included. For example, the study might count all men presumed
to be between sixteen and sixty-five. The directions should be completely clear as to the

87
individuals to be counted so the counters will be consistent and the total figure will reflect the
traffic flow.

As previously indicated, it is frequently desirable to divide the pedestrian traffic into classes.
Quite often separate counts of men and women and certain age categories are wanted. A trial
run will indicate if there are any difficulties in identifying those to be counted or in placing
them into various groupings.

You next determine the specific place where the count is to be taken. You decide whether all
the traffic near the site should be counted or only the traffic passing directly in front of the site.
Remember that if all the pedestrians passing through an area are counted, there is the
possibility of double counting. Since a person must both enter and leave an area, it is important
that each person be counted only once -- either when entering or when leaving. Therefore, it is
essential that the counter consistently counts at the same location.

When the count should be taken is influenced by the season, month, week, day, and hour. For
example, during the summer season there is generally an increased flow of traffic on the shady
side of the street. During a holiday period such as the month before Christmas or the week
before Easter, traffic is denser than it is regularly. The patronage of a store varies by day of the
week, too. Store traffic usually increased during the latter part of a week. In some
communities, on factory paydays and days when social security checks are received, certain
locations experience heavier than normal traffic.

The day of the week and the time of day should re~ resent a normal period for traffic flow.
Pedestrian flow accelerates around noon as office workers go out for lunch. Generally more
customers enter a downtown store between 10 a.m. and noon and between 1 p.m. and 3 p.m.
than at any other time. Local custom or other factors, however, may cause a variation in these
expected traffic patterns.

After you choose the day that has normal traffic flow, the day should be divided into half-hour
and hourly intervals. Traffic should be counted and recorded for each half-hour period of a
store's customary operating hours. If it is not feasible to count the traffic for each half-hour

88
interval, the traffic flow can be sampled. Traffic in representative half-hour periods in the
morning, noon, afternoon, and evening can be counted.

ESTIMATE OF STORE SALES

Data from a pedestrian traffic survey can give you information on whether or not the site would
generate a profitable volume for your store. A retailer with some past experience in the same
merchandise line for which a store is planned can make a reasonable estimate of sales volume
if the following information is available (in lieu of past personal experience, the trade
association for your type of business may be of help):

· Characteristics of individuals who are most likely to be store customers (from pedestrian
interviews).
· Number of such individuals passing the site during store hours (from traffic counts).
· Proportion of passersby who will enter the store (from pedestrian interviews).
· Proportion of those entering who will become purchasers (from pedestrian interviews).
· Amount of the average transaction (from past experience, trade associations, and trade
publications).

One retailer divides the people who pass a given site into three categories: those who enter a
store; those who, after looking at the windows, may become customers; and those who pass
without entering or looking. Owing to prior experience, this retailer is able to estimate from the
percentage falling into each classification not only the number who will make purchases but
also how much the average purchase will be. If, out of 1,000 passersby each day, five percent
enter (fifty) and each spends an average of $8 ($400), a store at that site which operates 300
days a year will have an annual sales volume of $120,000.

89
AUTOMOBILE TRAFFIC COUNT
A growing number of retail firms depend on drive-in traffic for their sales. Both the quantity
and quality of automotive traffic can be analyzed in the same way as pedestrian traffic. For the
major streets in urban areas, either the city engineer, the planning commission, the State
highway department, or an outdoor advertising company may be able to provide you with data
on traffic flows. However, you may need to modify this information to suit your special needs.
For example, you should supplement data relating to total count of vehicles passing the site
with actual observation in order to evaluate such influences on traffic as commercial vehicles,
changing of shifts at nearby factories, through highway traffic, and increased flow caused by
special events or activities.

HELP IN CHOOSING A LOCATION

Choosing a retail location is, at best, a risky undertaking. Considering the consequences of
choosing a location that proves to be unsuitable, it pays to get as much assistance as possible.

The local chamber of commerce in a city of more than 125,000 usually has a division devoted
primarily to assisting budding owner-managers in finding suitable locations for their\
businesses. This is a free service that surprisingly few people take advantage of.

The U.S. Small Business Administration (SBA) has field offices located throughout the
country. SBA field offices can provide free counseling assistance, literature, and information to
help you select a retail site. (See your local directory under "U.S. Government.")

You may wish to hire a consultant to analyze two or three locations that you have selected. It
costs less if you provide the consultant with pre selected potential locations than to have him or
her initiate an open-ended search for a location. The business school of a nearby college o
university may also be able to provide help.

Other sources of information on potential locations include bankers and lawyers, who may
have been in position to observe over an extended period of time many locations where other

90
clients previously did business. Realtors can also provide information on location. Remember
though, their compensation is based upon commissions for renting property.

