Marketing Selection and Retail Location Analysis

Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.

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Target Market

A well-defined target market: the moderate-income, careeroriented woman who is fashion conscious.
Loriel, Santro, Wills Lifestyle

Importance of location decision: Requires complex decision making Costs lots of money Little flexibility once a location has been chosen Attributes of location have a strong impact on the retailers strategy
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Type of Retail Stores

The Isolated Store or a free standing location Part of a business district Part of a shopping center'

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 Location can differentiate the store and provide a competitive advantage Location affects marketing strategy Determines customer patronage Impacts store image and personality Location affects the financial strategy Determines cost Affects store volume

Checklist for Site Evaluations

Local Demographics

Population and/or household base Population growth potential Lifestyles of consumers Income potential Age makeup Population of nearby special markets, that is, daytime workers, students, and tourists, if applicable Occupation mix

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Checklist for Site Evaluations

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 shape

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Location of Store-Based Retailers

Store-Based Retailers operate from a fixed store location that requires customers to travel to the store to view and select merchandise or service. Nonstore-Based Retailers intercept customers at home, at work, or at a place other than a store where they might be susceptible to purchasing.

Location of Store-Based Retailers

Central Business Districts (CBD) usually consists of an unplanned shopping area around the geographic point at which all public transportation systems converge; it is usually in the center of the city and often where the city originated historically. Secondary Business District (SBD) is a shopping area that is smaller than the CBD and that revolves around at least one department or variety store at a major street intersection.
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Location of Store-Based Retailers

LO 2

Neighborhood Business District (NBD) is a shopping area that evolves to satisfy the convenience-oriented shopping needs of a neighborhood, generally contains several small stores (with the major retailer being a supermarket or a variety store), and its located on a major artery of a residential area. Shopping Center (or mall) is a centrally owned or managed shopping district that is planned, has balanced tenancy (the stores complement each other in merchandise offerings), and is surrounded by parking facilities.

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Location of Store-Based Retailers

Anchor Stores are the stores in a shopping center that are the most the most dominant and are expected to draw customers to the shopping center. Free-Standing Retailer generally locates along major traffic arteries and does not have any adjacent retailers to share traffic with.

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Shopping Center Advantages over a CBD

Heavy traffic resulting from the wide range of product offerings. Cooperative planning and sharing of common resources. Access to highways and availability of parking. Lower crime rate. Clean, neat environment.

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Shopping Center Disadvantages

LO 2

Inflexible store hours (open during mall hours only).

High rents.
Restrictions as to what merchandise the retailer may sell. Inflexible operations and required membership in the centers merchant organization. Possibility of too much competition and the fact that much of the traffic is not interested in a perticular product offering.

Dominance of the smaller stores by the anchor tenants.

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Advantages of Freestanding Retailing

LO 2

Lack of direct competition.

Generally lower rents.

Freedom in operations and hours. Facilities that can be adapted to individual needs. Inexpensive parking.

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Limitations of Freestanding Retailing

Lack of drawing power from complementary stores.

Difficulties in attracting customers for the initial visit.

Higher advertising and promotional costs. Operating costs that cannot be shared with others. Stores that may have to be built rather than rented. Zoning laws that may restrict some activities.

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Nonstore-based Retail Formats

LO 2

Direct Selling

Street Peddling
Interactive TV Mail-Order Internet Automated Merchandising Systems

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Selecting a Retail Location

LO 4: Exhibit 7.5
Identify the most attractive markets in which to operate

Identify the most attractive sites that are available within each market

Select the best site(s) available

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Market Identification
LO 4

Trading Area

Is the geographic area from which a retailer, or group of retailers, or community draws its customers.

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Retail Location Theories

LO 4

Retail Gravity Theory

Saturation Theory
Buying Power Index

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Retail Location Theories

LO 4

Retail Gravity Theory

Suggests that there are underlying consistencies in shopping behavior that yield to mathematical analysis and prediction based on the notion or concept of gravity.

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Retail Location Theories

LO 4

Reillys Law of Retail Gravitation based on Newtonian gravitational principles, explains how large urbanized areas attract customers from smaller rural communities. d Dab = Pb 1+ Pa

where Dab is the breaking point from city A, measured in miles along the road to city B; d is the distance between city A and city B along the major highway; Pa is the population of city A; and Pb is the population of city B.
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Retail Location Theories

LO 4

Point of Indifference

Is the extremity of a citys trading area where households would be indifferent between shopping in that city or an alternative city in a different geographical direction.

