Retail Location - Final

Retail Locations

Elements in Retail MixLocation Strategy

7-*What Are the Three Most Important Things in Retailing?Eddie Tan/Life File/Getty Images Location! Location! Location!

The Importance of Store LocationStore location is most often the first consideration in a store choice

Having a good location increases chances of developing a strong sustainable competitive advantage

Location decisions are risky: invest or lease?

Involves evaluating a series of trade-offs betweenSize of the trade areaOccupancy cost of the locationPedestrian and vehicle customer traffic locationRestrictions on operations by property managersConvenience of location for customers

Trade area: the geographic area that encompasses most of the customers who would patronize a specific retail site

Tradeoff Between LocationsRentTraffic There are relative advantages and disadvantages to consider with each location.

Types of Retail LocationsFree Standing SitesCity or Town LocationsInner CityMain StreetShopping CentersStrip Shopping CentersShopping MallsOther Location Opportunities

7-*Types of Locations

Unplanned Retail LocationsFreestanding Sites location for individual store unconnected to other retailer.Two types of unplanned retail locations are free standing sites and city or town locations . Advantages: Convenience High traffic and visibility Modest occupancy cost Separation from competition Few restrictionsDisadvantages:No foot trafficNo drawing power

The McGraw-Hill Companies, Inc./Andrew Resek, photographer JCPenney, Sears, Walgreens are shifting to stand alone locations

Freestanding Sites Freestanding sites are retail locations for an individual , isolated store unconnected to other retailers: however , they might be near other freestanding retailers, a shopping center, or , in the case of kiosk , inside an office building or shopping center.

Eg: Some of the brand factory stores on the outskirts of a city .Elizabeth Ardens kiosk at forum shopping mall at Bangalore . Kiosks offer mall developers an opportunity for additional revenue from unused space. Highway Stores

Freestanding SitesRetail locations for an individual, isolated store unconnected to other retailers

OutparcelsMerchandise Kiosks

Merchandise kiosksSmall selling spaces, typically located in the walkways of enclosed malls, airports, train stations, or office building lobbies.

AdvantagesConvenience for customersHigh vehicular traffic and visibilityModest occupancy costsSeparation from competitionDisadvantagesLimited trade area when not around nearby retailersUsually located where there is little pedestrian traffic store success depends on its own pulling power and promotion to attracts customer

Advantages and Disadvantagesof Freestanding Locations

City or town location Some retailers find urban locations attractive , particulary in cities that are re-developing their downtowns and surrounding areas .Many urban areas are going through gentrification- bringing population back to the cities , the renewal and re-building of offices , housing and retailers In deteriorating areas coupled with influx of more affluent people that often displaces earlier , usually poorer residents.

AdvantagesLower occupancy costsHigher pedestrian trafficDisadvantagesTraffic is limited due to congestionParking problems reduce consumer convenience

City or Town Locations

Central business district Is a traditional business area In a city or town. Due to its daily activity, it draws many people and employees into the area during business hours . The CBD is also a hub for public transportation and there is a high level of pedestrian traffic .

Central Business Districts(CBD)Advantages- Draws people during business hours- Heavy public transportation- Pedestrian traffic- Residential area as well

Disadvantages- High security required- Shoplifting- Parking is poor- Evenings and weekends are slow

Main street Main street is the traditional shopping area of smaller towns or secondary business district in a suburb or within a larger city . Often streets in these areas have been converted into pedestrian walkways .

Main Streets vs. CBDsOccupancy costs are generally lower than CBDsFewer people are employedSmaller selection due to fewer storesRange of entertainment is usually smallerCity planning sometimes restrict store operations

Inner city Is high density urban area consisting of apartment buildings populated primarily by lower income consumers .Inner city consumers desire to buy branded merchandise from nationally recognized retailers in neighborhoods where they live. Although the income levels are lower in inner cities than in other neighbourhoods, most inner city retailers achieve a higher sales volume and often higher margins , resulting in higher profits .

Inner CityRetailers here achieve higher sales volume and higher margins, thus producing higher profitsRedevelopments in inner cities can cause increased traffic and parking difficulties, causing them to be controversial

High density urban areas with higher unemployment and lower median incomes than surrounding areas

Shopping Centres A shopping centre is a group of retail and other commercial establishment that is planned , developed , owned and managed as a single property .By combining many stores at one location , disproportionately more consumers are attracted to the shopping centre than if the stores were at separate locations .

