Unit 3

Retail Store & Location

Types of Retail Location, Importance of location

decision, Types of Locations, Factors affecting
location, Step involved in choosing a Retail Location,
Selection of shopping center, Retail location
theories, location assessment procedure
 Introduction

Define Store:
“A store is place , real or virtual , where the shoppers
comes to buy goods & services. The sales transaction
occurs at this junction.”

• The location of retail store has for along time been considered
the most important ‘P’ in retailing.

• Locating the retail store in the right place was considered to be

adequate for success.
 Importance of retail Location Decisions
 Location becomes a critical decision for a retailer for several
reasons. As like;

 Location is generally one of the most important factors

customers consider while choosing a store.

 A bad location may cause a retailer to fail even if its strategic mix
is excellent.. On the other hand , a good location may help a
retailer succeed even if its strategic mix is mediocre.

 Store location is least flexible element of retailer’s strategic mix

due to its fixed nature, the amount of investment, and the
length of lease agreements
• Change in location gives three potential problems
– Loss of loyal customers and employers
– New location may not have the same characteristics of old location
– Store fixtures cannot be moved to new location
• Location affects a store’s long run strategies
• In short run, it affects specific elements of retail mix
 Factors affecting location
• Size and characteristics of market (population)
• Level of competition
• Access to transportation
• Parking space availability
• Attributes of nearby stores
• Property costs
• Length of agreement
• Population trends
• Legal restrictions
• Other factors
 Types of Retail Location
• Various option are available to the retailer for choosing the
location of store.

• The choice of the location of the store depends on the target

audience and the kind of merchandise to be sold.

• A retailer has to choosing among alternate types of retail

locations available . It may locate in an isolated place and pull the
customer to the store on its own strength, such as a small
grocery store or paan shop in a colony which attracts the
customers staying close by
Typically a store location may be:

1. Freestanding /Isolated store.

2. Part of Business District/Centers (unplanned Business Districts).

3. Part of a Shopping Center (Planned Shopping Centers)

 1. Freestanding /Isolated store
• Where there are no other outlets in the vicinity of the store and
therefore store depends on its own pulling power and promotion
to attracts customers.

• A biggest advantages for freestanding stores is that there is no

competition around.

• This type of location has several advantages including no

competition, low rent, often better visibility from the road, easy
parking and lower property .

• Neighborhood Stores; colony shops serves small locality.

• Highway Stores :Ebony store in Ludhiana .
 How far the customer is willing to travel?
Apparel Cosmetics –
2.5Km 4.05 km

Books –
Music –
2.74km
2.54 km
1km 2km 3km 4km 5km

Jwellery –
1.5 km
Source : KSA – Technopack
consumer outlook, 2004 Grocery – 4 km
Business Associated Location: These are location where a
group of retail outlets offering a variety of merchandise work
together to attract customers to their retail area, but also
compete against each other for the same customers.two types
includes in ;

1. Part of Business District/Centers (unplanned

Business Districts).

2. Part of a Shopping Center (Planned Shopping

Centers)
 2. Part of Business District/Centers
(unplanned Business Districts).

• A retail store can also be located as a part of a business district. Or

we can refer this as unplanned business centers

• A business district is place of commerce in a city which developed

historically as the center of trade and commerce in the city or town.

• A business districts can be a central, secondary or a Neighborhood

business district.

• A Central business District CBD is the main center of commerce

and trade in the city. (high land rates , intense development)
• A CBD is the hub of retailing activity in a city.

• CBD served different sections of population for Examples of

Cannaught place in Delhi, Colaba in Mumbai, Commercial Street
and in Bangalore are up market CBD’s.

• CBD’s serving the upper and upper middle class customers

across these cities like, chandani chowk in Delhi, Kalbadevi-
Bhuleswar in Mumbai, Chickpet in Bangalore.

