Trade Areas and Retail Site Selection

Chapters 8 & 9

Location, Location, Location!!!
Importance of location decision: Requires complex decision making Costs lots of $$ Little flexibility once a location has been chosen Attributes of location have a strong impact on the retailer s strategy

Criteria to be considered:
Size & characteristics of population Level of competition Access to transportation Availability of parking Attributes of nearby stores Property costs Length of agreement (if lease) Population trends Legal restrictions

g. environmental considerations.Site Evaluation Accessibility Locational advantages Terms of occupancy Legal considerations (e. building codes. licensing requirements) . signs. zoning restrictions.

students. and tourists.Checklist for Site Evaluations 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. if applicable Occupation mix ‡ .

Checklist for Site Evaluations 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 .

Checklist for Site Evaluations Retail Competition ‡ ‡ ‡ ‡ ‡ Number and types of stores in area Analysis of ³key´ players in general area Competitiveness of other merchants Number and location of direct competitors in area Possibility of joint promotions with local merchants .

Checklist for Site Evaluations 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 .

Checklist for Site Evaluations 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 .

Usually 3-7 mile radius.Usually 3-5 mile radius.Site Selection Trade area -.contiguous geographic area that accounts for the majority of a store s sales and customers Primary trade zone -.50 mile radius . generates 20% of customers Tertiary trade zone -. generates 60-65% of customers Secondary trade zone -.Usually 15 .

Steps in selecting a site: Evaluate alternative geographic areas in terms of the characteristics of residents and existing retailers (trading-area analysis) Determine whether to locate as stand-alone. unplanned business district or planned shopping center Make a decision about location type Analyze alternate sites .

Retailer Formats for Accessing Your Target Market Retail Formats Store-Based Nonstore-Based Business District Shopping Centers/Malls Freestanding Nontraditional Street Peddling Mail-Order Automated Merchandising Systems Direct Selling Interactive TV Internet .

Rate Percentage leases . . ‡ Most malls use some form of percentage lease. ‡ Retailers also typically pay a maintenance fee based on a percentage of their square footage of leased is based on a percentage of sales.Types of Leases ‡ Percentage ‡ Fixed .

Sliding scale .Variations of Percentage Leases Percentage lease with specified maximum percentage of sales up to a maximum amount. .percentage of sales as rent decreases as sales go up.retailer must pay a minimum rent no matter how low sales are. ‡ Rewards retailer performance by allowing retailer to hold rent constant above a certain level of sales Percentage lease with specified minimum .

used by community and neighborhood centers. ‡ Retailer pays a fixed amount per month over the life of the lease. ‡ Not as popular as percentage leases Graduated lease . .a variation of the fixed rate lease ‡ Rent increases by a fixed amount over a specified period of time.Fixed Rate Leases Fixed rate leases .

property taxes. Net lease . . or utility bills increase beyond a certain point.retailer is responsible for all maintenance and utilities.Percentage or Fixed Rate Leases Maintenance-increase-recoupment lease used with either a percentage or fixed rate lease. ‡ Rent increases if insurance.

massage parlors and pornography retailers. dentist. or real estate office. ‡ Some tenants could harm the shopping center¶s wholesome image: bars. meeting hall. pool halls. . skating rink. game parlors. off-track betting establishments.Prohibited Use Clause ‡ Limits the landlord from leasing to certain tenants ‡ Some tenants take up parking spaces and don¶t bring in shoppers: bowling alley.

Escape clause ‡ Allows the retailer to terminate its lease if sales don¶t reach a certain level after a specified number of years.Exclusive Use Clause Prohibits the landlord from leasing to retailers selling competing merchandise ‡ Specify no outparcels ‡ Specify if certain retailer leaves center. or if a specific co-tenant in the center terminates its lease. . they can terminate lease.

. ‡ Retailer can buy insurance that specifically protects it from these risks. dry cleaning chemicals.e.Environmental Issues ³Above-ground´ risks .such as asbestos-containing materials or lead pipes used in construction. that have been stored in the ground.g. Hazardous materials . Retailers¶ Protection ‡ Stipulate in the lease that the lessor is responsible for removal and disposal of this material if it¶s found. motor oil.

Other Legal Issues Zoning and Building Codes ‡ Zoning determines how a particular site can be used. etc. ‡ Building codes determine the type of building. type of parking lot. signs. size. that can be used Signs ‡ Restrictions on the use of signs can also impact a particular site¶s desirability Licensing Requirements ‡ Some areas may restrict or require a license for alcoholic beverages .

Retail Trading Area Identification Spotting Techniques: spot customer origins license plate surveys customer surveys customer records customer activities (contests. sweepstakes) Demographic data & GIS Vendors Census Buying Power Index (BPI) Measuring Competition .

Demographic Data and GIS Vendors Demographic data vendors specialize in repackaging and updating census-type data. ‡ Analysts can identify the boundaries of a trade area and isolate target customer groups . buying behavior. ‡ GIS is a spatial database that stores the location and shape of information. Geographic Information System (GIS) is a computer system that enables analysts to visualize information about their customers¶ demographics. and other data in a map format.

GIS Components Physical Geography Latitude/Longitude Land/Water Terrain Rainfall/Snow Temperature Cultural Geography Data Inputs Demographics Man-Made Structures Consumption Patterns Work Patterns Leisure Behavior Deviant Behavior GIS (Data Aggregation and Analysis via Computer) Output Maps and Other Displays of Information .

Retail Location Theories 1. Retail Gravity Theory 2. Buying Power Index . Saturation Theory 3.

Retail Location Theories 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 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 S j z Tij b Pij ! n § S j z Tij b j !1 Where Pij ! Probabilit y of a customer at a given point of origin i traveling to a particular shopping center j S j ! Size of shopping center j Tij ! Travel time or distance from customer' s starting point to shopping center b ! An exponent t o Tij that reflects the effect of travel time on different kinds of shopping trips .

University and Shopping Centers: Gravity Model Illustration .

000 ‡ Repeat steps 1 to 3 for the remaining areas and then sum them.000 students = 5.160 customers 5.43 x 12.Huff¶s Model: The Solution Pij = 1000 z 32 (1000 z 32) + (500 z 52) + (100 z 12) Probability = . .43 .160 customers x $150 = $774.

.Retail Location Theories 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.

.Retail Location Theories 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).

Retail Location Theories Index of Retail Saturation (IRS) IRS = (H X RE)/RF 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) .

. and population size. minus all taxes).Retail Location Theories 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. retail sales. including all nontax payments such as social security.

U. Bureau of the Census. potential Source: The Census and You. .Buying Power Index (BPI) ‡ Published annually in Demographics USA ‡ Measures a given market¶s ability to buy ‡ Is expressed as a percentage of the total U.S.S. Department of Commerce.

Retail Location Theories Buying Power Index BPI = 0.S.5(the area s percentage of U. retail sales) + 0. population) .S. effective buying income) + 0.3(the area¶s percentage of U.S.2(the area¶s percentage of U.

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000 over 60% over 50% over 70% over 75% over $600 Community A 375 $28.Identifying Communities with High Demand Potential for Fast-Food Drive-In Restaurant Demographic Characteristic Population per Square Mile Median Family Income % Population 14-54 % White Collar % People Living in 1-3 Person Units % Workforce Traveling 0-14 Minutes to Work Average Annual Household Expenditure on Eating Out Desired Target Market over 400 over $31.418 63% 54% 72% 74% $619 .024 48% 38% 61% 49% $521 Community B 423 $32.

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