Shopping CentersShopping Center Management, referred to as common area maintenance( CAM ) , maintains the common facilities such as:

ParkingSecurityParking lot lightingOutdoor signageAdvertisingSpecial events for customers

Most shopping centre have atleast one or two major retailers , referred to as anchors.

Types of Shopping CentersNeighborhood and Community Centers (Strip Centers)Power CentersEnclosed MallsLifestyle CentersFashion Specialty CentersOutlet Centers

Neighborhood and Community Shopping CentersAlso called as strip shopping centres are an attached row of stores managed as a unit , with onsite parking usually located in front of the stores . Since the common areas are not enclosed ,these centres are often referred to as open air centers. Most common shapes are linear , L shaped and inverted U shape .Smaller centers ( neighborhood centres ) are typically anchored by a super market or drugstore , the larger centres( community centres ) have additonal anchors such as discount stores , off price stores or category specialist .

Neighborhood and Community CentersAttached row of storesManaged as a unitOnsite parkingThe McGraw-Hill Companies, Inc./Andrew Resek, photographer AdvantagesConvenient locationsEasy parkingLow occupancy costsDisadvantagesLimited trade areaLack of entertainmentNo protection from weather

Power Centers Shopping centers that consist primarily of collections of big-box retail stores such as discount stores (Target), off-price stores (Marshalls), warehouse clubs (Costco), and category specialists (Lowes, Best Buy, Dicks)Open air set upFree-standing anchorsLimited small specialty storesPhotoLink/Getty Images

Power CentersLimited small specialty storesMany located near enclosed mallsLow occupancy costsConvenientModest vehicular and pedestrian trafficConvenientModest vehicular and pedestrian trafficLarge trade areas

Shopping Malls They are enclosed , climate controlled , lighted shopping centres with retail stores on one or both sides of an enclosed walkway.

Regional MallsLess than 1 million square feetSuper Regional MallsMore than 1 million square feetShopping Malls

AdvantagesWide variety of storesWide assortment of merchandiseShopping and entertainmentNo inclement weatherUniform hours of operationAttracts many shoppersDisadvantagesOccupancy costs are generally higherMall control over business operationsCompetition can be intenseShopping Malls

Mall managers try to make malls more of an enjoyable experience in an effort to keep people shopping as long as possibleCommon areasFamily loungesGreat foodPlaygroundsEntertainment

Enhancing the Mall Experience

Mall renovation and Redevelopment While few new shopping malls are being built, considerable investment is being made in renovating and redeveloping existing malls. Renovating poorly performing shopping malls is challenging and costly .Frequently , these malls cannot be supported entirely by retailers and have to be converted into mixed use developments, which are developments that combine several uses into one complex.

Mall renovations and redevelopment

Lifestyle Centers Lifestyle centers are shopping centers with open an open air configuration of upscale specialty stores , entertainment and restaurants with design ambience and amenities such as fountains and street furniture . Lifestyle centers are typically located near affluent neighborhoods and cater to the lifestyles of consumers in their trade areas. Due to the ease of parking , lifestyle centers are very convenient for shoppers .But they are smaller than enclosed malls thus have smaller trade area and attract fewer customers than enclosed malls.

AdvantagesEase of parkingRelaxed open-air environmentPedestrian traffic tends to be higherOccupancy costs and operating restrictions are less

DisadvantagesLess retail spaceSmaller trade areasAttract fewer customersLifestyle Centers

Fashion / Specialty Centre Composed mainly of upscale apparel shops, boutiques, and gift shops carrying selected fashions or unique merchandise of high quality and price.The physical design of these centres is very elegant , emphasizing a rich dcor and high quality landscaping.Fashion / specialty centres usually are found in trade areas with high income levels , in tourist areas or in some central business districts . Occupancy costs are also higher than those of the typical enclosed mall because the common areas are more elegant.

Fashion/Specialty Centers

Outlet Centers Shopping centers that contain mostly manufacturers and retailers outlet stores, though they sometimes include off price retailers .Outlet centres are located some distance from shopping centres so that the manufacturers brands sold at discount prices in their outlet stores will not compete for customers buying the same brands in deparment stores .outlet stores offer assortments that do not overlap with deptt store assortment .

Outlet CentersStrong entertainment componentBecoming more popular outside the United StatesTourism is important for outlet centers

Theme/Festival centersShopping centers that typically employ a unifying theme reflected in the individual shops in their architectural design, and to some extent their merchandise.

