Retail Site Locations - Chapter 6

• Chapter 6 is on Retail Site Locations

Objectives

• Retail site decisions necessitate identifying and finalizing critical factors
• Determine costs for each possible location

Retail Site Location Considerations

• Human Resource Management Information Systems and Supply Chain Management must be considered when determining retail site location

Key Questions for Retailers

• There are several factors retailers take into account when deciding where to locate
• What a trade area is for a store and how the trade area is determined
• The factors retailers consider when deciding on a specific site
• New store sales forecasts
• Where retailers find information to evaluate potential store locations
• Issues involved in negotiating leases

Evaluating Specific Areas for Locations

• Strategic fit, economic conditions, competition and operating costs must be evaluated
• Economic conditions are impacted by population and employment growth
• Also important is the growth's duration and its impact on merchandise demand
• The growth of areas is also impacted by a lack of competition, disposable income, and the labor force
• A demographic, lifestyle profile, and household size and composition are important to strategic fit
• McDonald’s caters to families with kids, while REI caters to outdoor enthusiasts
• Operating costs vary, they are affected by vicinity considered v other areas, and local and state legal environment

Number of Stores to Open in an Area

• Economies of scale must be balanced against the risk of cannibalization when opening stores in an area
• Promotional costs are lower, the cost of the distribution center is justified and there are greater sales per store
• The management controlling local markets should target the needs of regional markets

Evaluating a Specific Site

• Retailers consider the site's characteristics, the trading area's characteristics, and the estimated potential sales

Traffic Flow and Accessibility

• Greater traffic results in more customers
• Convenience retailers benefit from traffic, while destination retailers do not necessarily need much traffic
• Too much traffic can impede store access
• Store accessibility is as important as traffic flow

Assessing Convenience to the Site

• Consider accessibility, road patterns, traffic flow and natural and artificial barriers

Road Patterns and Conditions

• Natural and artificial barriers
• Visibility
• Parking, congestion and Ingress/egress should be considered
• Parking considerations include observations at various times, employee parking, shoppers' use of cars/parking, and parking by non-shoppers
• The typical length of a shopping trip must also be considered

Site Characteristics

• Should include a road pattern and condition
• Include natural and artificial barriers
• Visibility
• Traffic flow
• Parking
• Congestion
• Ingress/egress

Adjacent Tenants

• Complementary or competing adjacent retailers build traffic
• Save-A-Lot may want to be near Big Lot, Family Dollar, or even Wal-Mart to target price-sensitive consumers
• In an enclosed mall like American Eagle Outfitter, Ann Taylor, Body Shop, Electronic Boutique should be located there
• In an enclosed mall, Abercromie & Fitch would want to be located near the principle of cumulative attractiveness

Restrictions and Costs

• Restrictions and costs that the retailer needs to be aware of: Signage, Tenant Mix, operating hours, rent, common area maintenance, fee/insurance, and advertising fee

Trade Area

• In a strip shopping center, the best spot for impulse buying is closest to the supermarket.
• In en enclosed shopping mall, retailers who sell comparison shopping goods should be near department store anchors.
• Stores that appeal to similar target markets should be located together because consumers shop at places with a good assortment of merchandise.
• A contiguous geographic area accounts for the majority of a store's sales and customers

Trade Area Definition

• A store's trade is in three zones, primary, secondary, and tertiary
• Primary zone accounts for 60-65% of its customers
• Secondary 20% of sales
• Tertiary for occasional shoppers
• Factors affecting the size of the trade area include, accessibility and natural and physical barriers

Other Factors

• The type of shopping area
• Store type
• The nature of merchandise, assortment, and location of alternative sources for the merchandise
• Competition
• Parasite Stores should be considered

Trade Area Measurement

• Can include customer spotting, use of census data and utilizing geodemographic information systems

Demographic Data

• This includes each household in the country is counted to determine the number of persons per household
• Includes household relationships, sex, race, age and marital status

Geographic Information System (GIS)

• This is a system of hardware and software used to store, retrieve, map and analyze geographic data with operating personnel and data
• This includes, coordinate system (latitude and longitude) and Spacial features (rivers and roads)
• Some firms offer services that combine GIS with updated census data, consumer spending patterns and lifestyles
• Such as ESRI (www.esri.com) and Claritas (www. Claritas.com)

Other Considerations

• Consider the target consumer, for example young metro renters
• Factors include, well educated, professional, proximity to large cities, and a median income ($50,000)
• Must spend on themselves on the internet
• Need to know amount and type of competition is important
• Sources for measuring competition is needed

Finding Competition

• The internet has current locations and future sites
• Yellow Pages
• Other sources include directories published by trade associations, chain store guides, chambers of commerce, international Council of Shopping Centers, Urban Land Institute, local newspaper advertising departments, municipal and county governments, specialized trade magazines, and List brokers

Estimating Potential Sales

• Huff’s Model and Analog Approach can be utilized
• Regression Analysis
• Based on the premise that the probability which a given customer will shop in a particular store or shopping center becomes larger as the size of the store or center grows and distance or travel time from customer shrinks

Pij = ∑ j =1

Gravitational Models

• Where Pij = Probability of a customer at a given point of origin i traveling to a particular shopping center j
• Sj = Size of shopping center j
• Tij = Travel time or distance from customer's starting point to shopping center
• B= An exponent to TIJ that reflects the effect of travel time on different kinds of shopping trips
• Multiple Regression Analysis can be used to predict sales by using factors from existing stores in a chain

Application of Regression Model

• Analog Approach describes the site and trade area characteristics for its most successful stores and attempts to find a similar site
• Stores sales = 275 x number of households in trade area (15 minute drive time)
• Regression Model for Estimating Store Sales
• Store Sales B = = 275x15,000 + 1,800,000 x 0.2+ 2,000,000 x 0.1 +8 x 250,000

Types of Leases

• Percentage leases are based on a percentage of sales, retailers also typically pay a maintenance fee-based on a percentage of their square footage of leased space with variations of percentage lease
• Sliding scale (percentage of sales as rent decreases as sales go up)
• Set rent, percentage of sales, percentage lease with specified maximum

Fixed Rate Leases

• Used by community and neighborhood centers with the retailer pays a fixed amount per month over the life of the lease
• These are not as popular as percentage leases
• A grandfathered lease, has a fixed amount over specified time

Lease Terms

• This can include a prohibited use clause (limits who the landlord leases to)
• In addition it must not harm a shopping center
• These include bar, pool hall, or adult entertainment
• Exclusive Use Clause, which prohibits to lease to competing retailer, including specifying no out parcels.