Chapter-6Chapter-6

RETAIL LOCATION STRATEGY

Importance of location decisionImportance of location decision Location is a major cost factor because it :

i. involves large capital investment ii. affects transportation costsiii. affects human resources cost

Location is a major revenue factor because it :i. affects the amount of customer trafficii. affects the volume of business

Levels of location decision and its Levels of location decision and its determining factorsdetermining factors

A retailer takes a location decision based on:

- selection of a city- selection of an area or type of location within

a city- identification of a specific site

Types of retail locationTypes of retail locationTypes ofTypes of locations

Free standing locations neighborhood stores highway stores

Unplanned business districts/ centres downtown or central business district secondary business district suburban business district strip centre

Planned shopping centres regional shopping centres of malls neighbourhood / community specialist markets periodic/ weekly markets

Site selection analysisSite selection analysis• Six factors to be considered while

selecting a site:

kinds of products sold

cost factor

competitor’s location

ease of traffic flow and accessibility

parking and major thoroughfares

market trends

visibility

Selection of a particular shopping Selection of a particular shopping centre or market areacentre or market area

• Five factors influence the selection of a particular shopping centre:

merchants’ association

landlord’s responsiveness

zoning and planning

lease terms

building layout

Central place theoryCentral place theory Theory established by Christaller and Losch

Threshold

Range

- theory attempts to explain the spatial distribution of a settlement

-central level for a store is the minimum area from which it must draw traffic to be viable

- range is a sphere of the settlement of consumers travelling to the central place

- range of a store should be at least equal to its threshold area

- store will earn profits only if its range is larger than its threshold

Spatial interaction theorySpatial interaction theory

• Theory discards the assumption made by central place theory that behavior is explained by consumers using the nearest offering of goods or services

• Theory dates to 1931 from the pioneering studies of William J. Reilly

• Likelihood that a city or shopping centre will attract shoppers from the hinterland increases with the size of the city or shopping centre and decreases with distance from the city or shopping centre

Spatial interaction theory Spatial interaction theory contdcontd

• The law of retail gravitation can be supplemented with the knowledge of the location and size of competing centers to develop a boundary around another centre

• Reilly’s law of retail gravitation (R, retail attractiveness of a central place or shopping center J to a potential customer residing at I) increases proportionately with the population P (or size in square feet) of J and increases inversely with the square of the distance ij

• RJ =kpj/dij square

Land value theoryLand value theory• Land value theory (bid rent and urban rent theory)

achieved recognition from the work of Haig during 1927

Rent per acre

Distance

Bid rent function

- used for analyzing and explaining the arrangement of urban land uses - analyzes and explains the arrangement of urban land uses and the location of economic activities within cities- price a bidder is likely to pay will depend on the use of the site - more central the location = more desirable the plot - more central the location = higher price (as different users bid to purchase the land)- retailers require access to consumers more than any other land use function - will be prepared to pay very high rents for city centre locations - bid rent demand from retailers will fall sharply as the distance from the city centre increases (see figure)