Located in places of historic interests or for touristsAnchored by restaurants and entertainment facilitiesGenerally targeted at tourists, they may also attract local customersA common element of these centers is entertainment, although some rely solely on the shopping experience

Theme/Festival centers

Combines enclosed malls, lifestyle centers, and power centersOmnicenters are becoming more popular in the U.S. partly from the desire of tenants for lower common-area maintenance charges and the growing tendency of consumers to cross-shop.St. Johns Town Center, Jacksonville, FLOmnicenters

Offer an all-inclusive environment so that consumers can work, live, and play in a proximal areaCombine several different uses into one complex, including shopping centers, office towers, hotels, residential complexes, civic centers, and convention centers

Mizner Park, Boca Raton, FLMixed Use Developments

AirportsTemporary or pop-up storesResortsStore within a store

Other Location Opportunities

High pedestrian trafficSales per square foot are higher than mall storesRent is higherHours are longerInconvenient location for workers means higher wagesAirport Apple storeAirports

Good for businesses trying to create a little hypeGood introduction for new stores or productsProvide visibility for a businessProvide additional sales during holidays and special events Target pop-up storeTemporary Locations (pop-up stores)

Captive audiences

Wealthy customers

People with time on their handsSt. Regis Aspen Resort, CDResorts

This concept benefits both companies to attract more customersHelps fill holes in product offerings

Occurs when a manufacturer has its own store and salespeople inside a retailer storeStore within a store

Shopping behavior of consumers

Size of Target Market

Uniqueness of Retail OfferingFactors that affect location choiceLocation and Retail Strategy

3 Shopping Behaviors

Convenience shopping

Comparison shopping

Specialty shoppingShopping Situations

Shopper Mentality

Wants to exert little effort to acquire product or service

Wants convenient location

Less concerned with price

No hasslesConvenience Shopping

Shopper Mentality

General idea about product or service

No strong brand preference

No strong retailer preference

Comparison Shopping

Shopper Mentality

Knows what they want

Accepts no substitute

Strong loyalty to product or brandSpecialty Shopping

Fixed Rate LeasesFixed rate leases - used by community and neighborhood centers.Retailer pays a fixed amount per month over the life of the lease.Not as popular as percentage leasesGraduated lease - a variation of the fixed rate leaseRent increases by a fixed amount over a specified period of time.

Exclusive Use Clause Prohibits the landlord from leasing to retailers selling competing merchandiseSpecify no out parcelsSpecify if certain retailer leaves center, they can terminate lease.Escape clause Allows the retailer to terminate its lease if sales dont reach a certain level after a specified number of years, or if a specific co-tenant in the center terminates its lease.

Environmental IssuesAbove-ground risks - such as asbestos-containingmaterials or lead pipes used in construction.Hazardous materials - e.g. dry cleaning chemicals,motor oil, that have been stored in the ground.Retailers Protection Stipulate in the lease that the lessor is responsible for removal and disposal of this material if its found.Retailer can buy insurance that specifically protects it from these risks.

Other Legal IssuesZoning and Building Codes Zoning determines how a particular site can be used.Building codes determine the type of building, signs, size, type of parking lot, etc. that can be usedSignsRestrictions on the use of signs can also impact a particular sites desirabilityLicensing RequirementsSome areas may restrict or require a license for alcoholic beverages

Retail Site Selection

Why so important ?Requires complex decision makingCosts lots of $$Little flexibility once a location has been chosenAttributes of location have a strong impact on the retailers strategy

EVALUATING SPECIFIC AREAS FOR LOCATIONSAreas retailers consider for locating stores might be countries , areas within a country , particular cities or areas within a cities.

In US , retailers usually focus on MSA Metropolitan statistical area , because consumers tend to shop within an MSA . An MSA is a core urban area containing a population of more than 50,000 inhabitant.

A micropolitan statistical area is smaller unit of analysis with only 10,000 inhabitants in its core urban area.

The best areas for locating stores are those that generate the highest long term profits for a retailer .

Factors to be considered :Economic conditions Competition The strategic fit of the areas population with the retailers target market The costs of operating stores .

Economic Conditions Level and growth of population and employment.Fully employed population means high purchasing power and high levels of retail sales. Determine how long will the growth continue and how will it affect the merchandise demand . Useful to determine which areas are growing quickly and why.

Competition Level of competition in an area clearly affects demand for a retailers merchandise .

Walmarts early success was based on a location strategy of opening stores in small towns that are relatively under stored, a condition in which an area has too few stores to satisfy the needs of local consumers for specific merchandise and services. Walmart stores offered consumers in small towns merchandise at prices that they previously could only acquire by driving to and shopping in much larger towns .