LOCATE IN HASTE, REPENT AT LEISURE

Selection of a retail location requires time and careful consideration. It should not be done in
haste just to coincide, say, with a loan approval. If you haven't found a suitable location, don't
plan to open until you're sure you've got what you want. Put your plans on hold; don't just
settle for a location you hope might work out. A few months' delay is only a minor setback
compared to the massive -- often fatal -- problems that occur from operating a retail business in
a poor location.

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 CHAPTER – 5

CONCLUSIONS AND

RECOMMENDATIONS

92
 CHAPTER- 5

Conclusions & Implications:

After conducting the Meta –Analysis for the Indian retailing market, it can be concluded

that:

1) Retailers need to think about shoppers not just about a format as understanding the

shoppers’ dynamics holds the key to such a business. Retailers would have to create new

delivery formats that can cater to the huge mass of consumers.

2) Retailers must understand what value shopper is looking for and how the retailers can

deliver that desired value to the customer. However, most retailers look for what they are

offering and how shoppers can fit into retailer’s scheme of offerings.

3) In the long run such strategies may not be viable. Sam Walton and Jack Welch share a same

line of thinking that consumer is the source of competitive advantage and one of leading

UK based retailers Tesco Inc. has shown how understanding consumer can be a source of

redefining business and gaining sustainable advantage.

The retailer operates four different retail formats namely Express, Super store Metro and Extra

to cater consumer need. The Group also has an additional 527 stores under the One Stop fascia.

All the formats are profitable and each format is tailor made to fulfill customer need. It is the

value offering which makes Tesco so popular and profitable. Similarly in India Pantaloon

Retail runs several formats and for value retailing Big Bazaar is receiving exceptional response

from the customers.

93
4) Retailing in India is entirely different from western countries for that matter even from

Asian counterparts. Studies show that upgraded Kirana stores are growing at the same rate

as organized retailers.

5) It is also observed that in the changing retailing environment, understanding the psyche of

customer is critical to success in retailing. Aggregate level picture may be misleading, as it

averages the beats and the valleys. Hence, individual understanding is desirable.

6) Though, some Indians are behaving as sophisticated shoppers, tens of millions are still

novice but no less avid consumers are joining the fray every year. So, retailers have to

acknowledge this change and also stay a step a head of the evolution curve of the Indian

market.

7) Finally, it is not the format that gives business sustainability rather it is one of the vehicles

to deliver the value to the customer.

8) Indian consumers are still family-driven entities. Shopping, entertainment and eating out

are family events. Since these decisions are normally group decisions, hence a marketer has

to address family sensibilities more rigorously to woo Indian customers.

9) Indian customers have become more sensitive to quality, customer service and status.

He/She is ready to pay, sometimes, astronomical sums provided their needs are satisfied.

They are basically looking for an experience which is more of cognitive than physical. In

brief, Jo Dikhta Hai Wo Hi Bikta Hai.

In some cases, few Kirana store owners find no competition because they understand what

their customers want. So ultimately it can be said that for a retailer understanding the

customers is just like climbing the Greased Pole.

94
 REFERENCES
Company (Retail Location)
Business today edition dated Nov 6, 2008
Businessworld - The Marketing Whitebook, 2008
Press Sources like Economic Times, Business Standard, The Hindu Business Line
KSA Technopack Studies ( Handles some aspects of franchise for Barista)

o www.etretailbiz.com
o www.barista.co.in
o www.mothersprideonline.com
o www.rbk.com
o www.fernsnpetals.com
o http://www.ibef.org/economy/fdi.aspx
o http://www.mumbaipropertyexchange.com/newsdetail.asp?news=84
o http://www.pantaloon.com/html/company_profile.htm
o http://retailindustry.about.com/od/abouttheretailindustry/p/retail_industry.htm
o http://retailindustry.about.com/gi/dynamic/offsite.htm?zi=1/XJ&sdn=retailindus
try&zu= http%3A%2F%2Fwww.census.gov%2Fprod%2F2005pubs%2Fbr04-
a.pdf
o http://www.plunkettresearch.com/Industries/Retailing/RetailingTrends/tabid/269
/Default.aspx
o http://www.euromonitor.com/reportsummary.aspx?folder=Retailing_in_China&
industryfolder=Retailing

Books:

1. MARKETING MANAGEMENT by Philip Kotler

2. ORGANIZATIONAL BEHAVIOR by Stephen P Robbins.
3. CONSUMER BEHAVIOR by Leon G. Schiffman & Lesile Lazar Kanuk

Websites:

1. GOOGLE.COM
2. PROWESS DATABASE (CMIE)
95
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