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11 Retail
Retail Location
Location Strategies
Strategies
and
and Decisions
Decisions

1
Factors to Consider in Site Selection

Economic
Economic growth
growth potential
potential

Area
Area competition
competition

Geography
Geography
Issues in Selection of Location Site

Consumer Choice
The Need for Competitive Advantage
Consideration of Trends
High Investment
Property Asset
2
The Planning Policy Guidelines Issued by the Government has
the Objectives of:

• Sustaining and enhancing the vitality and viability

of town centres
• Focusing retail development in locations where
the proximity of business facilitates competition
from which all consumers are able to benefit and
maximising the opportunity to use means of
transport other than a car
• Maintaining an efficient, competitive and
innovative retail sector and
• Ensuring the availability of a wide range of
shops, employment, services and facilities to
which people have easy access by a choice of
means of transport
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 Fig. Strategic Choice and Location Decision Alternatives
Long term goal: maximise profits Diversity

Short and Medium term goals

Inc. Sales/ Improve productivity Rationalise

Mkt. Share Reduce costs Portfolio

Inc. size of premises? Refurbishment Disposal

No
Extend existing stores Build new stores

Small town centre format Compact store Superstore Internationalise?

Location A Location B Location C Acquisition?

Planning Permission?
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Types of Retail Locations/ Location Decisions

Freestanding/
Freestanding/ Isolated
Isolated Store:
Store: located
located along
along aa
major
major traffic
traffic artery,
artery, without
without any
any competitive
competitive
retailers
retailers around
around

Part
Part of
ofaaBusiness
BusinessDistrict:
District: is
isaa place
placeof
of commerce
commercein inthe
thecity,
city,which
which
developed
developedhistorically
historicallyas
asthe
thecentre
centreofoftrade
tradeinin the
thecity
cityor
or town
town and
and
would
wouldhave
haveno nopre
preformat
formatoror structure
structure
--CBD:
CBD:Main
Maincentre
centreof
ofcommerce
commerceandandtrade
tradeininthe
thecity
city
--Sec
SecBD:
BD:evolved
evolvedwith
withaaperiod
periodof
oftime,
time,with
withspread
spreadof
ofpopulation
populationin inthe
thecity
city
--NBD: unplanned shopping area to serve the needs of the neighbourhood
NBD: unplanned shopping area to serve the needs of the neighbourhood

Part
Part of
of aa Shopping
Shopping Centre:
Centre: aa gp
gp of
of retail
retail and
and other
other
commercial
commercial establishments
establishments that
that is
is planned,
planned,
developed,
developed, owned
owned and
and managed
managed as as aa single
single 5
property
property
Shopping Center and Mall
Locations
Advantages Disadvantages

• Design attracts • Expensive leases

shoppers • Failure of common
• Activities and anchor promotion efforts
stores draw • Lease restrictions
customers
• Anchor store
• Ample parking domination
• Unified image • Direct competitors
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Steps Involved in Choosing a Retail Location
1 Market Identification in which to locate
the store
2 Determining the mkt potential (DvsS)
– Demographic features of the population
– The characteristics of the household in the
area
– Competition and compatibility
– Laws and regulations
– Trade Area analysis

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 GEOGRAPHIC LOCATION DECISIONS


Store
Primary Zone
Secondary Zone
Fringe or
Tertiary Zone

Fig. Market Area Zones/ Types of Trade Areas8

• Location decision is based upon:
– Location Area: which attract higher level of
customers than others
– Regions: which involve a larger section of the
country
– Market area: a geographical sector containing
zones
• Primary trading zone: which provides the major
customer base for the retail outlet (60-65%)
• Secondary Zone: Which can be any distance between
2-7 miles (under 20 min drive)
• Fringe/ Tertiary zone: which will include those who
occasionally shop there as an alternative to shopping
(upto 5 miles)
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3 & 4: Identify Alternative Sites and
Select the Site
– Traffic
– Accessibility of the Market is also a Key
Factor
– The Total No. of Stores and the Type of
Stores that Exist in the Area
– Amenities Avle
– To Buy or to Lease
– The Product Mix offered
• Site Visit Report

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 Concentric Zones Approach

» 1

It stresses that a city will develop by

forming different urban concentric zones
focused around a central business district

Fig. The Nature of Spatial Development in Cities 11

 Sector Approach

• This approach place the stress on

understanding residential areas but
take into consideration importance of
commercial areas in relation to
residential development.

