Retail Locations

Elements in Retail Mix

Location Strategy

Customer Service &

Store
Personnel

Store Display
And Design Merchandise
Assortment

Communication Mix
Pricing
Why is Store Location Important for a Retailer?

• Location is typically prime consideration in shopper’s

store choice.
• Location decisions have strategic importance
because they can help to develop sustainable
competitive advantage.
• Location decisions are risky: invest or lease?
 Tradeoff Between Locations

Rent

Traffic

There are relative advantages and disadvantages for each type of

location
Choice of location is often a trade off between traffic and rent/cost of
land
Types of Retail Locations
Free Standing Sites
 Free Standing Sites

Location for individual store unconnected to

other retailer
Advantages:
• High visibility
• Relatively lower occupancy cost
• Separation from competition
• Fewer restrictions
• Convenience?
 Central Business District

• Draws people into areas during business hours

Advantages

• Hub for public transportation

• Pedestrian traffic
Disadvantages

• High security required

• Shoplifting
• Parking is poor
• Evenings and weekends are slow
 Inner City vs. CBDs

• Occupancy costs lower than CBDs

• They don’t attract as many people
• There are not as many stores
• Smaller selections offered
• Not as much entertainment
 Shopping Centers
Typical Shopping Center offers a cluster of
stores with shared facilities like parking,
security, outdoor signage, advertising, special
events for customers
 Types of Shopping Centers

• Neighborhood and Community Centers

• Enclosed Malls
• Lifestyle Centers
• Specialty Centers
 Advantages and Disadvantages of
Shopping Malls
Advantages:
• Many different types of stores
• Many different assortments
available
• Attracts many shoppers
• Main Street for today’s
shoppers
• Never worry about the weather
• Comfortable surrounding to
shop
• Uniform hours of operation

Disadvantages:
• Occupancy costs are high
• Tenants may not like mall
management control of operations
• Competition can be intense
 Challenge faced by Malls

• Time pressured society finding it increasingly

impractical to wander malls
• Rapid rise of online retailing
• Fashion apparel sold in malls experiencing
limited/no growth
• Malls are getting old and rundown – unappealing
to shop
• Anchor tenants are finding mall operation
expensive
Alternative Locations
Temporary Kiosks
 Alternative Locations
Mixed Use Developments

Hotels

Office
Buildings

Civic Centers
 Alternative Locations
Airports

Rents are much higher than malls

Sales/sqft are also higher than malls
Best airports are ones with many connecting flights
 Alternate Locations

• Store within a store

• Residential Complexes
• Gas stations/Resting points on highways
• Resorts/Hotels
• Hospitals
• Educational Institutions/Universities
• Haats/Melas
Matching Location to Retail Strategy

• Choice of location is based on target market

and likely to be influenced by the retailer’s
overall strategy
 Considerations for
evaluating a location
 Potential of Trade Area
Trade Area = Geographic area from where
shoppers are likely to visit the store

Primary zone – 50 to 80 percent of customers are

likely to visit store from this area
Secondary zone – 15-20 percent of a store’s sales
Tertiary zone - customers who occasionally shop
at the store or shopping center
 Measuring Trade Area Potential
Variety of methods may be used to estimate
the potential
– Census data on demographic profile
– Number of Households Purchasing a Product or
Service in the trade area
– Average income levels
– Average amount Spent on a product or service by a
household in the trade area
– Sales from another geographic are with similar
characteristics
– Information on Competition
Huff’s Model

Analog Approach

Regression Analysis
 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
 New Store
20 mins

Cluster C

10 mins
15 mins 20 mins

Exiting Store

30 mins
Cluster B
10 mins

Attractiveness (store size)

Time involved
Cluster A
Application of Huff Gravity Model

Travel Time to Location (mins)

Area Households
Existing Store New Store

A 2000 10 20

B 1000 30 10

C 3000 15 20

Store Sizes:
Existing store – 5,000 sq ft
New store – 8,000 sq ft
 Huff’s Gravity Model

λ
Pij = A j / Tij
λ
Σ A j / ij
T
Pij : Probability of consumer at point I travelling to store at location j

Aj : Attractiveness of retail location (Size of store taken as a measure of it)

Tij : Travel time or distance from i to j

λ : Relative effect of travel time v/s store attractiveness

 Huff’s Gravity Model
PA = 8,000/20 2 = .285
8,000/202 + 5,000/102

PB = 8,000/10 2 = .935
8,000/102 + 5,000/302

PC = 8,000/20 2 = .473
8,000/202 + 5,000/152

Estimated Clients =
0.285 x 2000 + 0.935 x 1000 + .473 x 3000 = 2927 households
 Practice
Travel Time (mins)
Area Households
Store 1 Store 2 New
A 1000 10 30 15
B 500 20 15 40
C 400 30 15 20
D 600 60 40 10

Store Sizes:
Existing store 1 : 2,000 sq ft
Existing store 2 : 6,000 sq ft
New store : 4,000 sq ft
 Analog Approach

• Gather details about potential location (population,

number of competitors, income levels, demographic details etc.)
• Consider other branches/stores that are
currently operating
• Match characteristics of trade area of new
location with that of existing stores
 Regression Analysis
• Factors affecting the sales of existing stores in a chain is
likely to have the same impact on the stores located at
new sites.
• Consider factors that are potentially affecting store sales
– Example : Number of households, Households with children,
young households, size/area of store, visibility from street,
presence of an anchor store in shopping center
• Collect data from existing set of stores and use statistical
methods to find relationship between store sales and
identified factors
• Use the formula to calculate sales for new sites
Other indicators that may be used

Herfindahl Hirschman Index (HHI)

– Indicates market concentration

– si is the market share of firm i in the market, and

N is the number of firms
– Higher HHI indicates high concentration
Other indicators that may be used

Index of Retail Saturation (IRS)

– Is a ratio of demand for a product/category
divided by supply of that product/category
– IRS = (H X RE)/RF
• H = Number of households in the area
• RE = Annual expenditure per household for a particular
line of trade or category (example – money spent on
clothing)
• RF = Area of retail space of that line of trade or
category in that area (retail space in the area for
clothing)
Other considerations for
evaluating a location
 Accessibility

• Road pattern and condition

• Natural and artificial barriers

• Visibility
• Traffic flow
• Congestion
• Ingress/egress
Traffic Flow and Accessibility
When traffic is greater, more
customers likely to shop

Good for convenience retailers

Not necessary for destination

retailers

Too much traffic can impede

access to store

Accessibility to store is as
important as traffic flow
PhotoLink/Getty Images
 Parking
Employee parking availability
Shoppers that use cars
Parking by non-shoppers
Typical length of a shopping trip
Number of shoppers at different times
 Adjacent Tenants

• What other retailers would you like to be

located next to your store?
• Are there retailers that you would not like to be
close to you in an enclosed area (like a mall)?
• Principle of Cumulative Attractiveness
• Malls often use ‘zoning’ to create convenience
for shoppers
 Cost and Restrictions

• Costs
– Rent
– Common Area Maintenance Fee/Insurance
– Advertising Fee
• Restrictions
– Signage
– Tenant Mix
– Operating hours
 Should one retailer open many
stores in one area?
Pros Cons
One promotional costs for all Cannibalization effect
stores
Business per store goes down
Efficient use of distribution
center/warehouse Increased staffing requirement
and cost of operation
Meets all needs of regional target
market

Management has control of market

Ability to squeeze out competition