Retail Management

Part : 04 Chapter-09
Choosing
` a Store Location

Trading Area Analysis

Retail Managemen 1
 Overview of Chapters 09, 10
 Step 1: Investigate alternative trading areas
(Chapter-09)

 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

Retail Managemen 2
 Chapter Objectives
 To demonstrate the importance of store location for a
retailer and outline the process for 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 and level of saturation.

Retail Managemen 3
 The Importance of Location to a Retailer
 Location decisions are complex, costs can be quite
high, there is little flexibility once a site is chosen, and
location attributes have a big impact on strategy.
 One of the oldest adages in retailing is that “Location,
Location, Location” is the major factor leading to a
firm’s success or failure.
 A good location may let a retailer succeed even its
strategy mix is mediocre; like a pharmaceutical store
inside or near a hospital.
 On the other hand a poor location may be such a
liability that even superior retailers cannot overcome
it; like a convenience store right in front of a big
discount store.
Retail Managemen 4
 The Importance of Location to a Retailer
 The choice of a location requires extensive decision
making due to the number of criteria considered,
which include
 Population size and traits
 Competition
 Transportation access
 Parking availability
 Nature of nearby stores
 Property costs
 Length of agreement
 Legal restrictions

Retail Managemen 5
 The Importance of Location to a Retailer
 A store location typically necessitates a sizeable
investment and a long-term commitment.
 Even a retailer that minimizes its investment by
leasing, rather than owning a building and land, can
incur large costs; like in the form of lease payments
and on lighting, fixtures , a storefront and so on.

Retail Managemen 6
 The Importance of Location to a Retailer
 Any retailer moving from one location to another
faces three potential problems.

a. Some loyal customers and employees may be lost

(greater the distance between old and new
locations, the bigger the loss).

b. A new site may not have the same traits as the

original one.

c. Store fixtures and renovations at an old site usually

cannot be transferred to a new site.

Retail Managemen 7
 Steps to be followed by Retailers while
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
Retail Managemen 8
 Trading-Area Analysis
 The first step in the choice of a retail store location
is to describe and evaluate alternate trading areas
and then decide on the most desirable one.
 A Trading Area is a geographic area containing the
customers of a particular firm or group of firms for
specific goods or services.
 After a trading area is picked, it should be reviewed
regularly.

Retail Managemen 9
 Benefits of Trading Area Analysis
 Discovery of consumer  Assessment of effects
demographics and of Trading Area Overlap
socioeconomic
characteristics  Ascertain whether
chain’s competitors will
 Opportunity to open nearby
determine focus of
promotional activities  Discovery of ideal
number of outlets,
 Opportunity to view geographic weaknesses
media coverage
patterns  Review of other issues,
such as transportation

Retail Managemen 10
 The Trading Areas of Current and Proposed
Outlets
Trading-Area Overlap

The shaded portion represents

The Trading-Area Overlap

Retail Managemen 11
 The Trading Areas of Current and Proposed
Outlets
Trading-Area Overlap
 Trading-Area Overlap occurs when the same
customers are served by both branches.
 The chain must find out the overall net increase in
sales if it adds the proposed store (total revised
sales of existing store + total sales of new store –
total previous sales of existing store).

Retail Managemen 12
 GIS Software
 Geographic Information Systems (GIS) :
Increasingly, retailers are using Geographic
Information Systems (GIS) software, which
combines digitalized mapping with key locational
data to graphically depict trading-area
characteristics such as
 Population demographics
 Data on customer purchases
 Listings of current, proposed, and competitor
locations

Retail Managemen 13
 GIS Software in Action

Retail Managemen 14
 The Size and Shape of Trading Areas
 Each trading area has three parts.

i. Primary Trading Area : It encompasses 50% to 80%

of store’s customers. It is the area closest to the store
and possesses the highest density of customers to
population.

ii. Secondary Trading Area : It contains an additional

15% to 20% of a store’s customers. It is located outside
the primary area, and the customers are more widely
dispersed.

iii. Fringe Trading Area : It includes all the remaining

customers, and they are the most widely dispersed. The
Fringe trading area typically includes some outshoppers
who travel greater distances to patronize certain stores.