Strategic fit The areas needs to have consumers who are in the retailers target market. Area should have right demographic and lifestyle profile.

Operating cost Cost of operating varies across areas. Governed by factors such as store rental , advertising , proximity to DC , cost of shipping merchandise , local and state legal and regulatory environment .

NUMBER OF STORES IN AN AREA Having selected an area in which to locate its stores , a retailers next decision is how many stores to operate in the area. While making the decision , retailer must consider the trade offs between lower operating costs and potential sales cannibalization from having multiple stores in an area.

Economies of Scale from multiple stores Promotion and distribution economies of scale can be achieved. Multiple stores in an area are needed to justify the cost of building a new distribution centre.

Cannibalization While there are scale economies gained from opening multiple locations in an area , there also are diminishing returns associated with locating too many additional stores in an area. Primary retailing objective is to maximize profits for the entire chain , retailers should continue to open stores only as long as profits continue to increase or in economic terms , as long as the marginal revenues achieved by opening a new store are greater than the marginal costs . In the long run , intentional cannibalization builds a competitive advantage because the shopping experience for customers is enhanced two stores , less congestion .In addition , having more stores in an area makes it less attractive for a competitor to enter the area and increase the retailers market share .

EVALUATING A SITE FOR LOCATING A RETAIL STORE Having decided to locate stores in an area , the retailers next step is to evaluate and select a specific site.

Site Characteristics Traffic Flow and AccessibilityNumber and type of vehicles passing locationAccess of vehicles to locationNumber and type of pedestrians passing locationAvailability of mass transit, if applicableAccessibility of major highway arteryQuality of access streetsLevel of street congestionPresence of physical barriers that affect trade area .

Location characteristics Number of parking spaces availableDistance of parking areasEase of access for deliveryVisibility of site from streetCompatibility of neighboring storesEase of entrance and exit for trafficEase of access for handicapped customers

Restrictions and costs Retailers may place restrictions on the type of tenants that are allowed in a shopping centre in their lease agreement. 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

Locations within a shopping centre Better location have higher occupancy costs .

TRADE AREA CHARACTERISTICSTrade area -- contiguous geographic area that accounts for the majority of a stores sales and customers.The zones exact definition are flexible to account for particular retailers and geographic area . Primary trade zone -- Usually 3-5 mile radius; generates 50 70 % of customers. Customers within 5 mins of driving time . Secondary trade zone -- Usually 3-7 mile radius; generates 20-30 % of customers. Customers within 15 minutes of driving time .Tertiary trade zone or fringe ( outermost area ) -- Usually 15 - 50 mile radius. Includes remaining customers who shop at the site but come from widely dispersed areas. Customers more than15 minutes away from the site by car .

Factors affecting the size of trade area Trade area is influenced by the type of store or shopping area. The size of trading area is determined by the nature of the merchandise sold , the assortment offered and the location of alternative sources for merchandise . Convenience stores are popular because customers can buy products like milk and bread quickly and easily , but if customers must drive great distance , the store is no longer more convenient than a supermarket. Category specialist offer a large choice of brands and products for which customers are engaged in comparison shopping . Thus , customers will generally drive some distance to shop at a category specialist.

A destination store is one in which the merchandise , selection , presentation , pricing or other unique features attract customers to the store regardless of other neighboring stores . People are willing to drive farther to shop there . A parasite store is one that does not create its own traffic and whose trade area is determined by the dominant retailer in the shopping area or retail area.

Measuring the trade area for a retail site . Retailers can determine the trade area for their existing stores by customer spotting. Customer spotting is the process of locating the residences of customers for a store on a map and displaying their positions relative to the store location . Spotting Techniques: spot customer origins license plate surveyscustomer surveyscustomer recordscustomer activities (contests, sweepstakes)

Sources of information about the trade area To further analyze the attractiveness of a potential store sire , a retailer needs information about both the consumers and the competitors in the trade area . Two widely used sources of information about the nature of consumers in the trade area are :Data published by census bureau of the country . Data from GIS ( Geographic information system ) provided by several commercial firms .

Demographic data from Census Bureau A census is a count of the population of a coutnry as of a specified date . Every ten years , census takers attempt to gather demographic information ( sex , age , ethnicity , education , marital status , etc ) from every household .

