retail

1

Marketing Selection and Retail Location AnalysisMarketing Selection and Retail Location Analysis

Chapter 7

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

2

Learning ObjectivesLearning Objectives

Explain the criteria used in selecting a target market.Identify the different options, both store-based and

nonstore-based, for effectively reaching a target market and identify the advantages and disadvantages of business districts, shopping centers, and freestanding units as sites for retail location.

Define geographic information systems (GIS) and discuss their potential uses in a retail enterprise.

3

Learning ObjectivesLearning Objectives

Describe the various factors to consider in identifying the most attractive geographic market for a new store.

Discuss the various attributes to consider in evaluating retail sites within a retail market.

Explain how to select the best geographic site for a store.

4

Selecting a Target MarketSelecting a Target Market

Home Page

Is the introductory or first material viewers see when they access a retailer’s Internet site. It is the equivalent to a retailer’s store-front in the physical world.

•Virtual Store

Is the collection of all the pages of information on the retailer’s Internet site.

•Ease of Access

Refers to the consumer’s ability to easily and quickly find a retailer’s Web site in cyberspace.

LO 1

5


Market SegmentationIdentifying a Target Market

LO 1

6


Market Segmentation

Is dividing of a heterogeneous consumer population into smaller, more homogenous groups on demographic, economic, psychographic, and behavioral characteristics.

• Market segment should be measurable.

• Market should be accessible.

• Market should be substantial enough to be profitable.

• Target market

Is the group of customers that the retailer is seeking to serve

LO 1

7

Ease of AccessEase of Access

LO 1: Exhibit 7.1

Number of Web Sites

Difficulty FindingDesired Site

Through SearchEngine

8

Target MarketTarget Market

The Limited has a well-defined target market: the moderate-income, career-oriented woman who is fashion conscious.

LO 1

http://www.limited.com/main.jsp

9

Location of Store-Based RetailersLocation 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.

LO 2

10

Retail Formats for Accessing a Target MarketRetail Formats for Accessing a Target Market

LO 2: Exhibit 7.2

Retail Formats

Store-Based Nonstore-Based

Freestanding

BusinessDistrict

Nontraditional

ShoppingCenters/Malls

InteractiveTV

Mail-Order

Internet

AutomatedMerchandising

Systems

DirectSelling

StreetPeddling

11


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.

LO 2

12


Neighborhood Business District (NBD) is a chopping 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.

LO 2

13


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.

LO 2

14

Shopping Center Advantages over a CBDShopping 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.

LO 2

15

Shopping Center Disadvantages Shopping Center Disadvantages

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

center’s 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.

LO 2

16

Advantages of Freestanding RetailingAdvantages of Freestanding Retailing

•Lack of direct competition.

•Generally lower rents.

•Freedom in operations and hours.

•Facilities that can be adapted to individual needs.

• Inexpensive parking.

LO 2

17

Limitations of Freestanding RetailingLimitations 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.

LO 2

18

Nonstore-based Retail FormatsNonstore-based Retail Formats

•Direct Selling

•Street Peddling

• Interactive TV

•Mail-Order

• Internet

•Automated Merchandising Systems

LO 2

19

ISCS Shopping Center DefinitionsISCS Shopping Center Definitions

LO 2

20

ISCS Shopping Center DefinitionsISCS Shopping Center Definitions

LO 2

21

Typical Size & Trading Area of Shopping CentersTypical Size & Trading Area of Shopping Centers

LO 2

Type of Shopping Center

Neighborhood

Gross Leasable Square Feet

30,000 to 150,000

Primary Trade Area 3 Miles

22


LO 2


Community


100,000 to 350,000

Primary Trade Area 3-6 Miles

23


LO 2


Regional


400,000 to 800,000


24


LO 2

Type of Shopping Center Super-Regional


800,000


25

Question to PonderQuestion to Ponder

Given the wide variety of locations available to target specific consumer groups, what new locations will provide the greatest opportunities for the retailers of tomorrow?

26

Geographic Information SystemsGeographic Information Systems

•Thematic Maps

•Uses of GIS

LO 3

27


•Geographic Information System (GIS) is a computerized system that combines physical geography with cultural geography.

•Culture is the buffer that people have created between themselves and the raw physical environment and includes the characteristics of the population, humanly created objects, and mobile physical structures.

LO 3

http://www.esribis.com/

http://www.esribis.com/

28


•Thematic Maps use visual techniques such as colors, shading, and lines to display cultural characteristics of the physical space.

LO 3

29

GIS ComponentsGIS Components

LO 3: Exhibit 7.4

Data Inputs

Physical GeographyLatitude/LongitudeLand/WaterTerrainRainfall/SnowTemperature

Cultural GeographyDemographicsManmade StructuresConsumption PatternsWork PatternsLeisure BehaviorDeviant Behavior

GIS (Data Aggregation and Analysis via Computer)

Output Maps and Other

Displays of Information

http://www.esri.com/mapmuseum/mapbook_gallery/volume17/business4.html

http://www.esri.com/mapmuseum/mapbook_gallery/volume18/business3.html

30

Uses of GISUses of GIS

•Market selection.

•Site analysis.

•Trade area definition.

•New store cannibalization.

•Advertising management.

•Merchandise management.

•Evaluation of store managers.