Retail Managemen 15
 The Parts/Segments of a Trading Area

Retail Managemen 16
 The Size and Shape of Trading Areas
 Two stores can have different trading areas even if they
are in the same shopping district or shopping centre.
 Like, situated in one shopping center could be a branch
of an apparel chain with a distinctive image and people
willing to travel up to 20 miles and a shoe store seen as
average and people willing to travel up to 5 miles.
 When one store has a better assortment, promotes
more, and creates a stronger image, it may then
become ‘Destination Store’, and generate a trading
area much larger than that of a competitor.
 A ‘Parasite Store’ does not create its own traffic and has
no real trading area of its own. This store depends on
the people who are drawn to the location for other
reasons. A magazine stand in a hotel lobby and a snack
bar in a shopping centre are parasites. While they are
there, customers patronize these shops.

Retail Managemen 17
 Destinations Versus Parasites
 Destination Stores  Parasite Stores do
have a better not create their own
assortment, better traffic and have no
promotion, and/or real trading area of
better image their own

 They generate  These stores

trading areas much depend on people
larger than who are drawn to
competitors the area for other
reasons

Retail Managemen 18
 Trading Areas and Store Types

Largest
Department Stores

Supermarkets
TRADING
AREAS Apparel Stores

Gift Stores

Smallest Convenience Stores

Retail Managemen 19
 Delineating the Trading Area of an Existing
Store
 The size, shape, characteristics of the trading area for
an existing store can usually be delineated quite
accurately with the help of the following tools.
 Store Records (secondary data, like customer
addresses)
 Special Study (primary data)
or
 Computer-Generated Maps (they can be tailored to
individual retailers’ needs)

Retail Managemen 20
 Delineating the Trading Area of a New
Store
 A new store opening in an established trading area can
use the methods just noted; however some additional
tools must be utilized.
 Trend Analysis (Projecting the future based on past. It
can be employed by examining government and other
data for predictions about population location, new
housing starts, highways etc.)
 Consumer Surveys (They can gather information about
the time and distance people would be willing to travel
to various possible retail locations, the factors
attracting people to a new store etc.)
 Computerized Trading-Area Analysis Models
Retail Managemen 21
 Characteristics of Trading Areas
 After the size and shape of alternative trading areas are
determined, the characteristics of those areas are
studied.
 The chief factors to consider in evaluating retail trading
areas include the followings.

i. Population Size and Characteristics

ii. Availability of Labor
iii. Closeness to Sources of Supply
iv. Promotion Facilities
v. Economic Base
vi. Competitive Situation
vii. Availability of Store Locations
viii. Regulations
Retail Managemen 22
 Characteristics of Trading Areas

i) Population Size and Characteristics

 Total size and density  Total disposable

 Age distribution income
 Average educational  Per capita disposable
level income
 Percentage of  Occupation distribution
residents owning  Trends
homes

Retail Managemen 23
 Characteristics of Trading Areas

ii) Availability of Labor

 Management
 Management trainees
 Clerical

Retail Managemen 24
 Characteristics of Trading Areas

iii) Closeness to Sources of Supply

 Delivery costs
 Timeliness
 Number of manufacturers
 Number of wholesalers

Retail Managemen 25
 Characteristics of Trading Areas

iv) Economic Base

 Dominant industry  Freedom from

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

Retail Managemen 26
 Characteristics of Trading Areas

v) Competitive Situation

 Number and size of  Short-run and long-run

existing competition outlook
 Evaluation of  Level of saturation
competitor strengths
and weaknesses

Retail Managemen 27
 Characteristics of Trading Areas

vi) Availability of Store Locations

 Number and type of  Owning versus leasing

store locations. opportunities.

 Access to
transportation

Retail Managemen 28
 Characteristics of Trading Areas

vii) Regulations

 Taxes
 Licensing
 Operations
 Minimum wages

Retail Managemen 29
 Activity

Retail Managemen 30