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 Multiple Nuclei Approach
• It is an approach that accepts that different
types of activity will tend to group together:
shopping centres, buss districts, residential areas
etc.

• The nuclei effect is created by:

– The mutual need for close proximity of different
activities
– The need for accessibility of shopping
– The different abilities to afford higher rents
– Any significant physical aspects of the land – such as
steep hills or rivers affecting spatial development
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 Generalization of City Development

• Central Business District

• Wholesale, smaller businesses
• Low class residential
• Medium class residential
• High class residential
• Heavy manufacturing
• Outlaying business district
• Residential suburb
• Commuter’s zone based upon transport links

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 EXPLANATIONS FOR THE SPATIAL
DISTRIBUTION OF RETAIL ACTIVITIES
Main Spatial Patterns which Describe Most Cases of
Retail Location are:
– Central place theory is based upon the premise that as the
distance to a retail centre increases, demand for a product
will decrease due to increased cost of transport. Eventually,
the demand will drop to zero as this is the cut-off point past
which consumers will not trade if the level of demand is too
low. This level is known as
• Threshold level – it differs acc. to product offered
– High threshold products-relatively expensive, infrequently purchased
– Low threshold products-relatively expensive, purchased on regular basis

• Low order goods – based on low threshold, low range criteria

• High order goods – based on high threshold, high range criteria 15
 Table: Consumer changes which may affect the basic
assumptions behind central place theory
Central Place Assumptions Modern Retail Consumer
of Consumer
*Trips are regular to purchase *The use of large refrigeration &
small amounts, especially those freezers allow less frequent purchases
with product perishability from superstores or retail centres
*Purchase response is based upon *Non-price factors are increasingly
price and product range more imp. determinant of pur. decision
*Trips are home location based *Improved road systems, increased no.
and often single-purpose trips to of cars & drivers per family allows
the nearest shopping district multi-purpose trips and greater
where goods are available distances to be covered
*The shopping visit decision is *There has been an increase
based upon necessity of the trip in leisure shopping
*The consumer treats each shoppng *Retail innovation has taken place,
area as a similar experience i.e. all with themed and purpose-built
retailers are assumed to adopt a facilities creating retail experiences
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uniform retail strategy which appeal to diff. type of consumr
Table: Retail Strategy Diff. Bet. a Discount Store & a Traditional Deptt. Store
Disc. Clothing Store Strategy
*Low cost rental location
*Simple fixtures & fittings, cheap
covering, few displays, single floor
fitting room
*Promotional strategy is based
upon price leadership
*Little flexibility in service
*Reliance on self-service, basic
displays
*May stock limited lines and
cheap discounted brands, most
merchandise being visible and in
crowded conditions
*Continual use of low price offers
*No changing rooms
Deptt. Store Strategy
*More expensive rental location
*Elegant fixtures & fittings,
carpeted flooring, individual
fitting rooms, an abundance of
window and interior displays
*Promotional strategy is based
upon developing brand image and
providing superior service
*Flexibility in service
*Thorough sales assistance, depth
& breadth of stock, attractive dis
*Full selection of branded product
and reluctance to have discounted
items
*Sales limited to specific end or
season clearances or sp. occasions
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*Changing rooms
ig: Retail Location and Consumer Behaviour Consideration
Bulky purchase

Destination retailers ‘Category killer’

