Chapter 7

Marketing Selection and Retail Location Analysis

Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
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Learning Objectives
Explain the criteria used in selecting a target market. Identify the different options, both store-based and nonstore-based, for effectively reaching a target market and identify the advantages and disadvantages of business districts, shopping centers, and freestanding units as sites for retail location. Define geographic information systems (GIS) and discuss their potential uses in a retail enterprise. 

 

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Learning Objectives
Describe the various factors to consider in identifying the most attractive geographic market for a new store. Discuss the various attributes to consider in evaluating retail sites within a retail market. Explain how to select the best geographic site for a store.   

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‡ Ease of Access Refers to the consumer¶s ability to easily and quickly find a retailer¶s Web site in cyberspace. ‡ Virtual Store Is the collection of all the pages of information on the retailer¶s Internet site. It is the equivalent to a retailer¶s store-front in the physical world.Selecting a Target Market LO 1  Home Page Is the introductory or first material viewers see when they access a retailer¶s Internet site. 3 .

Selecting a Target Market LO 1   Market Segmentation Identifying a Target Market 4 .

‡ Market segment should be measurable. and behavioral characteristics.Selecting a Target Market LO 1  Market Segmentation Is dividing of a heterogeneous consumer population into smaller. economic. psychographic. ‡ Market should be accessible. ‡ Market should be substantial enough to be profitable. more homogenous groups on demographic. ‡ Target market Is the group of customers that the retailer is seeking to serve 5 .

Ease of Access
LO 1: Exhibit 7.1

Difficulty Finding Desired Site Through Search Engine

Number of Web Sites
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Target Market
LO 1 

The Limited has a welldefined target market: the moderate-income, career-oriented woman who is fashion conscious.

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Location of Store-Based Retailers
LO 2

‡ Store-Based Retailers operate from a fixed store

location that requires customers to travel to the store to view and select merchandise or service. home, at work, or at a place other than a store where they might be susceptible to purchasing.

‡ Nonstore-Based Retailers intercept customers at

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2 Retail Formats Store-Based Nonstore-Based Business District Shopping Centers/Malls Freestanding Nontraditional Street Peddling Direct Selling Mail-Order Automated Merchandising Systems Interactive TV Internet 9 .Retail Formats for Accessing a Target Market LO 2: Exhibit 7.

it is usually in the center of the city and often where the city originated historically.  10 .Location of Store-Based Retailers LO 2  Central Business Districts (CBD) usually consists of an unplanned shopping area around the geographic point at which all public transportation systems converge. Secondary Business District (SBD) is a shopping area that is smaller than the CBD and that revolves around at least one department or variety store at a major street intersection.

and its located on a major artery of a residential area. Shopping Center (or mall) is a centrally owned or managed shopping district that is planned.  11 . and is surrounded by parking facilities. generally contains several small stores (with the major retailer being a supermarket or a variety store).Location of Store-Based Retailers LO 2  Neighborhood Business District (NBD) is a chopping area that evolves to satisfy the convenience-oriented shopping needs of a neighborhood. has balanced tenancy (the stores complement each other in merchandise offerings).

Free-Standing Retailer generally locates along major traffic arteries and does not have any adjacent retailers to share traffic with.  12 .Location of Store-Based Retailers LO 2  Anchor Stores are the stores in a shopping center that are the most the most dominant and are expected to draw customers to the shopping center.

Clean. Cooperative planning and sharing of common resources. Lower crime rate. Access to highways and availability of parking. neat environment.     13 .Shopping Center Advantages over a CBD LO 2  Heavy traffic resulting from the wide range of product offerings.

 Possibility of too much competition and the fact that much of the traffic is not interested in a perticular product offering.Shopping Center Disadvantages LO 2 Inflexible store hours (open during mall hours only).   Restrictions as to what merchandise the retailer may sell.  High rents. Inflexible operations and required membership in the center¶s merchant organization.  Dominance of the smaller stores by the anchor tenants.  14 .

15 . ‡ Facilities that can be adapted to individual needs.Advantages of Freestanding Retailing LO 2 ‡ Lack of direct competition. ‡ Freedom in operations and hours. ‡ Generally lower rents. ‡ Inexpensive parking.

‡ Difficulties in attracting customers for the initial visit.Limitations of Freestanding Retailing LO 2 ‡ Lack of drawing power from complementary stores. ‡ Operating costs that cannot be shared with others. ‡ Higher advertising and promotional costs. 16 . ‡ Zoning laws that may restrict some activities. ‡ Stores that may have to be built rather than rented.

Nonstore-based Retail Formats LO 2 ‡ Direct Selling ‡ Street Peddling ‡ Interactive TV ‡ Mail-Order ‡ Internet ‡ Automated Merchandising Systems 17 .

ISCS Shopping Center Definitions LO 2 18 .

ISCS Shopping Center Definitions LO 2 19 .

Typical Size & Trading Area of Shopping Centers LO 2 Type of Shopping Center Neighborhood Gross Leasable Square Feet 30.000 Primary Trade Area 3 Miles 20 .000 to 150.