LO 3

http://www.census.gov/

http://www.census.gov/

31

Market IdentificationMarket Identification

•Retail Location Theories

•Market Demand Potential

•Market Supply Factors

LO 4

32

Selecting a Retail LocationSelecting a Retail Location

LO 4: Exhibit 7.5

Identify the most attractive markets in which to operate

Select the best site(s) available

Identify the most attractive sites that are available

within each market

33

Market IdentificationMarket Identification

Trading Area

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

LO 4

34

Retail Location TheoriesRetail Location Theories

•Retail Gravity Theory

•Saturation Theory

•Buying Power Index

LO 4

35


•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.

LO 4

36


•Reilly’s Law of Retail Gravitation based on Newtonian gravitational principles, explains how large urbanized areas attract customers from smaller rural communities.

LO 4

Dab

d

1 +Pb

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.

37


•Point of Indifference

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

LO 4

38

Trading Area for City ATrading Area for City A

LO 4: Exhibit 7.6

City B(Population 14,000)

3.5 miles

City A(Population 240,000)

City C(Population 21,000)

14.5

mile

s

1.3 miles

X

YZ

10.8 miles

3.7 miles

3.2 miles

City D(Population 30,000)

39


•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.

LO 4

40


•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.

LO 4

41


• 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).

LO 4

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).

42


•Buying Power Index (BPI) is an indicator of a market’s 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.

LO 4

BPI = 0.5(the area’s percentage of U.S. effective buying income)

+ 0.3(the area’s percentage of U.S. retail sales)+ 0.2(the area’s percentage of U.S. population)

43

Market Demand PotentialMarket Demand Potential

•Population Characteristics

•Buyer Behavior Characteristics

•Household Income

•Household Age Profile

•Household Composition

•Community Life Cycle

•Population Density

•Mobility

LO 4

44

Identifying Communities with High Demand Potential for Fast-Food Drive-In RestaurantIdentifying Communities with High Demand Potential for Fast-Food Drive-In Restaurant

LO 4: Exhibit 7.7

45

Market Supply FactorsMarket Supply Factors

•Square Feet Per Store

•Square Feet Per Employee

•Growth in Stores

•Quality of Competition

LO 4

46

Site AnalysisSite Analysis

•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

LO 5

47

Site AnalysisSite Analysis

•Size of Trading Areas

•Description of Trading Area

•Demand Density

•Supply Density

•Site Availability

LO 5

48

Customer Spotting Map for a SupermarketCustomer Spotting Map for a Supermarket

LO 5: Exhibit 7.8City Limits

Store

4 miles from store 3 miles from

store

1 mile from store

2 miles from store

49

Description of Trading AreaDescription of Trading Area

Exhibit 7.9 identifies the 65 neighborhood types or clusters that MapInfo has distinguished for describing neighborhoods. This information is used in describing a trading area.

LO 5

50

PSYTE USA Cluster DemographicPSYTE USA Cluster Demographic

LO 5: Exhibit 7.9

http://www.clusterbigip1.claritas.com/MyBestSegments/Default.jsp

http://www.clusterbigip1.claritas.com/MyBestSegments/Default.jsp

51

PSYTE USA Cluster DemographicPSYTE USA Cluster Demographic

LO 5: Exhibit 7.9

52

Demand DensityDemand Density

Demand Density

Is the extent to which the potential demand for the retailer’s goods and services is concentrated in certain census tracts, ZIP code areas, or parts of the community.

LO 5

53

Demand Density MapDemand Density Map

LO 5: Exhibit 7.10

Three-Variable Demand-Density Map

Variable 1 = Median income over $22,000Variable 2 = Households per square mile greater than 1,200Variable 3 = Average growth in population over last 3 years in excess of 3 percent per year

Number of Variables Met 0 1 2 3

54

Supply DensitySupply Density

Supply Density

The extent to which retailers are concentrated in different areas of the market under question.

LO 5

55

Store Density and Site Availability MapStore Density and Site Availability Map

LO 5: Exhibit 7.11

56

Checklist for Site EvaluationsChecklist 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

57


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

58


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

59


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

60


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

61

Site SelectionSite Selection

100 Percent Location

Is when there is no better use for a site than the retail store that is being planned for that site.

LO 6

62

Site SelectionSite Selection

•Nature of Site

•Terms of Purchase or Lease

•Expected Profitability

LO 6

63

Nature of Site Nature of Site

•Traffic Characteristics

•Types of Neighbors

LO 6

64

Nature of Site Nature of Site

•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.

LO 6

65

Terms of Purchase or Lease Terms of Purchase or Lease

•Length of lease

•Exclusivity clause

•Guaranteed traffic rate

•Anchor clause

LO 6

66

Expected Profitability Expected Profitability

•Net profit margin

•Asset turnover

•Return on assets

LO 6

67

If Retailers Could Select Their NeighborsIf Retailers Could Select Their Neighbors

LO 6

Fast-food restaurant Gas service stationHealth food store Fitness center, medical centerRecycled merchandise SupercenterHome improvement store SupercenterHardware store Wholesale club, supermarketZale’s Jewelry Sears, JCPenney, Mervyn’sRecord Giant Wal-Mart; KmartPayless Shoes Supercenters, KinderCareLong’s Drug Stores TJMaxx, KmartCato Fashion Kmart; Wal-MartBennetton Nordstron; Bloomingdale’sNursery and Crafts Toys “R” Us; Circuit City

Retailer Next to

retail

Documents

retail market

retailers store

welldefined target market

market segmentation

variety store

new store

fixed store location

attractive geographic