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CHAPTER

9:TRADING-AREA
ANALYSIS

9-1
Chapter Objectives
To demonstrate the importance of store location
for a retailer and to outline the process of
choosing a store location
To discuss the concept of a trading-area and its
related components
To show how trading-areas may be delineated
for existing and new stores
To examine three major factors: population
characteristics, economic base characteristics,
and competition/level of saturation

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Location, Location, Location
Criteria to consider include
population size and traits
competition
transportation access
parking availability
nature of nearby stores
property costs
length of agreement
legal restrictions

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Figure 9-1: Importance of Location
to Foot Locker

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Choosing a Store Location

Step 1: Evaluate alternate geographic (trading)


areas in terms of residents and existing retailers

Step 2: Determine whether to locate as an


isolated store or in a planned shopping center

Step 3: Select the location type

Step 4: Analyze alternate sites contained in the


specific retail location type

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Trading-Area Analysis

A trading-area is a geographic
area containing the customers
of a particular firm or group of
firms for specific goods or
services.

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Benefits of Trading-Area Analysis
Discovery of consumer Assessment of effects of
demographics and trading area overlap
socioeconomic Ascertain whether chains
characteristics competitors will open nearby
Opportunity to determine Discovery of ideal number of
focus of promotional outlets, geographic
activities weaknesses
Opportunity to view Review of other issues (e.g.
media coverage patterns transportation)

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Figure 9-2: The Trading-Areas of
Current and Proposed Outlets

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GIS Software
Geographic Information Systems
Digitized mapping with key location-
specific data used to graphically depict
trading-area characteristics such as
o population demographics

o data on customer purchases

o listings of current, proposed, and


competitor locations

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Figure 9-3(A): GIS Software in Action

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Figure 9-3(B): GIS Software in Action

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Figure 9-3(C): GIS Software in Action

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Figure 9-3(D): GIS Software in Action

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Figure 9-4: The Segments of a Trading-Area

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Figure 9-5: Delineating
Trading-Area Segments

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The Size and Shape of Trading-Areas
Primary trading-area
50-80% of a stores customers
Secondary trading-area
15-25% of a stores customers
Fringe trading-area
all remaining customers

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Destination Versus Parasite Stores
o Destination stores o Parasite stores do not
have a better create their own traffic
assortment, promotion, and have no real trading-
and image. area of their own.
o They generate trading-
o These stores depend on
areas much larger than people who are drawn to
area for other reasons.
competitors.
o Magazine stand in office
o Dunkin Donuts: Its
building
worth the trip!

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Trading Areas and Store Types

Largest
Department stores

Supermarkets
TRADING
Apparel stores
AREAS
Gift stores

Convenience stores
Smallest

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The Trading-Area of a New Store
Different tools must be used when an area
is evaluated in terms of opportunities rather
than current patronage and traffic patterns:
Trend analysis
Consumer surveys
Computerized trading-area analysis models

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Computerized Trading-Area
Analysis Models

Analog Model

Regression Model

Gravity Model

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Analog, Regression and Gravity Models
Analog models simplest. Revenue
estimates based on similar stores,
competition, expected market share, size
and population density
Regression models- looks at population
size, average income, transportation
barriers and traffic patterns
Gravity models looks at distance and
shopping selection at given location

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Reillys Law

Reillys law of retail gravitationa


traditional means of trading-area
delineationestablishes a point of
indifference between two cities or
communities so that the trading-
area of each can be determined.

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Reillys Law

Dab = d

1+ Pb/Pa

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Reillys Law
50 miles

Dab_ 160,000
1+ 40,000

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Reillys Law
Dab = 50/5 = 10 miles from smaller city
and 40 miles from larger city Indifference
point
Assumes that larger city has more retail
facilities and greater drawing power as a
result
Assumes that road conditions,
congestion, driving conditions are equal in
both cities

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Limitations of Reillys Law
Distance is only measured by major
thoroughfares; some people will travel shorter
distances along cross streets.
Travel time does not reflect distance traveled.
Many people are more concerned with time
traveled than with distance.
Actual distance may not correspond with
perceptions of distance.

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Huffs Law

Huffs law of shopper attraction


delineates trading-areas on the basis
of product assortment at various
shopping locations, travel times from
the shoppers home to alternative
locations, and the sensitivity of the
kind of shopping to travel time.

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Table 9-1a: Chief Factors to Consider in
Evaluating Retail Trading-Areas
Population Size and Characteristics
Total size and Total disposable
density income
Age distribution Per-capita
Average disposable income
educational level
Occupation
Percentage of
residents owning distribution
homes Trends

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Table 9-1b: Chief Factors to Consider in
Evaluating Retail Trading-Areas

Availability of Labor
Management
Management trainees
Clerical

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Table 9-1c: Chief Factors to Consider in
Evaluating Retail Trading-Areas
Closeness to Sources of Supply
Delivery costs Number of
Timeliness wholesalers
Number of
Availability of
manufacturers product lines
Reliability of
product lines

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Table 9-1d: Chief Factors to Consider in
Evaluating Retail Trading-Areas
Economic Base
Dominant Freedom from

industry economic and


Extent of seasonal
diversification fluctuations
Availability of
Growth
credit and
projections
financial facilities

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Table 9-1e: Chief Factors to Consider in
Evaluating Retail Trading-Areas

Competitive Situation
Number and size Short- and long-
of existing run outlook
competition Level of
Evaluation of saturation
competitor
strengths and
weaknesses

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Table 9-1f: Chief Factors to Consider in
Evaluating Retail Trading-Areas

Availability of Store Locations


Number and type Owning versus
of store locations leasing
Access to opportunities
Zoning
transportation
restrictions
Costs

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Table 9-1g: Chief Factors to Consider in
Evaluating Retail Trading-Areas

Regulations
Taxes Minimum wages
Licensing Zoning
Operations

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Elements in Trading-Area Selection

Population Economic Base


Characteristics Characteristics

Nature and Saturation


of Competition

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Figure 9-9: The Census Tracts of
Long Beach, NY

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Table 9-3 Selected 2010 Population Statistics for
Long Beach Trading-Areas a and B
Area A Area B
(4164 & 4166) (4167.01 and 4168)

Total population, 2010 12,532


10,430
Population change 2000-2010 -8.7 -5.7
(%)
College graduates 12 and older, 48.2 48.9
2010 (%)
Median household income, $94,778 $98,317
2010
Managerial and professional
specialty occupations (% of
employed persons 16 and 47.1 51.5
older), 2010

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Trading Area Saturation Indices
Number of persons per retail establishment
Average sales per retail store
Average sales per capita
Average sales per square foot of selling area
Average sales per employee
Saturated, oversaturated and undersaturated
conditions

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