trading area analysis
TRANSCRIPT
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Chapter 99Trading-Area Analysis
RETAIL MANAGEMENT:
A STRATEGICAPPROACH,
9th Edition
BERMANBERMAN EVANS EVANS
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Chapter Objectives
To demonstrate the importance of store location for a retailer and outline the process for choosing a store location
To discuss the concept of a trading area and its related components
To show how trading areas may be delineated for existing and new stores
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Chapter Objectives_2
To examine three major factors in trading-area analysisPopulation characteristicsEconomic base characteristicsCompetition and level of saturation
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Location, Location, Location
Criteria to consider includepopulation size and traitscompetitiontransportation accessparking availabilitynature of nearby storesproperty costslength of agreementlegal restrictions
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Figure 9.1 Importance of Location to Esprit
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Choosing a Store Location
Step 1: Evaluate alternate geographic (trading)areas in terms of residents and existing retailers
Step 3: Select the location type
Step 2: Determine whether to locate as anisolated store or in a planned shopping center
Step 4: Analyze alternate sites contained in the specific retail location type
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Trading-Area Analysis
A trading area is a geographic area containing the customers of
a particular firm or group of firms for specific goods or
services
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Benefits of Trading Area Analysis
Discovery of consumer demographics and socioeconomic characteristics
Opportunity to determine focus of promotional activities
Opportunity to view media coverage patterns
Assessment of effects of trading area overlap
Ascertain whether chain’s competitors will open nearby
Discovery of ideal number of outlets, geographic weaknesses
Review of other issues, such as transportation
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Figure 9.2 The Trading Areas of Current and Proposed Outlets
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GIS Software
Geographic Information Systems– digitized mapping with key locational
data to graphically depict trading-area characteristics such as • population demographics• data on customer purchases• listings of current, proposed, and
competitor locations
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Figure 9.3a The TIGER Map Service
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Figure 9.3b The TIGER Map Service
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Figure 9.4 GIS Software in Action - A
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Figure 9.4 GIS Software in Action - B
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Private Firms Offering Mapping Software
Claritas
ESRI
GDT
GeoVue
Mapinfo
SRC
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Figure 9.5 The Segments of a Trading Area
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Figure 9.6 Delineating Trading-Area Segments
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The Size and Shape of Trading Areas
Primary trading area - 50-80% of a store’s customers
Secondary trading area - 15-25% of a store’s customers
Fringe trading area - all remaining customers
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Destinations versus Parasites
• Destination stores have a better assortment, better promotion, and/or better image
• It generates a trading area much larger than that of its competitors
• Dunkin’ Donuts: “It’s worth the trip!”
• Parasite stores do not create their own traffic and have no real trading area of their own
• These stores depend on people who are drawn to area for other reasons
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Trading Areas and Store Type
Largest
TRADINGAREAS
Smallest
Department stores
Supermarkets
Apparel stores
Gift stores
Convenience stores
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Figure 9.7 Carrefour Shanghai
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The Trading Area of a New Store
Different tools must be used when an area must be evaluated in terms of opportunities rather than current patronage and traffic patterns– Trend analysis– Consumer surveys– Computerized trading area analysis
models
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Computerized Trading-Area Analysis Models
Analog Model
Regression Model
Gravity Model
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Reilly’s Law
Reilly’s law of retail gravitation, a traditional means of trading-area delineation, establishes a point of indifference between two cities or
communities, so the trading area of each can be determined
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Limitations of Reilly’s Law
Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets
Travel time does not reflect distance traveled. Many people are more concerned with time traveled than with distance
Actual distance may not correspond with perceptions of distance
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Huff’s Law
Huff’s law of shopper attraction delineates trading areas on the basis of product
assortment (of the items desired by the consumer) carried at various shopping
locations, travel times from the shopper’s home to alternative locations, and the sensitivity of the kind of shopping to
travel time.
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Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas
• Total size and density
• Age distribution• Average educational
level• Percentage of
residents owning homes
• Total disposable income
• Per capita disposable income
• Occupation distribution
• Trends
Population Size and Characteristics
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Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas
• Management• Management trainee
• Clerical
Availability of Labor
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Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas
• Delivery costs• Timeliness• Number of
manufacturers
• Number of wholesalers
• Availability of product lines
• Reliability of product lines
Closeness to Sources of Supply
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Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas
• Dominant industry• Extent of
diversification• Growth projections
• Freedom from economic and seasonal fluctuations
• Availability of credit and financial facilities
Economic Base
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Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas
• Number and size of existing competition
• Evaluation of competitor strengths and weaknesses
• Short-run and long-run outlook
• Level of saturation
Competitive Situation
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Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas
• Number and type of store locations
• Access to transportation
• Owning versus leasing opportunities
• Zoning restrictions• Costs
Availability of Store Locations
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Table 9.1 Chief Factors to Consider in Evaluating Retail Trading Areas
• Taxes• Licensing• Operations
• Minimum wages• Zoning
Regulations
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Figure 9.8 Analyzing
Retail Trading Areas
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Elements in Trading-Area Selection
Population Characteristics
Economic BaseCharacteristics
Nature and Saturationof Competition
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Figure 9.9 The Census Tracts of Long Beach, NY
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Table 9.3 Selected Population Statistics for Trading Areas A and B
Characteristics Area A Area B
Total population, 2000 13,732 15,499
Population change, 1990-2000 +8.2 +2.5
College graduates, 25 +, 2000 (%) 41.4 39.2
Median household income, 2000 $61,236 $61,242
Managerial and professional occupations (%), 2000
45.3 45.0