• Secondary Business District are composed of unplanned cluster

of store often located on a major intersection of city they a
customers from a large part of the city
 3. Part of a Shopping Center (Planned
Shopping Centers)

• A shopping center has been defined as “ a group of retail and

other commercial establishments that is planned , developed,
owned and managed as a single property”

• The basic configuration of a shopping centre is a “Mall ” or Strip

centre.

• A mall is typically enclosed and climate controlled. A walkway is

provided in front of the stores.

• A strip centre is a row of stores with parking provided in the

front of the stores.
• In India we can planned shopping centre can categorize in two
category
Regional shopping centers or Mall: Regional shopping centers or
mall are the largest planned shopping centers..
• Often they are anchored by two or more major department
stores have enclosed mall serve a large trading area and have high
rents. (ansal plaza,spencers plaza crossroads, DLF city in
Gurgaon)

• Neighborhood/community/shopping centers:
Neighborhood /community centers usually have a balanced mix
of stores including a few grocery stores , a chemist, a verity store
and a few other stores selling convenience goods to the residents
of the neighborhood.
 India to have mother of all malls
• Gurgaon is set to get the mother of all malls — a humungous 40-lakh sq ft sprawling property
that is being touted by its developer DLF Universal as the biggest mall of the world.
The average size of malls here is 2.5 lakh sq ft; this will be 16 times bigger.
The mall —- christened Mall of India -— will be spread over 32 acres and will have parking
space for 10,000 cars.
These ambitious plans have been drawn up at a time when footfalls are down at Gurgaon malls
and rental rates have virtually halved.
But DLF is unfazed. It says Gurgaon with so many malls will soon develop as a mega shopping
district in the NCR region.
What's the basis of the claim that this will be the biggest in the world?
DLF spokerperson Kajal Aijaz said the biggest now is Mall of America in Minneapolis which
has a covered area of 38 lakh sq ft, followed by a mall in Shanghai which is 30 lakh sq ft.
Mall of India would be bigger than these, she said.
The DLF mall — located on the Delhi-Jaipur highway — has been designed by Jerde Partnership
which also designed the mega malls in Minneapolis and Shanghai.
The costs are not known but property consultants said it could be in the region of Rs 1,500
crore.
 Selection of Shopping centre / market
• Shopping centers are distinctly different from the other two
major locations -- that is, downtown and local business strips.
The shopping center building is pre-planned as a merchandising
unit for interplay among tenants. Its site is deliberately selected
by the developer for easy access to pull customers from a trade
area. It has on-site parking as a common feature of the layout.
The amount of parking space is directly related to the retail area.

• Customers like the shopping center's convenience. They drive in,

park, and walk to their destination in relative safety and speed.
Some shopping centers also provide weather protection and
most provide an atmosphere created for shopping comfort. For
the customer, the shopping center has great appeal.
 What Are your Chances
• Developers and owners of shopping centers look for successful
retailers.
• Then, the developer selects other types of stores that will
complement each other.
• To finance a center, the developer needs major leases from
companies with strong credit ratings.
• Your problem is to convince the developer that the new store
has a reasonable chance of success and will help the "tenant
mix."
 What a shopping centre can offer ?
• Neighbor hood shopping centre – 3 to 10acres, minimum
trading population – 2500 to 40000
• Community shopping centre -10 -30 acres, minimum trading
population 40,000 to 1,50,000
• Regional shopping centre – 30 to 50 acres, minimum trading
population 1,50,000 and more
 Selecting a shopping centre
• Trade area and its growth
• General income level of the trade area
• No of households
• Demographics of trade area
• Market analysis
• Location of store in the centre
• Space
• Rent & lease
• Fittings
• Other services by developers
 Types of shopping centers
• Neighborhood shopping centers
• Community shopping centers
• Regional shopping centers
– Enclosed malls
• Specialty theme shopping centers
Regional Shopping Centre
Secondary business centers
 Neighborhood
shopping centre
Isolated
Location

Secondary Business
District

Central Business
District
 Factors to be considered in selecting a
shopping center
• Traffic Count : the qualitative information gathered about the
passing traffic should include counting the individuals who seem
to possess the characteristics appropriate to the desired clientele,
judging their reasons for using that route, and calculating their
ability to buy.
• Pedestrian Traffic Count : In making a pedestrian count you
must decide: who is to be counted; where the count should take
place; and when the count should be made. In considering who
is to be counted, determine what types of people should be
included.
• Estimate Of Store Sales :Data from a pedestrian traffic survey
can give you information on whether or not the site would
generate a profitable volume for your store.