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Trading Area for City A

LO 4: Exhibit 7.6
City B (Population 14,000)
3.5 miles

14.5 miles

3.2 miles

City A (Population 240,000) Y 1.3 miles

Z
City C (Population 21,000)

3.7 miles

City D (Population 30,000)

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Retail Location Theories

LO 4

Saturation Theory

Examines how the demand for goods and services of a potential trading area is being served by current retail establishments in comparison with other potential markets.

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Retail Location Theories

LO 4

Retail Store Saturation is a condition where there is just enough store facilities for a given type of store to efficiently and satisfactorily serve the population and yield a fair profit to the owners. Understored is a condition in a community where the number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor. Overstored is a condition in a community where the number of stores in relation to households is so large that engaging in retailing is usually unprofitable or marginally profitable.
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Retail Location Theories

LO 4

Index of Retail Saturation (IRS) is the ratio of demand for a product (households in the geographic area multiplied by annual retail expenditures for a particular line of trade per household) divided by available supply (the square footage of retail facilities of a particular line of trade in a geographic area). IRS = (H X RE)/RF
Where IRS is the index of retail saturation for and area; H is the number of households in the area; RE is the annual retail expenditures for a particular line of trade per household in the area; RF is the square footage of retail facilities of a particular line of trade in the area (including square footage of the proposed store).
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Retail Location Theories

LO 4

Buying Power Index (BPI) is an indicator of a markets overall retail potential and is composed of the weighted measures of effective buying income (personal income, including all nontax payments such as social security, minus all taxes), retail sales, and population size.
BPI = 0.5(the areas percentage of U.S. effective buying income)

+ 0.3(the areas percentage of U.S. retail sales) + 0.2(the areas percentage of U.S. population)

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Market Demand Potential

LO 4

Population Characteristics

Buyer Behavior Characteristics

Household Income Household Age Profile Household Composition Community Life Cycle Population Density Mobility

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Site Analysis
LO 5

Site Analysis

Is the evaluation of the density of demand and supply within each market with the goal of identifying the best retail site(s).

Size of Trading Areas Description of Trading Area Demand Density Supply Density Site Availability
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Site Analysis
LO 5

Size of Trading Areas

Description of Trading Area

Demand Density Supply Density Site Availability

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Checklist for Site Evaluations

LO 5: Exhibit 7.12

Local Demographics Population and/or household base Population growth potential Lifestyles of consumers Income potential Age makeup Population of nearby special markets, that is,
daytime workers, students, and tourists, if applicable

Occupation mix
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Checklist for Site Evaluations

LO 5: Exhibit 7.12

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
shape
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Checklist for Site Evaluations

LO 5: Exhibit 7.12

Retail Competition Number and types of stores in area Analysis of key players in general area Competitiveness of other merchants Number and location of direct competitors in area Possibility of joint promotions with local merchants

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Checklist for Site Evaluations

LO 5: Exhibit 7.12

Site Characteristic
Number of parking spaces available Distance of parking areas Ease of access for delivery Visibility of site from street History of the site Compatibility of neighboring stores Size and shape of lot Condition of existing building Ease of entrance and exit for traffic Ease of access for handicapped customers Restrictions on sign usage Building safety code restrictions Type of zoning
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Checklist for Site Evaluations

LO 5: Exhibit 7.12

Cost Factors Terms of lease/rent 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
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Site Selection
LO 6

Nature of Site

Terms of Purchase or Lease

Expected Profitability

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Nature of Site
LO 6

Traffic Characteristics

Types of Neighbors

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Nature of Site
LO 6

Store Compatibility

Exists when two similar retail businesses locate next to or nearby each other and they realize a sales volume greater than what they would have achieved if they were located apart from each other.

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Terms of Purchase or Lease

LO 6

Length of lease

Exclusivity clause
Guaranteed traffic rate Anchor clause

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Expected Profitability
LO 6

Net profit margin

Asset turnover
Return on assets

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If Retailers Could Select Their Neighbors Retailer Fast-food restaurant Health food store Recycled merchandise Home improvement store Hardware store Zales Jewelry Record Giant Payless Shoes Longs Drug Stores Cato Fashion Bennetton Nursery and Crafts LO 6 Next to Gas service station Fitness center, medical center Supercenter Supercenter Wholesale club, supermarket Sears, JCPenney, Mervyns Wal-Mart; Kmart Supercenters, KinderCare TJMaxx, Kmart Kmart; Wal-Mart Nordstron; Bloomingdales Toys R Us; Circuit City
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Retail Formats for Accessing a Target Market LO 2: Exhibit 7.2 Retail Formats
Store-Based Nonstore-Based

Business District

Shopping Centers/Malls

Freestanding

Nontraditional

Street Peddling Direct Selling

Mail-Order

Automated Merchandising Systems

Interactive TV

Internet
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