Chapter 10

Retail Management: A Strategic
Approach
Thirteenth Edition
Chapter 10
Site Selection
Copyright © 2018, 2014, 2012 by Pearson Education, Inc. All Rights Reserved
Overview
Step 1: Investigate alternative trading areas (Chapter 9)
Step 2: Determine what type of location is desirable
Step 3: Select the general location
Step 4: Evaluate alternative specific store sites
Chapter 10 discusses steps 2-4.

Three Types of Locations

• Isolated Store
• Unplanned Business District
• Planned Shopping Center

Isolated Stores
Advantages Disadvantages
• No direct competition • Difficulty attracting customers
• Low rental costs • Travel distance
• Flexibility • Lack of cumulative attraction for
• Good for convenience stores customers
• High visibility • High advertising expenses
• Adaptable facilities • No cost sharing for promotions
• Easy parking • Possibly restrictive zoning laws
• Excellent for store that

generates own traffic

Unplanned Business Districts

• Central Business District
• Secondary Business District
• Neighborhood Business District
• String

Planned Shopping Centers

Advantages Disadvantages
• Well-rounded assortments • Limited flexibility
• Strong suburban population • Higher rent
• One-stop, family shopping • Restricted product offerings in
lease
• Cost sharing of promotions
• Competition
• Transportation access • Requirements for association
• Pedestrian traffic memberships
• Domination by anchor stores
• Impact of store closings on
affinities

Characteristics of Planned Shopping

Centers
Feature Regional Center
Total site area 30-100+
Total sq. ft. leased 400,001-2,000,000+
Principal tenant 1+ department store
Number of stores 50-150 or more
Minimum # of people in trading 100,000+
area
Driving time of trading area Up to 30 minutes
Location Outside central city on highway
Centers
Feature Community center
Total sq. ft. leased 100,001-400,000
Principal tenant Branch department store
category killer
Number of stores 15-25
Minimum # of people in trading 3,000-50,000
area
Driving time of trading area Fewer than 20 minutes
Location Close to 1 or more populated
residential areas
Centers
Feature Neighborhood center
Total sq. ft. leased 300,00-100,000
Principal tenant Supermarket or drugstore
Number of stores 5-15 or more
Minimum # of people in trading 20,000-100,000
area
Driving time of trading area Up to 15 minutes
Location Close to a populated
residential area
The Neighborhood Shopping Center
Location and Site Evaluation
• One-Hundred Percent Location
• The optimum site for a particular store

Pedestrian Traffic
• The most crucial measures of a location/site’s value are
the number and type of people passing by.
• Proper pedestrian traffic count should include:
– age and gender (exclude very young children)
– count by time of day (may vary significantly)
– pedestrian interviews (what percent are actively
shopping)
– spot analysis of shopping trips (verify stores visited)

Vehicular Traffic
• Important for
– convenience stores
– outlets in regional shopping centers
– car washes, fast food franchises, donut shops
– suburban areas with limited pedestrian traffic
– non-destination stores

Necessary Adjustments to Vehicular

Traffic Counts
• Need to ascertain differences in traffic flow by time of day
and day of week (Dunkin’ Donuts’ prime times are 7AM to
9:30 AM, Monday-Fridays)
• Omit or discount traffic that requires a “U turn” to enter
retail establishment
• Omit or discount traffic going over 30 miles per hour
• Omit or discount cars with out-of-state plates

Parking Considerations
• Number and quality of spots
• Distance of spots from stores
• Parking slot security at early morning and late evening
hours
• Availability of employee parking
• Price to charge customers for parking

How Many Parking Spaces?

• Shopping centers = 4-5 spaces per 1000 square feet of
gross floor space
• Supermarkets = 10-15 spaces per 1000 square feet of
gross floor space
• Furniture stores = 3-4 spaces per 1000 square feet of
gross floor space

Store Composition and Site

Characteristics
• Availability of mass transportation and ease of deliveries
• Number and size of other stores at site
• Affinity of existing stores at the site.
• Compatibility and complementarity with existing stores
• Retail balance
• Visibility of store at the site
• Size and shape of building and lot

Pros and Cons of Ownership Versus

Leasing (1 of 2)
PROS:
• Freedom over concern with lease renewal or tough lease
renewal negotiations with property owner
• Ability to write off depreciation (a non-cash expense)
• Possible capital appreciation from increased value of real
estate
• Control over property maintenance

Pros and Cons of Ownership Versus

Leasing (2 of 2)
CONS:
• Difficulty in securing locations in neighborhood, community
and regional shopping centers
• Assets tied up in real estate could be used for retail
expansion, inventory, store renovation
• Real estate activity can divert attention away from retail
activities
• Difficulty in renting adjacent space or current space (if
location is no longer desirable)

Terms of Occupancy Considerations

• Ownership versus leasing
• Type of lease
• Operations and maintenance costs
• Taxes
• Zoning restrictions
• Voluntary regulations

Types of Leases
• Straight
• Percentage
• Maintenance-Increase Recoupment
• Graduated
• Net

Examples of Lease Types

• Straight– $10,000 per month, 5 year term
• Graduated- $10,000 per month for years 1-5; then $12,000 per
month for years 6-10.
• Maintenance increase—Retailer tenant responsible for one-
half increase in property taxes and insurance based on a base
year of current lease
• Percentage- Retailer tenant pays $10,000 per month plus 5
percent of sales. (Chain tenants, long leases)
• Net lease- Retailer tenant pays all expenses with respect to
property upkeep except mortgage and structural repairs

Other Types of Lease Arrangements

• Five year lease with option to renew-- at either set rental or
rental determined by real estate appraisers
• Lease with option to buy—often X months rent can be applied
to purchase price
• Sale-leaseback-- Retailer sells property to investor and then
leases it back
• Good guy clause-- Provides that the property owner will not
enforce the personal guaranty for retail tenant as long as the
tenant has vacated the premises and has paid all rent up to the
date of termination. Property owner gets location back quickly
without legal costs, retailers gets “off the hook” for lease
balance.

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Retail Management: A Strategic

Three Types of Locations

• High visibility • High advertising expenses

• Adaptable facilities • No cost sharing for promotions

• Easy parking • Possibly restrictive zoning laws

• Excellent for store that

Unplanned Business Districts

Planned Shopping Centers

Characteristics of Planned Shopping

Necessary Adjustments to Vehicular

How Many Parking Spaces?

Store Composition and Site

Pros and Cons of Ownership Versus

Pros and Cons of Ownership Versus

Terms of Occupancy Considerations

Examples of Lease Types

Other Types of Lease Arrangements

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