000 Primary Trade Area 3-6 Miles 21 .Typical Size & Trading Area of Shopping Centers LO 2 Type of Shopping Center Community Gross Leasable Square Feet 100.000 to 350.

Typical Size & Trading Area of Shopping Centers LO 2 Type of Shopping Center Regional Gross Leasable Square Feet 400.000 Primary Trade Area 5-15 Miles 22 .000 to 800.

000 Primary Trade Area 5-25 Miles 23 .Typical Size & Trading Area of Shopping Centers LO 2 Type of Shopping Center Super-Regional Gross Leasable Square Feet 800.

what new locations will provide the greatest opportunities for the retailers of tomorrow?  24 .Question to Ponder Given the wide variety of locations available to target specific consumer groups.

Geographic Information Systems LO 3 ‡ Thematic Maps ‡ Uses of GIS 25 .

humanly created objects. themselves and the raw physical environment and includes the characteristics of the population. ‡ Culture is the buffer that people have created between 26 .Geographic Information Systems LO 3 ‡ Geographic Information System (GIS) is a computerized system that combines physical geography with cultural geography. and mobile physical structures.

Geographic Information Systems LO 3 ‡ Thematic Maps use visual techniques such as colors. 27 . and lines to display cultural characteristics of the physical space. shading.

GIS Components LO 3: Exhibit 7.4 Physical Geography Latitude/Longitude Land/Water Terrain Rainfall/Snow Temperature Cultural Geography Data Inputs Demographics Manmade Structures Consumption Patterns Work Patterns Leisure Behavior Deviant Behavior GIS (Data Aggregation and Analysis via Computer) Output Maps and Other Displays of Information 28 .

‡ Merchandise management. ‡ Evaluation of store managers. 29 . ‡ New store cannibalization. ‡ Site analysis.Uses of GIS LO 3 ‡ Market selection. ‡ Trade area definition. ‡ Advertising management.

Market Identification LO 4 ‡ Retail Location Theories ‡ Market Demand Potential ‡ Market Supply Factors 30 .

Selecting a Retail Location LO 4: Exhibit 7.5 Identify the most attractive markets in which to operate Identify the most attractive sites that are available within each market Select the best site(s) available 31 .

Market Identification LO 4  Trading Area Is the geographic area from which a retailer. or community draws its customers. 32 . or group of retailers.

Retail Location Theories LO 4 ‡ Retail Gravity Theory ‡ Saturation Theory ‡ Buying Power Index 33 .

34 .Retail Location Theories LO 4 ‡ 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.

Retail Location Theories LO 4 ‡ Reilly¶s Law of Retail Gravitation based on Newtonian gravitational principles. explains how large urbanized areas attract customers from smaller rural communities. d is the distance between city A and city B along the major highway. Pa is the population of city A. d Dab = Pb 1+ Pa where Dab is the breaking point from city A. and Pb is the population of city B. measured in miles along the road to city B. 35 .

Retail Location Theories LO 4 ‡ Point of Indifference Is the extremity of a city¶s trading area where households would be indifferent between shopping in that city or an alternative city in a different geographical direction. 36 .

000) 3.5 miles X 14.5 miles 3.3 miles 3.000) City A (Population 240.2 miles Z City C (Population 21.000) Y 1.Trading Area for City A LO 4: Exhibit 7.7 miles City D (Population 30.6 City B (Population 14.000) 37 .

38 .Retail Location Theories LO 4 ‡ 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.

number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor.Retail Location Theories LO 4 ‡ Retail Store Saturation is a condition where there is just enough store facilities for a given type of store to efficiently and satisfactorily serve the population and yield a fair profit to the owners. 39 ‡ Understored is a condition in a community where the ‡ Overstored is a condition in a community where the . number of stores in relation to households is so large that engaging in retailing is usually unprofitable or marginally profitable.

IRS = (H X RE)/RF Where IRS is the index of retail saturation for and area. 40 . 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).Retail Location Theories LO 4 ‡ Index of Retail Saturation (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).

population) 41 .S.S.5(the area¶s percentage of U. effective buying income) + 0.2(the area¶s percentage of U. retail sales. retail sales) + 0. and population size.3(the area¶s percentage of U.S. minus all taxes). BPI = 0.Retail Location Theories LO 4 ‡ Buying Power Index (BPI) 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.

Market Demand Potential LO 4 ‡ Population Characteristics ‡ Buyer Behavior Characteristics ‡ Household Income ‡ Household Age Profile ‡ Household Composition ‡ Community Life Cycle ‡ Population Density ‡ Mobility 42 .

7 43 .Identifying Communities with High Demand Potential for Fast-Food Drive-In Restaurant LO 4: Exhibit 7.

Market Supply Factors LO 4 ‡ Square Feet Per Store ‡ Square Feet Per Employee ‡ Growth in Stores ‡ Quality of Competition 44 .

