Chapter-6

RETAIL LOCATION STRATEGY

Importance of location decision
 Location is a major cost factor because it :
i. involves large capital investment
ii. affects transportation costs
iii. affects human resources cost

 Location is a major revenue factor because it :

i. affects the amount of customer traffic
ii. affects the volume of business
Levels of location decision and its
determining factors

A retailer takes a location decision

based on:
- selection of a city
- selection of an area or type of location within
a city
- identification of a specific site
 Types of retail location
Types
Typesof
oflocations

Free standing locations

 neighborhood stores
 highway stores
Unplanned business districts/ centres
 downtown or central business district
 secondary business district
 suburban business district
 strip centre

Planned shopping centres

 regional shopping centres of malls
 neighbourhood / community
 specialist markets
 periodic/ weekly markets
 Site selection analysis
• Six factors to be considered while
selecting a site:

 kinds of products sold

 cost factor
 competitor’s location
 ease of traffic flow and accessibility
 parking and major thoroughfares
 market trends
 visibility
Selection of a particular shopping
centre or market area
• Five factors influence the selection of a
particular shopping centre:

 merchants’ association
 landlord’s responsiveness
 zoning and planning
 lease terms
 building layout
 Central place theory
 Theory established by Christaller and Losch
- theory attempts to explain the spatial
distribution of a settlement
-central level for a store is the
minimum area from which it must
draw traffic to be viable
- range is a sphere of the settlement of Range
consumers travelling to the central Threshold
place
- range of a store should be at least
equal to its threshold area
- store will earn profits only if its range
is larger than its threshold
 Spatial interaction theory
• Theory discards the assumption made by
central place theory that behavior is explained
by consumers using the nearest offering of
goods or services
• Theory dates to 1931 from the pioneering
studies of William J. Reilly
• Likelihood that a city or shopping centre will
attract shoppers from the hinterland increases
with the size of the city or shopping centre and
decreases with distance from the city or
shopping centre
 Spatial interaction theory contd
• The law of retail gravitation can be
supplemented with the knowledge of the
location and size of competing centers to
develop a boundary around another centre
• Reilly’s law of retail gravitation (R, retail
attractiveness of a central place or shopping
center J to a potential customer residing at
I) increases proportionately with the
population P (or size in square feet) of J and
increases inversely with the square of the
distance ij
• RJ =kpj/dij square
 Land value theory
• Land value theory (bid rent and urban rent theory)
achieved recognition from the work of Haig during
1927
- used for analyzing and explaining the arrangementRent per acre
of urban land uses
Bid rent
- analyzes and explains the arrangement of urban function
land uses and the location of economic activities
within cities
- price a bidder is likely to pay will depend on the
use of the site
- more central the location = more desirable the plot
- more central the location = higher price (as
different users bid to purchase the land) Distance
- retailers require access to consumers more than
any other land use function
- will be prepared to pay very high rents for city
centre locations
- bid rent demand from retailers will fall sharply as
the distance from the city centre increases (see
figure)