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Location Strategy
Customer Service
Merchandise Assortment
Communication Mix
Pricing
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Having a good location increases chances of developing a strong sustainable competitive advantage
Location decisions are risky: invest or lease?
Rent Traffic
Shopping Centers
Strip Shopping Centers Shopping Malls
Types of Locations
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Convenience High traffic and visibility Modest occupancy cost Separation from competition Few restrictions
Disadvantages:
No foot traffic No drawing power
Freestanding Sites
Freestanding sites are retail locations for an individual , isolated store unconnected to other retailers: however , they might be near other freestanding retailers, a shopping center, or , in the case of kiosk , inside an office building or shopping center.
Eg: Some of the brand factory stores on the outskirts of a city . Elizabeth Ardens kiosk at forum shopping mall at Bangalore . Kiosks offer mall developers an opportunity for additional revenue from unused space. Highway Stores
Freestanding Sites
Retail locations for an individual, isolated store unconnected to other retailers
Outparcels
Merchandise Kiosks
Merchandise kiosks
Small selling spaces, typically located in the walkways of enclosed malls, airports, train stations, or office building lobbies.
Disadvantages
Limited trade area when not around nearby retailers Usually located where there is little pedestrian traffic store success depends on its own pulling power and promotion to attracts customer
Disadvantages
- Traffic is limited due to congestion - Parking problems reduce consumer convenience
Advantages
- Draws people during business hours - Heavy public transportation - Pedestrian traffic - Residential area as well
Disadvantages
- High security required - Shoplifting - Parking is poor - Evenings and weekends are slow
Main street
Main street is the traditional shopping area of smaller towns or secondary business district in a suburb or within a larger city . Often streets in these areas have been converted into pedestrian walkways .
Occupancy costs are generally lower than CBDs Fewer people are employed Smaller selection due to fewer stores Range of entertainment is usually smaller City planning sometimes restrict store operations
Inner city
Is high density urban area consisting of apartment buildings populated primarily by lower income consumers . Inner city consumers desire to buy branded merchandise from nationally recognized retailers in neighborhoods where they live. Although the income levels are lower in inner cities than in other neighbourhoods, most inner city retailers achieve a higher sales volume and often higher margins , resulting in higher profits .
Inner City
High density urban areas with higher unemployment and lower median incomes than surrounding areas
- Retailers here achieve higher sales volume and higher margins, thus producing higher profits - Redevelopments in inner cities can cause increased traffic and parking difficulties, causing them to be controversial
Shopping Centres
A shopping centre is a group of retail and other commercial establishment that is planned , developed , owned and managed as a single property . By combining many stores at one location , disproportionately more consumers are attracted to the shopping centre than if the stores were at separate locations .
Shopping Centers
Shopping Center Management, referred to as common area maintenance( CAM ) , maintains the common facilities such as: Parking Security Parking lot lighting Outdoor signage Advertising Special events for customers
Most shopping centre have atleast one or two major retailers , referred to as anchors.
Power Centers
Shopping centers that consist primarily of
Power Centers
Limited small specialty stores Many located near enclosed malls Low occupancy costs Convenient
Shopping Malls
They are enclosed , climate controlled , lighted shopping centres with retail stores on one or both sides of an enclosed walkway.
Shopping Malls
Regional Malls
Less than 1 million square feet
Shopping Malls
Advantages
Wide variety of stores Wide assortment of merchandise Shopping and entertainment No inclement weather Uniform hours of operation Attracts many shoppers
Disadvantages - Occupancy costs are generally higher - Mall control over business operations - Competition can be intense
Lifestyle Centers
Lifestyle centers are shopping centers with open an open air configuration of upscale specialty stores , entertainment and restaurants with design ambience and amenities such as fountains and street furniture . Lifestyle centers are typically located near affluent neighborhoods and cater to the lifestyles of consumers in their trade areas. Due to the ease of parking , lifestyle centers are very convenient for shoppers .But they are smaller than enclosed malls thus have smaller trade area and attract fewer customers than enclosed malls.
Lifestyle Centers
Advantages
- Ease of parking - Relaxed open-air environment - Pedestrian traffic tends to be higher - Occupancy costs and operating restrictions are less
Disadvantages - Less retail space - Smaller trade areas - Attract fewer customers
Fashion/Specialty Centers
Outlet Centers
Shopping centers that contain mostly manufacturers and retailers outlet stores, though they sometimes include off price retailers . Outlet centres are located some distance from shopping centres so that the manufacturers brands sold at discount prices in their outlet stores will not compete for customers buying the same brands in deparment stores .outlet stores offer assortments that do not overlap with deptt store assortment .
