retail location theories

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Marketing Selection and Retail Location AnalysisMarketing Selection and Retail Location Analysis

Three Pending Issues. Three Pending Issues.

Case Discussion from Berman & Evan book.Challenges in the role play of Manufacturer, offline and

online retailers.Project group members list.

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Previous topics discussed Previous topics discussed

Introduction to the world of retailing.Types of retailers.Buying behavior in retail.Multichannel Retailing.

Today’s Discussion.

Addressing e retail operational issues. (Case Discussion)

Retail Location & trade area theories.

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Exercise to do Exercise to do

Think Yourself as a Shoe Retail Merchant. You are thinking to open chain of your retail offering in different part of country. What factors will you be considering before the selection of Location.

How will you estimate the demand and supply of shoe in that location.?

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AgglomerationAgglomeration

Agglomeration captures the countervailing effects of complementarity and competition among retailers

Intra-type - Stores of the same type locating near one another

Facilitates consumer searchExamples: “motor miles” and “restaurant rows”

Inter-type - Stores of different types locating near one another

Facilitates multi-purpose shopping, virtual one-stop-shopping, and offers a wider variety of goods to choose from

Examples: shopping centers and shopping malls

“Trip chaining” – Make unrelated purchases on the same trip

Price search – Search until you find an attractive price

“Cherry picking” – Visit multiple stores for their bargain prices



RETAIL LOCATIONRETAIL LOCATION

Relative to customersRelative to customers Relative to other storesRelative to other stores

Retail Competition

Retail Competition

Destination Effect

Destination Effect

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

Retail Formats

Store-Based Nonstore-Based

Freestanding

BusinessDistrict

Nontraditional

ShoppingCenters/Malls

Mail-Order

Internet

AutomatedMerchandising

Systems

DirectSelling

StreetPeddling

Estimating Retail Demand Estimating Retail Demand

Trade Area Assumption :

Determining the most fitting trade area (Convenience , destination or others).Determining Purchasing Power Index.

Calculations of Per capita Sales:

Calculate spending in the particular store category plus spending in the particular department of general merchandise store.

Trade Area Per capita sales by store category:Trade Area Demand in Sales by store category.Trade Area Demand in Sq Feet by store category.

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Estimating Demand Data Source Illustration

Trade Area Assumption

PPI Index

PPI is calculated by trade areas per capita income divided by India’s Per capita income.

Govt Agencies or Marketing Data Collectors

Trade Area Population : 19,065.

PPI = 100*(Rs 22,427/ Rs. 21,587)

= 104.

India’s Per capita Sales by Shoe Category.

Calculate Spending in the particular store category plus spending in that category in general merchandise outlet.( Could be obtained from Government Statistics records).

Based on Censes Data Sales per capita : shoe store – Rs 79.87

Shoe department of general Merchandise stores – Rs 36.41

Total – Rs.116.28

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Estimating Demand Data Source Illustration

Trade area per capita sales by store category

Calculation based on above data

Sales per capita shoe store –

Rs.79.87 * 104/100 = Rs.82.98

General Merchandise Store: Rs.36.41* 104/100 = Rs 37.82.Total = Rs 120.80

Trade area demand in sales Calculations based on above data

Sales demand – Rs.82.98* 19,065 = Rs 1,582,000.

General Merchandise – Rs.37.82* 19,065 = Rs 721,000.

Total- Rs 2,303,000

Trade Area Per Square Feet(total sales divide by sales per square foot in each store category)

Calculation on Above data Current Demand = Rs.2,303,000/ (Rs 116.28+ 120.80) = 9714 Square feet .

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Estimating Supply Data source Illustration

List of stores in shoe category

Yellow pages & other Bata- 1000 Sq feet Khadim – 2000 sq feet

Total – 3000 Sq feet.

General Merchandise store Discount Store – 4000 Sq Ft.

Department Store - 4000 Sq ft.Total – 8000 Sq ft.

Total Current Supply in trade area

(3000 +8000) Sq ft.= 11000 Sq Ft.

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Retail Location TheoriesRetail Location Theories

•Retail Gravity Theory

•Saturation Theory

•Buying Power Index


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.

Huff’s Gravity Model

Based on the premise that the probability that a given customer will shop in a particular store

or shopping center becomes larger as the size of store or center grows and distance or

travel time from customer shrinks

Huff’s LawHuff’s 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

Huff’s Model Formula

tripsshopping of kinds different on time travelofeffect thereflects that oexponent tAn

center shopping point to starting scustomer' from distanceor timeTravel

center shopping of Size

center shopping particular a to travelingorigin ofpoint given aat customer a ofy Probabilit

Where

ijT b

ijT

jj S

jiijP

n

1jb

ijTjS

bijTjS

ijP

University and Shopping Centers: Gravity Model Illustration

Huff’s Model: The Solution

Pij = 1000 32

(1000 32) + (500 52) + (100 12)

Probability = .43

.43 x 12,000 students = 5,160 customers

5,160 customers x $150 = $774,000

• Repeat steps 1 to 3 for the remaining areas and then sum them.


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.


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).


Index of Retail Saturation (IRS)

where IRS is the index of retail saturation

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)

IRS = (H X RE)/RF


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.


Buying Power IndexBPI = 0.5(the area’s percentage of Indian effective buying income)

+ 0.3(the area’s percentage of Indian retail sales)

+ 0.2(the area’s percentage of Indian population)

retail location theories

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