This document discusses factors retailers consider when selecting store locations and evaluating trade areas. Key factors include economic conditions, competition, fit with the target market, and operating costs of the area. When evaluating a specific site, retailers examine characteristics like traffic flow, location, and costs. They also analyze the trade area to understand customer demographics, size of the primary trading zone, and sales potential. Common tools used include census data, GIS mapping, and models like Huff's gravity model or regression analysis.

1. Retail Site locations

2. Objectives
• Factors which retailers consider in selecting a
general area for locating stores
• Determining the number of stores to operate
in an area
• Different approaches to evaluate a specific
site

3. Factors which affect the demand for
region/trade area
• Best locations- generate highest profit for a
retailer
• Factors which affect the long term profit
generated by stores that should be considered:
- Economic conditions
- Competition
- Strategic fit of the areas population with retailers
target market
- Cost of operating stores

4. Economic conditions
• Locations: involve commitment over a long
term, imp to examine areas level of growth
and population and employment
• Fully employed population – high purchasing
power and high level of retail sales
• How long the growth trend will continue

5. Competition
• Competition in an area- affects demand for
merchandise
• Eg Walmart- early success: areas which were
understored.

6. Strategic fit
• Area consumers- should fit in the retailers
target market
• area – right demographic and lifestyle profile

7. Operating costs
• Varies according to areas. Store rentals and
advt costs can be lower in certain areas
• Store near to the distributor- cost of
transportation is lower
• Legal restrictions

8. Number of stores in an area
• Need to consider tradeoffs between lower operating costs and
potential sales cannibalization from having multiple stores in an
area
• Economies of scale: Promotion and distribution of economies can
be achieved, advt costs for one store and 20 stores same (for
newspapers),can increase sales/store and reduce costs, maintains
loyal customer base, has regional orientation
• Cannibalization: Diminishing returns by locating additional stores in
the same area, should open only if marginal revenues are more
than marginal costs. Needs to take into account the new store sale
impact on existing store sale. Eg Walmart: deliberate
cannibalization. Plans opening when sales reach 100 million USD or
more. Builds competitive advantage because shopping experience is
enhanced- 2 stores- less congestion creates entry barrier for
competitors

9. EVALUATING A SITE FOR LOCATING
A RETAIL STORE

10. Three factors to consider
• Characteristics of the site
• Characteristics of the trading area for a store
at the site
• The costs associated with locating at the site

11. Site Characteristics
Traffic flow and
accessibility
• vehicular traffic
• Ease of vehicular
access
• access to major
highways
• street congestion
• pedestrian traffic
• availability of
transport
Location
characteristics
• parking spaces
• access to store
entrance and exit
• visibility of store
from street
• access for deliveries
• size and shape of
stores
• condition of building
• adjacent retailers
Costs
• Rental fee
• common area
maintenance costs
• local taxes
• advt and promotion
fees
• length of lease

12. Traffic flow and accessibility
• High traffic- more customers likely to stop and shop
• Traffic counts important for retailers offering
merchandise bought on impulse
• Accessibility is important as traffic flow. Greater for
sites located near major highways, on uncongested
highways and with traffic lights and turns which enable
to turn into the site
• Natural barriers and artificial barriers also affect
• pedestrian traffic, access by public transportation –
imp min countries where consumers don’t drive to
shopping centers

13. Location characteristics
• Parking: Amount of parking and quality determines
location Less: customers are discouraged, more: store
may be perceived as unpopular
• Std rule of thumb: 5.5:1000 (5.5 spaces per 1000 sq
feet of retail store space)
• Need to consider the availability of employee parking,
proportion of shoppers using cars, parking by non
shoppers, typical length of shopping trip.
• Congestion: refers to amount of crowding by cars or
people. Optimal level essential. Too much: discourage
sale, make shopping slow, irritate customers. High
level: generate excitement and stimulate sale

14. Location characteristics
• Visibility: Refers to the customer ability to see
the store from the street.
• Good visibility is les imp for a well established
store and loyal customer base
• Adjacent tenants: locations with
complementary ,competing adjacent retailers
can boost customer traffic
• Convenience/comparison shoppers- shop
around make choice easily

15. Location characteristics
• Within a shopping centre: Affects both sales and
occupancy costs
• Stores which cater to impulse purchases- eg drug
store/florist should be closer to supermarket, whereas
shoe repair store- farther away
• Consumers- comparison shopping, -fashionable
apparel, benefit from located near departmental store
anchor.
• When consumers enter and leave- attracted to
neighboring specialty retailers
• Locate stores closeby – to attract similar target market-
good assortment of merchandise