Site Analysis LO 5 ‡ Site Analysis Is the evaluation of the density of demand and supply within each market with the goal of identifying the best retail site(s). ‡ Size of Trading Areas ‡ Description of Trading Area ‡ Demand Density ‡ Supply Density ‡ Site Availability 45 .

Site Analysis LO 5 ‡ Size of Trading Areas ‡ Description of Trading Area ‡ Demand Density ‡ Supply Density ‡ Site Availability 46 .

Customer Spotting Map for a Supermarket LO 5: Exhibit 7.8 City Limits Store 2 miles from store 4 miles from store 3 miles from store 1 mile from store 47 .

48 .9 identifies the 65 neighborhood types or clusters that MapInfo has distinguished for describing neighborhoods.Description of Trading Area LO 5  Exhibit 7. This information is used in describing a trading area.

9 49 .PSYTE USA Cluster Demographic LO 5: Exhibit 7.

PSYTE USA Cluster Demographic LO 5: Exhibit 7.9 50 .

or parts of the community. 51 .Demand Density LO 5  Demand Density Is the extent to which the potential demand for the retailer¶s goods and services is concentrated in certain census tracts. ZIP code areas.

200 Variable 3 = Average growth in population over last 3 years in excess of 3 percent per year Number of Variables Met 0 1 2 3 52 .Demand Density Map LO 5: Exhibit 7.000 Variable 2 = Households per square mile greater than 1.10 Three-Variable Demand-Density Map Variable 1 = Median income over $22.

Supply Density LO 5  Supply Density The extent to which retailers are concentrated in different areas of the market under question. 53 .

11 54 .Store Density and Site Availability Map LO 5: Exhibit 7.

12 ‡Local Demographics ‡Population and/or household base ‡Population growth potential ‡Lifestyles of consumers ‡Income potential ‡Age makeup ‡Population of nearby special markets. that is. daytime workers. and tourists. if applicable ‡Occupation mix 55 .Checklist for Site Evaluations LO 5: Exhibit 7. students.

12 shape ‡Traffic Flow and Accessibility ‡Number and type of vehicles passing location ‡Access of vehicles to location ‡Number and type of pedestrians passing location ‡Availability of mass transit. if applicable ‡Accessibility of major highway artery ‡Quality of access streets ‡Level of street congestion ‡Presence of physical barriers that affect trade area 56 .Checklist for Site Evaluations LO 5: Exhibit 7.

Checklist for Site Evaluations LO 5: Exhibit 7.12 ‡Retail Competition ‡Number and types of stores in area ‡Analysis of ³key´ players in general area ‡Competitiveness of other merchants ‡Number and location of direct competitors in area ‡Possibility of joint promotions with local merchants 57 .

Checklist for Site Evaluations LO 5: Exhibit 7.12 ‡Site Characteristic ‡Number of parking spaces available ‡Distance of parking areas ‡Ease of access for delivery ‡Visibility of site from street ‡History of the site ‡Compatibility of neighboring stores ‡Size and shape of lot ‡Condition of existing building ‡Ease of entrance and exit for traffic ‡Ease of access for handicapped customers ‡Restrictions on sign usage ‡Building safety code restrictions ‡Type of zoning 58 .

12 ‡Cost Factors ‡Terms of lease/rent agreement ‡Basic rent payments ‡Length of lease ‡Local taxes ‡Operations and maintenance cost ‡Restrictive clauses in lease ‡Membership in local merchants association required ‡Voluntary regulations by local merchants 59 .Checklist for Site Evaluations LO 5: Exhibit 7.

Site Selection LO 6  100 Percent Location Is when there is no better use for a site than the retail store that is being planned for that site. 60 .

Site Selection LO 6 ‡ Nature of Site ‡ Terms of Purchase or Lease ‡ Expected Profitability 61 .

Nature of Site LO 6 ‡ Traffic Characteristics ‡ Types of Neighbors 62 .

Nature of Site LO 6 ‡ Store Compatibility Exists when two similar retail businesses locate next to or nearby each other and they realize a sales volume greater than what they would have achieved if they were located apart from each other. 63 .

Terms of Purchase or Lease LO 6 ‡ Length of lease ‡ Exclusivity clause ‡ Guaranteed traffic rate ‡ Anchor clause 64 .

Expected Profitability LO 6 ‡ Net profit margin ‡ Asset turnover ‡ Return on assets 65 .

Wal-Mart Nordstron. Mervyn¶s Wal-Mart.If Retailers Could Select Their Neighbors Retailer Fast-food restaurant Health food store Recycled merchandise Home improvement store Hardware store Zale¶s Jewelry Record Giant Payless Shoes Long¶s Drug Stores Cato Fashion Bennetton Nursery and Crafts LO 6 Next to Gas service station Fitness center. Bloomingdale¶s Toys ³R´ Us. Circuit City 66 . KinderCare TJMaxx. medical center Supercenter Supercenter Wholesale club. Kmart Kmart. supermarket Sears. JCPenney. Kmart Supercenters.

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