Outlet Centers
- Strong entertainment component - Becoming more popular outside the United States - Tourism is important for outlet centers
Theme/Festival centers
Shopping centers that typically employ a unifying theme reflected in the individual shops in their architectural design, and to some extent their merchandise.
Theme/Festival centers
Located in places of historic interests or for tourists Anchored by restaurants and entertainment facilities Generally targeted at tourists, they may also attract local customers A common element of these centers is entertainment, although some rely solely on the shopping experience
Omnicenters
Combines enclosed malls, lifestyle centers, and power centers
Omnicenters are becoming more popular in the U.S. partly from the desire of tenants for lower commonarea maintenance charges and the growing tendency of consumers to cross-shop.
- Offer an all-inclusive environment so that consumers can work, live, and play in a proximal area - Combine several different uses into one complex, including shopping centers, office towers, hotels, residential complexes, civic centers, and convention centers
Airports
- High pedestrian traffic - Sales per square foot are higher than mall stores - Rent is higher - Hours are longer - Inconvenient location for workers means higher wages
Good for businesses trying to create a little hype Good introduction for new stores or products Provide visibility for a business Provide additional sales during holidays and special events
Resorts
St. Regis Aspen Resort, CD - Captive audiences - Wealthy customers - People with time on their hands
- This concept benefits both companies to attract more customers - Helps fill holes in product offerings
Shopping Situations
3 Shopping Behaviors
Convenience Shopping
Shopper Mentality
Comparison Shopping
Shopper Mentality
Specialty Shopping
Shopper Mentality
Escape clause
Allows the retailer to terminate its lease if sales dont reach a certain level after a specified number of years, or if a specific co-tenant in the center terminates its lease.
Environmental Issues
Above-ground risks - such as asbestos-containing
materials or lead pipes used in construction.
Retailers Protection
Stipulate in the lease that the lessor is responsible for removal and disposal of this material if its found. Retailer can buy insurance that specifically protects it from these risks.
Signs
Restrictions on the use of signs can also impact a particular sites desirability
Licensing Requirements
Some areas may restrict or require a license for alcoholic beverages
Why so important ?
Requires complex decision making Costs lots of $$ Little flexibility once a location has been chosen Attributes of location have a strong impact on the retailers strategy
Factors to be considered : Economic conditions Competition The strategic fit of the areas population with the retailers target market The costs of operating stores .
Economic Conditions
Level and growth of population and employment. Fully employed population means high purchasing power and high levels of retail sales. Determine how long will the growth continue and how will it affect the merchandise demand . Useful to determine which areas are growing quickly and why.
Competition
Level of competition in an area clearly affects demand for a retailers merchandise . Walmarts early success was based on a location strategy of opening stores in small towns that are relatively under stored, a condition in which an area has too few stores to satisfy the needs of local consumers for specific merchandise and services. Walmart stores offered consumers in small towns merchandise at prices that they previously could only acquire by driving to and shopping in much larger towns .
Strategic fit
The areas needs to have consumers who are in the retailers target market. Area should have right demographic and lifestyle profile.
Operating cost
Cost of operating varies across areas. Governed by factors such as store rental , advertising , proximity to DC , cost of shipping merchandise , local and state legal and regulatory environment .
Cannibalization
While there are scale economies gained from opening multiple locations in an area , there also are diminishing returns associated with locating too many additional stores in an area. Primary retailing objective is to maximize profits for the entire chain , retailers should continue to open stores only as long as profits continue to increase or in economic terms , as long as the marginal revenues achieved by opening a new store are greater than the marginal costs . In the long run , intentional cannibalization builds a competitive advantage because the shopping experience for customers is enhanced two stores , less congestion .In addition , having more stores in an area makes it less attractive for a competitor to enter the area and increase the retailers market share .
Site Characteristics
Traffic Flow and Accessibility Number and type of vehicles passing location Access of vehicles to location Number and type of pedestrians passing location Availability of mass transit, if applicable Accessibility of major highway artery Quality of access streets Level of street congestion Presence of physical barriers that affect trade area .