• Automobile Traffic Count ;A growing number of retail firms

depend on drive-in traffic for their sales. Both the quantity and
quality of automotive traffic can be analyzed in the same way as
pedestrian traffic.
 Free standing / isolated location
• Advantages
– No competition
– Low costs
– Flexibility
• No group rules
• Larger space
• Location by choice
– Better road and visibility
– Customization
– easy parking
• Disadvantages
– Initial Difficulty in attracting costumers
– Most people like variety in shopping
– Travel time
– Advertising costs
– Operating cost are not shared
– Built than renting
– Unplanned and planned business centers
are preferred by costumers
 Unplanned Business Districts
• Advantages
– Excellent goods/service assortment
– Variety of store types
– Wide range of prices
– Variety of customer services
– High level of pedestrian traffic
– Nearness to commercial or social facilities
• Disadvantages
– Inadequate parking
– Traffic congestion
– Travel time for sub urban customers
– Aging retail facilities
– Decline condition of central cities
– High rent and taxes
– Movement of popular stores to suburbs
– Discontinuity of offering
 Planned Business districts
• Advantages
– Excellent goods/service assortment for long term plan
– strong sub urban population
– One stop shopping preferred by customers
– Co-operative planning and sharing of common costs
– Creation of unified, distinctive shopping center image
– Maximization of pedestrian traffic
– Access to high ways and parking spaces
– More appealing than city shopping centers
– Reasonable rent ( excluding enclosed malls)
– Lower theft rates
– Popularity of malls
– Growth of new types of malls
• Disadvantages
– Reduced operating flexibility
– Higher rents
– Restriction on goods and services sold by
stores
– Competitive environment within malls
– Membership in associations – which may of
little use
– Too many malls in an area
– Domination by large anchor stores
 Step involved in choosing a Retail
Location / site selection
• In order to arrive at the decision on where to locate the retail
store a retailer needs to first on the region that he wants to
locate the store.
• After identifying the region the following steps Have to be
followed .
1. Identifying the market in which to locate the store.

2. Evaluate the demand and supply within that market. i.e.

determine the market potential.

3. Identify the most attractive sites

4. Select the best site available

1. Market Identification:
• The first step in arriving at a decision on retail location is to
identify the market attractiveness to a retailer.
• This is important that retail needs to understand the market
well.
2. Determining the market Potential::
• The retailer need to take into consideration various elements as
shown in format. (features of population)
• Demographic features of the population
• The characteristics of the household in the area (average
household income)
• Competition and compatibility (Need to know compatibility &
competition in market)
• Laws & regulations:( good understanding of the laws
Determining the market Potential

Demographics of Competition
population & area

Trade area
Laws & Regulation
analysis
• Trade area analysis:
• A trade area is the geographic area that generates the majority
of the customers for the store.

• Primary trade area: primary trading covers between 50-80% of

the store’s customers.

• Secondary Trading Area: this area contains the additional 15-

to 25% of the store’s customers.

