CHAPTER 10:

SITE
SELECTION

1
 Chapter Objectives
• To thoroughly examine the types of
locations available to a retailer: isolated
stores, unplanned business districts,
and planned shopping centers
• To note the decisions necessary in
choosing a general retail location
• To describe the concept of one-hundred
percent location

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 Chapter Objectives (cont.)

• To discuss several criteria for

evaluating general retail locations
and the specific sites within them
• To contrast alternative terms of
occupancy

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 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.

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 Three Types of Locations

Planned
Isolated
Shopping
Store
Center

Unplanned
Business
District

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 Isolated Stores
Advantages
• No direct competition
• Low rental costs
• Flexibility
• Good for convenience
stores
• High visibility
• Adaptable facilities
• Easy parking
• Excellent for store that
generates own traffic
©2013 Pearson Education
Disadvantages
• Difficulty attracting
customers
• Travel distance
• Lack of cumulative
attraction for customers
• High advertising
expenses
• No cost sharing for
promotions
• Possibly restrictive
zoning laws
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 Examples of Isolated Stores

• Large-store formats
– Wal-Mart
– Costco
• Convenience stores
– 7-Eleven
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 Figure 10-1: Site Selection and Starbucks

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 Unplanned Business Districts

Central Business Secondary

District Business
District

Neighborhood
Business String
District

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 Figure 10-2: Times Square

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 Figure 10-3: Unplanned Business
Districts and Isolated Locations

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 Planned Shopping Centers
Advantages Disadvantages
• Well-rounded • Limited flexibility
assortments • Higher rent
• Strong suburban • Restricted product
population offerings in lease
• One-stop, family • Competition
shopping • Requirements for
• Cost sharing of association memberships
promotions • Domination by anchor
• Transportation stores
access • Impact of store closings on
• Pedestrian traffic affinities
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 Figure 10-4: Macy’s and Shopping Centers

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 Table 10-1a: Characteristics of Centers

Features Regional Center

Total site area 30-100+
Total sq. ft. leased 400,001-2,000,000+
Principal tenant 1+ department stores
Number of stores 50-150 or more
Minimum # of people in 100,000+
trading area
Driving time of trading area Up to 30 minutes
Location Outside central city on
highway

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 Table 10-1b: Characteristics of Centers

Features Community Center

Total site area 10-40+
Total sq. ft. leased 100,001-400,000
Principal tenant Branch department store
category killer
Number of stores 15-25
Minimum # of people 3,000-50,000
in trading area
Driving time of trading Fewer than 20 minutes
area
Location Close to 1 or more
populated residential
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 Table 10-1c: Characteristics of Centers
Features Neighborhood Center
Total site area 3-15+
Total sq. ft. leased 300,00-100,000
Principal tenant Supermarket or drugstore
Number of stores 5-15 or more
Minimum # of people 20,000-100,000
in trading area
Driving time of trading Up to 15 minutes
area
Location Close to a populated
residential area
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 Figure 10-5: Galerya Afina

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 Location and Site Evaluation

One-Hundred The
Percent optimum site
Location for a
particular store

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Figure 10-7: Location/Site Evaluation Checklist

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 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)

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 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

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 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
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 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

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 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
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 Figure 10-8 Pedestrian Traffic

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Figure 10-9: Corner Influence and Hershey’s

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 Pros and Cons of Ownership
Versus Leasing
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

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 Pros and Cons of Ownership
Versus Leasing
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)

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 Terms of Occupancy Considerations

• Ownership versus leasing

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

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 Types of Leases

Straight

Maintenance-
Percentage Increase
Recoupment

Graduated Net

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 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
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 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.
©2013 Pearson Education 8-32
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