Retail park Solus

» Time
Comparison Time Time Convenience
available constraint

High street Local shops

Variety Proximity important

Portable purchase 18
 LOCATIONAL TECHNIQUES
Factors in the location decision
Location Assessment Techniques
Customers-
Potential/ actual Accessibility Competition Costs
*No. by demographics Site visibility Amt. & level Building costs
*income/ employment Pedestrian flows Type & no.s Rent costs
by occupation, ind.,
*Spending patterns Barriers such as Saturation Rates payable
railway tracks index
*Population growth, Type of Proximity of Delivery
density and trends location zone key compets, costs
*Lifestyles Road conditions traders, brand Insurance
and network leaders – for costs
*Car ownership Parking eg. Marks & Labour
Public transport Spencer rates
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Table: Sample of Location Factors
 METHODS OF EVALUATING A TRADE AREA

The Herfindahl-Herschman Index

• It is determined by adding the squares of the
market shares of each competitor within the
relevant product and geographic market

• The regulatory authorities in the US believe

that markets are
– concentrated when HHI > 1800
– Moderately concentrated when HHI is between
1000 and 1800
– unconcentrated when HHI < 1000
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 The Index of Retail Saturation
Saturation is calculated in terms of the existing
retail facilities and their use. The indicator is
termed as The Index of Retail Saturation (IRS)
which is calculated as:
IRS = H * RE/ RF where
IRS = The Index of Retail Saturation for a part. area
H= no. of households in that area
RE=Annual retail expenditures for a part. line of trade per
household in that area
Rf= the total square footage of that part. line of trade in
that area, incl. the proposed store

This theory implies checking of demand and supply 21

 Reilly’s Law of Retail Gravitation
It states when two cities compete for retail trade
area from the immediate rural (suburban) areas, the
breaking point for the attraction of such trade will
be more or less in direct proportion to the
population of the two cities and in inverse proportion
to the square of distance from the immediate area
of each city
(Ba/Bb)=(Pa/Pb)(Db/Da)2, where
Ba = the buss which city a draws from the intermediate place
Ba = the buss which city b draws from the intermediate place
Pa = Popu. of city a; Pb = Popu. of city b
Da = Distance of city a to the intermediate place
Da = Distance of city b to the intermediate place

Acc to this law, people will travel to the largest place 22

most
easily reached
 Central Place Theory
Central place: the centre of commerce of a
village, town or city, which comprises of a cluster
of retail orgns
Christaller presented 2 imp. concepts:
Range: the max that a consumer is willing to travel
for a part. product or service
Threshold: the min. amt. of consumer demand that
must exist for a store to survive
Technically, range should be > threshold for a
store to be economically viable
The level of dev. tells a retailer abt. which type of
retail activity is likely to develop in that area in
the future 23
• Computerized databases as an aid to
store location catchment area
decisions

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 RETAIL PROPERTY DEVELOPMENT
Retail property development is also reliant on:
– Local factors of supply and demand
– Appropriateness of the avle site for diff. types
of retailer
– The experience and preferences of the
developer and local planning officers
– The min. amt. of land reqd. to provide diff. scales
of dev. and change
– The costs of the dev.
– The time factors in the completion of the dev.
– The level of financial risk in undertaking the dev.
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 THE LEASING OF A RETAIL OUTLET

• Straight Lease
• Percentage Lease
– Maintenance Recoupment
– Net Lease

• Prohibited Lease

• Exclusive Use Clause

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TRENDS IN RETAIL PROPERTY DEVELOPMENT
IN INDIA
Tier 1: Major Cities (Mumbai)
– 8 cities, popu. > 4 million,
– Total income > 100 billion Indian Rupee

Tier 2: Mainstream Cities (Jaipur)

– 26 cities, popu. > 1 million

Tier 3: Climbers (Faridabad)

– 33 cities, popu. > 5,00,000

Tier 4: Small Towns (Shimla)

– 5094 towns

Fig. The Classification of Cities and Towns 27

CONCLUSION

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Hypermarket and Supercenter

A
A large
large retail
retail store
store combining
combining
Hypermarket
Hypermarket aa supermarket
supermarket and and
aa full-line
full-line discount
discount store.
store.

Retail
Retail store
store combining
combining groceries
groceries
Supercenter
Supercenter and
and general
general merchandise
merchandise goods
goods
with
with aa wide
wide range
range of
of services.
services.

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