• Tertiary trading area covers the balance customers

• These trading areas are dependent on distance and do not always
have to be concentric in nature
Types of Trades areas.
 2 miles
2 miles

2 miles 1 mile 1 mile 1 mile 2 miles

2 miles

2 miles Proposed
Store store
location A location
Trade Area Analysis
3& 4 Identify Alternate sites and select the site:
After taking decision on the location and market potential the
retailer has to select the site to locate the store based on these
• Traffic
• Accessibility of the market is also a key factor
• The total number of stores and the type of store that exist in
the area
• Amenities
• To buy or to lease
• The product mix to be offered by the retailer
 Retail Location Theories
• Central place theory
• Retail Gravity Theory
– Huff ’s Gravity Model
– Reilly’s Law of Retail Gravitation
• Saturation theory
• Herfindahl – Herschman Index
 Central Place Theory
• Theory proposed by Walter Christaller in 1933
Christaller made a number of assumptions such as:
• All areas have an isotropic (all flat) surface
• an evenly distributed population
• evenly distributed resources
• similar purchasing power of all consumers and consumers will
patronize nearest market
• transportation costs equal in all directions and proportional to
distance
• no excess profits (Perfect competition)
 Terms in Central Place theory
• A Central Place is a settlement which provides one or more services
for the population living around it.
• Simple basic services (e.g. grocery stores) are said to be of low order
while specialized services (e.g. universities) are said to be of high
order.
• Having a high order service implies there are low order services
around it, but not vice versa.
• Settlements which provide low order services are said to be low
order settlements, Settlements that provide high order services are
said to be high order settlements.
• The sphere of influence is the area under influence of the Central
Place.
 Details of the theory

• The theory consists of two basic concepts:

• threshold-- the minimum population that is required to bring
about the provision of certain good or services
• range of good or services-- the average maximum distance
people will travel to purchase goods and services

Technically the range should be

greater than threshold for a store
to be economically viable
 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
 S j ÷ Tij b
Pij = n
∑ S j ÷ Tij b
j =1
Where
Pij = Probability 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 to Tij that reflects the effect of travel time on different
kinds of shopping trips

n = number of stores including j

 Reilly’s Law of Retail Gravitation
• When two cities compete for retail trade area from the
immediate suburban area, 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 the distance from the immediate area of the city
 Mathematical Formula
• (Ba/Bb) = (Pa/Pb) (Da / Db)2
• Ba – business drawn by city a from immediate place
• Bb - business drawn by city b from immediate place
• Pa – population of city a
• Pb – population of city b
• Da – distance of city a from immediate place
• Db - distance of city b from immediate place
 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.
 Index of retail saturation (IRS)
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).
 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)
 Implications
• It is calculated based on existing retail facilities
and their use
• Low level saturation is indicated by higher IRS –
which means the likelihood of success is higher
• If the market is having too few stores and unable
to satisfy the demands of the customers, the
market is under stored
• If there is too many stores the market is over
stored, unable to give fair return on investments to
the retailer
 Herfindahl – Herschman Index
• It is a measure of market concentration
• The Herfindahl index (HI) is a measure of industry
concentration equal to the sum of the squared market
shares of the firms in the industry
• N

• HHI = Σ Si 2

• i =1
 Example
• For instance, two cases in which the six largest firms sells
90 % of the sales:
• Case 1: All six firms sell 15% each, and
• Case 2: One firm sell 80 % while the five others sell 2 % each.
• We will assume that the remaining 10% of sales is divided
among 10 equally sized firms.
• The six-firm concentration ratio would equal 90 % for both
case 1 and case 2. But the first case would promote significant
competition, where the second case approaches monopoly.
The Herfindahl index for these two situations makes the lack
of competition in the second case strikingly clear:
• Case 1: Herfindahl index = 6 * 0.152 + 10 * 0.012 = 0.136
(13.6%)
• Case 2: Herfindahl index = 0.802 + 5 * 0.022 + 10 * 0.012 =
0.643 (64.3%)
• The maximum in this case is 1002 = 10,000.
• A HHI index below 0.1 (or 1,000) indicates an
unconcentrated index.
A HHI index between 0.1 to 0.18 (or 1,000 to 1,800)
indicates moderate concentration.
A HHI index above 0.18 (above 1,800) indicates
high concentration.
• A small index indicates a competitive industry with
no dominant players. If all firms have an equal
share the reciprocal of the index shows the
number of firms in the industry. When firms have
unequal shares, the reciprocal of the index
indicates the "equivalent" number of firms in the
industry.
 Buying power index (BPI)