Geographic Information systems ( GIS ) suppliers GIS is a system of hardware and software used to store , retrieve , map and analyze geographic data , along with the operating personnel and the data that go into the system. 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

GIS ComponentsData InputsPhysical Geography

Latitude/LongitudeLand/WaterTerrainRainfall/SnowTemperatureCultural Geography

DemographicsMan-Made StructuresConsumption PatternsWork PatternsLeisure BehaviorDeviant BehaviorGIS (Data Aggregation and Analysis via Computer)Output Maps and Other Displays of Information

ESTIMATING POTENTIAL SALES FOR A STORE SITE Three approaches for using the information about the trade area to estimate the potential sales for a store at the location are:Huff Gravity Model Regression analysis Analog method

Huff Gravity Model Retail Gravity Theory The huff gravity model for estimating the sales of a retail store is based on the concept of gravity :Consumers are attracted to a store location just as Newton's falling apple was attracted to the earth .

Huffs LawAssumptions:The proportion of consumers patronizing a given shopping area varies with the distance from the shopping areaThe proportion of consumers patronizing various shopping areas varies with the breadth and depth of merchandise offered by each shopping areaThe distance that consumers travel to various shopping areas varies for different types of products purchasedThe pull of any given shopping area is influenced by the proximity of competing shopping areas

Force of attraction is based on two factors :The size of the store ( larger stores have more pulling power ) Time it takes to travel to the store. ( stores that take more time to get to have less pulling power )

Huffs Model Formula

The formula indicates that the larger the size of the store compared with competing stores sizes , the greater the probability that customer will shop at the location. Even though the Huff gravity model only considers two factors affecting store sales travel time and store size its predictions are quite accurate because these two factors typically have the greatest effect on store choice.

Regression Analysis The regression analysis approach is based on the assumption that factors that affect the sales of existing stores in a chain will have impact on stores located at new sites being considered . When using this approach , the retailer employs a technique called multiple regression to estimate a statistical model that predicts sales at existing store locations . The technique can consider the effects of the wide range of factors , including site characteristics such as visibility and access and characteristics of the trade area such as demographics and life style segments represented .

Analog Approach To develop a regression model , a retailer needs data about the trade area and site characteristics from a large number of stores. Because small chains cannot use the regression approach , they use the similar but more subjective analog approach . When using the analog approach , the retailer simply describes the site and trade area characteristics for its most successful stores and attempts to find a site with similar characteristics .

NEGOTIATING A LEASE Once particular site is chosen , retailers still face multitude of decisions , including the types and terms of the lease . Types of Leases : Percentage leasesFixed - Rate

Percentage leases - rent is based on a percentage of sales. Retailers also typically pay a maintenance fee based on a percentage of their square footage of leased space. Most malls use some form of percentage lease.

Variations of Percentage LeasesPercentage lease with specified maximum - percentage of sales up to a maximum amount.Rewards retailer performance by allowing retailer to hold rent constant above a certain level of salesPercentage lease with specified minimum - retailer must pay a minimum rent no matter how low sales are.

Sliding scale - percentage of sales as rent decreases as sales go up.

Fixed rate leases - used by community and neighborhood centers.Retailer pays a fixed amount per month over the life of the lease.Not as popular as percentage leasesGraduated lease - a variation of the fixed rate leaseRent increases by a fixed amount over a specified period of time.

Percentage or Fixed Rate LeasesMaintenance-increase-recoupment lease - used with either a percentage or fixed rate lease.Rent increases if insurance, property taxes, or utility bills increase beyond a certain point.Net lease - retailer is responsible for all maintenance and utilities.

Terms of the Lease Although leases are formal contracts , they can be changes to reflect the relative power and specific needs of the retailer. Some of the clauses retailers wish to include in a lease :Prohibited use clause Exclusive use clause Escape Clause

Prohibited Use Clause Limits the landlord from leasing to certain tenants

Some tenants take up parking spaces and dont bring in shoppers: bowling alley, skating rink, meeting hall, dentist, or real estate office.

Some tenants could harm the shopping centers wholesome image: bars, pool halls, game parlors, off-track betting establishments, massage parlors retailers.

Exclusive Use Clause Prohibits the landlord from leasing to retailers selling competing merchandiseSpecify no outparcels ( an outparcel is a building or kiosk that sits in the parking lot of a shopping centre but is not physically attached to the centre). Specify if certain retailer leaves center, they can terminate lease.

Escape clauseAllows the retailer to terminate its lease if sales dont reach a certain level after a specified number of years, or if a specific co-tenant in the center terminates its lease.

***********