Location characteristics Number of parking spaces available Distance of parking areas Ease of access for delivery Visibility of site from street Compatibility of neighboring stores Ease of entrance and exit for traffic Ease of access for handicapped customers
Restrictions and costs Retailers may place restrictions on the type of tenants that are allowed in a shopping centre in their lease agreement.
Basic rent payments Length of lease Local taxes Operations and maintenance cost Restrictive clauses in lease Membership in local merchants association required Voluntary regulations by local merchants
Factors affecting the size of trade area Trade area is influenced by the type of store or shopping area. The size of trading area is determined by the nature of the merchandise sold , the assortment offered and the location of alternative sources for merchandise . Convenience stores are popular because customers can buy products like milk and bread quickly and easily , but if customers must drive great distance , the store is no longer more convenient than a supermarket. Category specialist offer a large choice of brands and products for which customers are engaged in comparison shopping . Thus , customers will generally drive some distance to shop at a category specialist.
A destination store is one in which the merchandise , selection , presentation , pricing or other unique features attract customers to the store regardless of other neighboring stores . People are willing to drive farther to shop there . A parasite store is one that does not create its own traffic and whose trade area is determined by the dominant retailer in the shopping area or retail area.
Demographic data from Census Bureau A census is a count of the population of a coutnry as of a specified date . Every ten years , census takers attempt to gather demographic information ( sex , age , ethnicity , education , marital status , etc ) from every household .
Geographic Information systems ( GIS ) suppliers GIS is a system of hardware and software used to store , retrieve , map and analyze geographic data , along with the operating personnel and the data that go into the system. Geographic Information System (GIS) is a computer system that enables analysts to visualize information about their customers demographics, buying behavior, and other data in a map format.
GIS is a spatial database that stores the location and shape of information. Analysts can identify the boundaries of a trade area and isolate target customer groups
GIS Components
Physical Geography Latitude/Longitude Land/Water Terrain Rainfall/Snow Temperature Cultural Geography
Data Inputs
Demographics Man-Made Structures Consumption Patterns Work Patterns Leisure Behavior Deviant Behavior
GIS (Data Aggregation and Analysis via Computer) Output Maps and Other Displays of Information
Huffs Law
Assumptions: The proportion of consumers patronizing a given shopping area varies with the distance from the shopping area The proportion of consumers patronizing various shopping areas varies with the breadth and depth of merchandise offered by each shopping area The distance that consumers travel to various shopping areas varies for different types of products purchased The pull of any given shopping area is influenced by the proximity of competing shopping areas
Force of attraction is based on two factors : The size of the store ( larger stores have more pulling power ) Time it takes to travel to the store. ( stores that take more time to get to have less pulling power )
The formula indicates that the larger the size of the store compared with competing stores sizes , the greater the probability that customer will shop at the location. Even though the Huff gravity model only considers two factors affecting store sales travel time and store size its predictions are quite accurate because these two factors typically have the greatest effect on store choice.
Regression Analysis
The regression analysis approach is based on the assumption that factors that affect the sales of existing stores in a chain will have impact on stores located at new sites being considered . When using this approach , the retailer employs a technique called multiple regression to estimate a statistical model that predicts sales at existing store locations . The technique can consider the effects of the wide range of factors , including site characteristics such as visibility and access and characteristics of the trade area such as demographics and life style segments represented .
Analog Approach
To develop a regression model , a retailer needs data about the trade area and site characteristics from a large number of stores. Because small chains cannot use the regression approach , they use the similar but more subjective analog approach . When using the analog approach , the retailer simply describes the site and trade area characteristics for its most successful stores and attempts to find a site with similar characteristics .
NEGOTIATING A LEASE
Once particular site is chosen , retailers still face multitude of decisions , including the types and terms of the lease . Types of Leases :
Percentage leases Fixed - Rate
Percentage leases - rent is based on a percentage of sales. Retailers also typically pay a maintenance fee based on a percentage of their square footage of leased space.
Most malls use some form of percentage lease.
tenants
Some tenants take up parking spaces and dont bring in shoppers: bowling alley, skating rink, meeting hall, dentist, or real estate office.
Some tenants could harm the shopping centers wholesome image: bars, pool halls, game parlors, off-track betting establishments, massage parlors retailers.
Escape clause
Allows the retailer to terminate its lease if sales dont reach a certain level after a specified number of years, or if a specific co-tenant in the center terminates its lease.