• It is an indicator of a market’s overall retail

potential and is composed of the weighted
measures of effective buying income
(personal income, including all nontax
payments such as social security, minus all
taxes), retail sales, and population size
 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. potential
 BPI
• BPI = 0.5(the area’s percentage of a country’s
effective buying income)
+
0.3(the area’s percentage of a country’s retail sales)
+
0.2(the area’s percentage of a Country’s
population)
 CBSA Ratings
• CBSA Current Year Estimate: Buying Power Index (BPI) 200

• CBSA BPI Rank

• New York et al, NY-NJ-PA 6.7043 1
Los Angeles-Long Beach-Santa Ana, CA 4.3638 2
Chicago-Naperville-Joliet, IL-IN-WI Metro 3.2737 3
Washington-Arlington-Alexandria,
DC-VA-MD-WV Metro 2.2371 4
Philadelphia-Camden-Wilmington,
PA-NJ-DE-MD Metro 2.0811 5
Total of all Areas 94.9
Percent Of US 94.9353
 CBSA Current Year Estimate: Total
Effective Buying Income (EBI) 2009
CBSA $ Rank

New York et al, NY-NJ-PA Metro 473,144,995,000 1

Los Angeles-Long Beach-Santa

Ana, CA Metro 284,475,132,500 2
Chicago-Naperville-Joliet, IL-IN-WI
Metro 216,277,750,000 3

Washington-Arlington-Alexandria,
DC-VA-MD-WV Metro 168,382,225,000 4
Dallas-Fort Worth-Arlington, TX
Metro 143,181,142,500 5

Total of all Areas 6,131,601,985,000

Percent Of US 95.1522
US Total 6,443,994,426,250
CBSA Current Year Estimate: Total
Population 2009
CBSA POPULATION RANK
New York et al, NY-NJ-PA
18,870,038 1
Metro
Los Angeles-Long Beach-
13,223,432 2
Santa Ana, CA Metro
Chicago-Naperville-Joliet,
9,602,177 3
IL-IN-WI Metro
Dallas-Fort Worth-
6,348,826 4
Arlington, TX Metro
Philadelphia-Camden-
Wilmington, PA-NJ-DE-MD 5,852,669 5
Metro

Total of all Areas 287,289,025

Percent Of US 93.694
 Five Year Estimates
• CBSA BPI Rank
• New York et al, NY-NJ-PA Metro 6.5594 1
Los Angeles-Long Beach-Santa Ana, CA Metro 4.4271 2
Chicago-Naperville-Joliet, IL-IN-WI Metro 3.1731 3
Washington-Arlington-Alexandria,
DC-VA-MD-WV Metro 2.315 4
Dallas-Fort Worth-Arlington, TX Metro 2.1047 5
Total of all Areas 95.1
• Percent Of US 95.0916
• US Total 100
 Methods / Models
• Check-list method
• Analogue method
• Location Allocation
• Regression modelling
• Gravity modelling
Check list method
Analog method
Regression models
Location Allocation model
Gravity Model
 Merchandising,
Basis of retail merchandising ,
 Product and merchandising management is key activity in the
management of retail business.

 The primary function of the retailing is to sell Merchandise.

 One of the most strategic aspects of the retail business is to

decide the merchandise mix and quantity to be purchased .

 Merchandising can be termed as the planning, buying and the

selling of merchandising .
• Define Merchandising as “The analysis, planning, acquisition,
handling and control of merchandise investments of a retail
operation.”

• Merchandising is the core of retailing.

• The function of merchandising is an integral part of retailing

and also one of the most challenging functions.

• AMA define “The planning involved in marketing the right

merchandise at the right place at the right time in the right
quantities at the right price.”
• Achieving these five Right is the key to successful merchandising and many a times,
this remains an elusive goal for most retailers.

• Merchandising management can be termed as “Planning, analysis, acquisition,

handling and control of the merchandise”
• Analysis: because retailers must be able to correctly identify their
customers before they can ascertain consumer desires and their
needs/requirements for making a good buying decision.