20. Trade area characteristics
• After site identification: have acceptable
traffic flow, accessibility and location
characteristics, next step
• Collect info about the trade area- used to
forecast sales for a store located at that site
• Retailer needs to define trade area for the
site, retailer develops understanding of nature
of consumers in the sites trade area

21. Trade area
• A contiguous geographic area that accounts for majority of store`s
sale and customers
• Primary trading area: geographic area from which the shopping
centre or store site derives 50-70% of its customers
• Secondary trading area: Geographic area of secondary importance
in terms of customer sales, generating 20-30% of the sites
customers
• Tertiary trading area/fringe: includes the remaining customers who
shop at the site but come from widely dispersed areas
• Trading areas of three zones may be defined on basis od driving
time. Primary: customers within five mins of driving site. Secondary:
15 min drive, Tertiary: more than 15 mins from site
• Also define by distance: 3,5,10 miles from site

22. The Segments of a Trading Area

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

24. The Trading Areas of Current and
Proposed Outlets

25. Factors affecting the size of trading area
• Stores accessibility
• Natural and physical barriers
• level of competition
• Type of shopping area
• Type of store

26. Type of shopping area
• Size of trading area is determined by the
nature of merchandise sold, the assortment
offered, and location alternatives for the
merchandise
• Convenience store: for speed, category
specialist for comparison shopping,

27. Type of store
Destination stores
• Merchandise, selection,
presentation pricing or other
unique features attract customers
to other stores regardless of other
neighboring stores
• have a better assortment, better
promotion, and/or better image
• It generates a trading area much
larger than that of its competitors
• Anchor stores in shopping malls
such as dept stores
• Eg Lifestyle, Marks and Spencers
Parasite stores
• do not create their own traffic and
have no real trading area of their
own
• Trading area is determined by
dominant retailer in the shopping
area or retail area
• offer complementary
products/services
• These stores depend on people
who are drawn to area for other
reasons
• Eg drycleaners

28. Measure the trade area for customer site
• Can determine the existing trade area fo9r their
existing store by Customer spotting
• Is the process of locating residences of
customers for a store on a map and displaying
their positions relative to the store location
• Address for locating the customers residence :
ask the customers/internet/cheque
info/customer loyalty programs
• Data processing: manual or through
GIS(Geographic Information Systems)
• For new store use the info from existing stores

29. Trading Areas and Store Type
Largest
TRADING
AREAS
Smallest
Department stores
Supermarkets
Apparel stores
Gift stores
Convenience stores

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

31. Sources of information about the Trade area
• Census data
• GIS data

32. GIS-Geographic Information system
• System of hardware and software used to
store/retrieve/map/analyse geographic data.
• Identified with a
coordinate(latitude/longitude)that references a
particular place
• Firms offer GIS combine data with updated
demographic census data+ consumer spending
pattern+lifestyle.
• Data can be analysed easily and output are maps
which enable to visualize implications easily

37. Estimating a sales potential for a store
site
• Huffs Gravity model
• Regression analysis
• Analog model

38. Huffs gravity model
• Based on concept of gravity
• Customers attracted to a store just as
Newton's falling apple was attracted towards
earth
• Force of attraction is based on two factors:
- Size of store(larger store has more pull power)
- time it takes to travel( More travel time=less
pull power)

39. Regression analysis
• Statistical model
• based on assumption that factors which
affect the sales of existing store in a chain will
have the same impact on stores located at
new sites being considered
• Employs a technique called as multiple
regression to estimate sales

40. CHIEF FACTORS TO CONSIDER IN
EVALUATING RETAIL TRADING AREAS

41. Population Size and
Characteristics
• Total size and density
• Age distribution
• Average educational
level
• Percentage of residents
owning homes
• Total disposable income
• Per capita disposable
income
• Occupation distribution
• Trends
Availability of Labor
• Management
• Management trainee
• Clerical
Closeness to Sources of
Supply
• Delivery costs
• Timeliness
• Number of
manufacturers
• Number of wholesalers
• Availability of product
lines
• Reliability of product
lines

42. Economic Base
• Dominant industry
• Extent of diversification
• Growth projections
• Freedom from
economic and seasonal
fluctuations
• Availability of credit
and financial facilities
Competitive Situation
• Number and size of
existing competition
• Evaluation of
competitor strengths
and weaknesses
• Short-run and long-run
outlook
• Level of saturation
Availability of store
locations
• Number and type of
store locations
• Access to
transportation
• Owning versus leasing
opportunities
• Zoning
• Costs
Regulations
• Taxes
• Licensing
• Operations
• Minimum wages
• Zoning

43. Analyzing Retail Trading
Areas