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5th Edition PPT 8-1

Chapter 8 Site Location

McGraw-Hill/Irwin PPT 8-2 Levy/Weitz: Retailing Management, 5/e

Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Retailing Strategy
Retail Market and Financial Strategy Chapter 5, 6 Human Resource Management Chapter 9

Retail Locations Chapter 7 Site Locations Chapter 8 Information and Distribution Systems Chapter 10
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Customer Relationship Management Chapter 11

Location Chapters
‡ Chapter 7
± General Description of the Location Types ± Advantages and Disadvantages of Different Location ± Appendix ± Terms and Condition Involved in Leasing Sites

‡ Chapter 8
± Considerations in Selecting Area for Locating Store ± Issues in Evaluating Specific Sites
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Three Levels of Analysis

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Trade Area Issues
‡ Which Trade Areas Are Most Attractive for Locating Retail Outlets? ‡ How Many Outlets to Locate in a Trade Area?
± More Stores Increases Economies of Scale and Reduces Costs ± More Stores also Results in More Cannibalization and Less Sales per Store

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Factors Affecting Demand for a Region or Trade Area

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Factors Affecting the Attractiveness of a Site
‡ How Attractive Is the Site to the Retailer¶s Target Market?
± Match Between Trade Area Demographics and Retailer¶s Target Market ± Likelihood of Customers Coming to Location ‡ Convenience ‡ Other Attractive Retailers At Location Principle of cumulative attraction - a cluster of similar and complementary retailing activities will have greater drawing power.
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Convenience of Going to Site Accessibility
‡ Road pattern and condition

‡ Natural and artificial barriers ‡ Visibility ‡ Traffic flow ‡ Parking ‡ Congestion ‡ Ingress/egress
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Location Within a Center
‡ In High Traffic Areas ‡Near Anchor ‡Center of Shopping Area ‡ Near Stores Selling Complementary Merchandise ‡Clustering Specialty Stores Appealing to Teenagers ‡ Better locations cost more
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Map of Dallas¶ North Park Center

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Estimating Demand for a New Location
‡ Definition of the Trade Area
± Primary, Secondary, Tertiary Zones

‡ Approaches for Estimating Demand
± Analog Approach ± Regression Approach ± Huff Gravity Model

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Trade Area

Primary zone - 60 to 65 percent of its customers Secondary zone - 20 percent of a store¶s sales Tertiary zone - customers who occasionally shop at the store or shopping center

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Factors Defining Trade Areas
‡Accessibility ‡Natural & Physical Barriers ‡Type of Shopping Area ‡Type of Store ‡Competition ‡Parasite Stores
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Oblong Trade Area Caused by Major Highways and Natural Boundaries

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Sources of Information
‡ Customer Spotting ‡ Census Data ‡ Geodemographic Information Systems ± ACORN ‡ Information on Competition ± Yellow Pages
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Customer Spotting
Purpose: to spot, or locate, the residences of customers for a store or shopping center. How to obtain data: ‡ credit card or checks ‡ customer loyalty programs ‡ manually as part of the checkout process ‡ automobile license plates
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Census Data of the U.S.

Only once in 10 years. Each household in the country is counted to determine the number of persons per household, household relationships, sex, race age and marital status.

.

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Geodemographic Information Systems
Demographic data vendors specialize in repackaging and updating census-type data. Geographic Information System (GIS) is a computer system that enables analysts to visualize information about their customers¶ demographics, buying behavior, and other data in a map format.
‡ GIS is a spatial database that stores the location and shape of information. ‡ Analysts can identify the boundaries of a trade area and isolate target customer groups
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Indices for Assessing Sales Potential
‡ Market Potential Index (MPI)
± Number of Households Purchasing a Product or Service in a Trade Area

‡ Spending Potential Index (SPI)
± Average Amount Spent on a Product or Service by a Household in a Trade Area

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Sources for Measuring Competition
‡ The Internet - lists current locations and future sites. ‡ Yellow Pages ‡ Other Sources: Directories published by trade associations, chambers of commerce, Chain Store Guide, International Council of Shopping Centers, Urban Land Institute, local newspaper advertising departments, municipal and county governments, specialized trade magazines, list brokers
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Measuring Competition
‡ Calculate total square footage of retail space devoted to a type of store per household ‡ Higher ratios will indicate higher levels of competition

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Competitive Analysis for Edward Breiner

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Methods for Estimating Demand

Analog Approach Multiple Regression Analysis Huff¶s Model

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The Analog Approach
3 Steps:
1. Current trade area is determined by using the customer spotting technique. 2. Based on the density of customers from the store, the primary, secondary and tertiary trade area zones are defined. 3. Match the characteristics of our current store with the potential new stores¶ locations to determine the best site.
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Income Distribution of Three-Mile Ring Surrounding Edward Breiner Optical

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Demographic Trends for Three-Mile Ring Surrounding Edward Breiner Optical

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Breiner Optical
ACORN Neighborhood Lifestyle Clusters for Three-Mile Ring

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Descriptions of Largest PRIZM Clusters Surrounding Edward Breiner Optical

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Description of Largest PRIZM Clusters Surrounding Edward Breiner Optical

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Description of Largest PRIZM Clusters Surrounding Edward Breiner Optical

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Description of Largest PRIZM Clusters Surrounding Edward Breiner Optical

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Descriptions of Edward Breiner Optical and Four Potential Locations¶ Trade Areas

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Multiple Regression Analysis

‡ Need to define the retail trade area potential

for retail chains with greater than 20 stores. ‡ Similar to the analog approach, it uses statistics rather than judgement to predict sales for a new store.

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Multiple Regression Steps
‡ Current trade areas are determined by using the customer spotting technique ‡ Primary, secondary, and tertiary zones are determined by plotting customers on a map ‡ Select appropriate measures of performance, such as per capita sales or market share. ‡ Select a set of variables that may be useful in predicting performance. ‡ Solve the regression equation and use it to project performance for future sites.
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Yearly Sales, Population, and Income for 10 Home Improvement Centers

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Regression of Population on Sales

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Illustration of Regression Approach
1. Specify Regression Model ± Identify Critical Predictors of Store Sales
Sales = B0 + B1 x X1 + B2 x X2 X1 = population in trade area X2 = average household income in trade area

2. Estimate Weights - B0,B1, B2 3. Use Estimated Weights to Forecast sales
Sales = -144,146 + 6,937 x X1 + 10,132 x X2 Sales = -144,146 + 6,937 x 55,000 + 10,132 x 28,000 = $521,085
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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

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Huff¶s Model Formula
S j z Tij b Pij ! n § S j z 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

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University and Shopping Centers: Gravity Model Illustration

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Huff¶s Model: The Solution
Pij = 1000 z 32 (1000 z 32) + (500 z 52) + (100 z 12)

Probability = .48 .48 x 12,000 students = 5,760 customers 5,760 customers x $150 = $864,000

‡ Repeat steps 1 to 3 for the remaining areas and then sum them.
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