• Planning is important because merchandise to be sold in the

future must be bought now.

• Acquisitions because the merchandise needs to be procured from

others, either distributors or manufactures.

• Handling involves seeing that the merchandise is where it is

needed and in the proper condition to be sold.

• Control is required since the function of merchandise involves

spending money for acquiring products it is necessary to control
the amount of money spent on buying
 Factors Affecting the Merchandising Function

• Merchandising does not function in isolation.

• It is affected by various factors like the organization structure,
the size of the retail organization and the merchandise to be
carried.

• Rarely are any two stores organized in the same way.

• The function of the merchandising is vary from one

organization to another.

• Size: The needs of the individual retailers vary from those of

large chain store operation.
 Size of organisation

Merchandise to be carried
Organisation Structure

Merchandising function

Types of store
• The merchandiser to be carried by a retailer largely determines
the responsibilities of the merchandiser.

• Merchandise to be carried: The buying for basic merchandise is fairly

different from buying fashion merchandise.
• A merchandisers who I handling fashion products will need to
spend more time in the market, and looking for the products
which is more suitable for the customers.

• Organization structure that the retail organization adopts also affects

the merchandising function. Some organization may
differentiate the role of the buyer and the role of a
merchandisers separately.
 The Merchandises Role & Responsibilities

• Planning: Thought the merchandising may not be directly

involved in the actual purchase of merchandise.
• They formulate the policies for the areas in which they are
responsible.
• Forecasting sale for the forth coming budget period and can
estimate the consumer demand and the impact of changes in the
retail environment.

• Directing: Guiding and training buyers as and when the need

arises, is also a function of the merchandiser.
• The buyers have to be guided to take additional markdowns for
products which may not be doing too well in the stores.
• Co-ordinating: Merchandise managers supervise the work of more than one buyer.
• They need to coordinate the buying effort in terms of how well it fits in with the
store image and with the other products being bought by other buyers.

• Controlling: assessing the buyers performance , is a also part of the merchandise

manager’s Job.
• This includes evaluated on the basis of net sale, maintain mark up percentage, gross
margin % and stock turn
 Role of the Buyer

• Buyers plays an important role in the retail industry. they select

and order merchandise to be sold.
• Buyers may be responsible for buying for a department, an
entire store, or a chain of stores

1. Developing the merchandising strategies for the product line

2. Planning and selecting merchandise assortments
3. Vendor Selection
4. Pricing of the merchandise
5. Inventory Management
 Retail Store Design & Visual Merchandising

• Store design and layout tells a customer what the store is all about
and it is very strong tool in the hands of the retailer for
communicating and creating the image of the store in the mind of
the customers.

• The design and layout of the store are a means of communicating

the image of the retail store.

• The environment which is creates in the retail store, is a

combination of the exterior look of the store, the store interiors,
the atmosphere in the store and the events, promotions and the
themes.
• The overall look of a store and the series of mental pictures and feelings it evokes
within the beholder.

• For the retailer, developing a powerful image provides the opportunity to embody a
single message, stand out from the competition and be remembered.
 Elements of store design

Ext.
Frontage &
Entrance Display Parking
space

Building
architecture Location

Health &
Safety Store Access
design

Store
‘theme’

Target Merchand
Customers ise Mix
 Exterior Store Design & Interior Design

• Exterior
• Location
• Parking
• Ease of access
• The building architecture
• Health and safety standards
• Store windows, lighting
• Interior
• Fixtures
• Flooring & Ceilings
• Lighting
• Graphics & Signages
• Atmospherics
 Visual merchandising

“Can be termed as the orderly, systematic, logical and intelligent way of putting
stock on the floor”

• VM is the art of presentation, which puts the merchandise in focus.  It educates the
customers, creates desire and finally augments the selling process.
METHODS OF DISPLAYS

• Color Dominance
• Co-ordinated Presentation
• Presentation by price