LOCATION AND PLANNING ANALYSIS By: Freneil I.

Reyes Pornpimol Supanimittrakul

Topics
A. B.

Nature of Location Decision Procedure for Making Location Decision

C.
D. E.

Factors Affecting Location Decision

Service and Retail Locations Evaluating Location Alternatives

Location, Location, Location

The three most common reasons for the success or failure of a food/service concept.

New Business

Where do most new business start up?

Most start-ups begin life at home, but then need to find extra/different space as the business grows

C. Factors Affecting Location Decision

Communications Labour Customers Transport links (for supplies/distribution) Government assistance and local government charges (ie business rates) Sales techniques (phone/internet/mail order)

Factors which influence the importance of location

The business activity The number/location of competitors Reliance on personal visits by customers The methods used to contact customers Reliance on local supplies Reliance on specialised labour skills

Factors Affecting Location Decision Communication

This includes transport facilities (road, rail, air) as well as information infrastructure Transport links are particularly important if the business delivers products, sells direct using a sales force or is dependent on import and export Information technology is less of an issue these days most start-ups can quickly establish reliable broadband

Labour
When a start-up needs to hire employees, then access to a reliable pool of staff with relevant skills is important
Businesses that are labour-intensive often look to locate in areas of traditionally low wages

Market Customers & Population

We know where you live!

Market Customers & Population A start-up may need to be located near particular centers of population For example, if the product is a service targeted at affluent older-aged people, then it is important to be located where there is a sufficient population of such people

Franchise businesses often analyze the population characteristics of a potential new territory before setting up in a new location

Transport links (for supplies/distribution)

The business may be dependent on supplies of a particular raw material, so costs will be lower if the business is located near the source of supply (e.g. where the raw material is grown or where a distributor is based) This factor tends to be more important for manufacturing businesses rather than service businesses

Government assistance and local government charges (ie business rates)

Local

ordinances, state and federal

laws. Occupancy cost rent, taxes, insurance, and so on.

Relocating = moving
May be necessary if key factors change, eg

New shopping centre opens and competitors relocate New motorway opens and diverts trade/provides new opportunities Methods of contacting customers change (from personal visits to mail order or Internet) New methods of production changes reliance on suppliers Costs increase on existing premises/alternatives would save money

D. Service and Retail Locations

Questions

What types of locations are available to retailers? What are the relative advantages of each location type?

Why are some locations particularly well suited to specific retail strategies? Which types of locations are growing in popularity with retailers?

What Are the Three Most Important Things in Retailing?

Location! Location! Location!

Why is Store Location Important for a Retailer?

Location is typically prime consideration in customers store choice. Location decisions have strategic importance because they can help to develop sustainable competitive advantage.
Location decisions are risky: invest or lease?

Types of Retail Locations

1. Free Standing Sites 2. City or Town Locations

Inner City Main Street

3. Shopping Centers
Strip Shopping Centers Shopping Malls

4. Other Location Opportunities

Selecting a particular location type

Involves evaluating a series of trade-offs between The size of the trade area (geographic area encompassing most of the customers who would patronize a specific retail site) the occupancy cost of the location The pedestrian and vehicle customer traffic The restrictions placed on store operations by the property manager The convenience of the location for

Tradeoff Between Locations

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

Rent Traffic

1. Freestanding Sites

Freestanding Sites location for individual store unconnected to other retailer Advantages:

Convenience High traffic and visibility Modest occupancy cost Separation from competition Few restrictions

Disadvantages:
No foot traffic

Freestanding Sites cont

Unplanned Retail Locations Merchandise Kiosks small temporary selling stations located in walkways of enclosed malls, airports, train stations or office building lobbies.

2. City or Town Locations

Gentrification is bringing population back to the cities.

Advantage to Retailers:
Affluence returned Young professionals Returned empty-nesters Incentives to move provided by cities Jobs! Low occupancy costs High pedestrian traffic

Central Business District (CBD)

Advantages Disadvantages

Draws people into areas during business hours Hub for public transportation Pedestrian traffic Residents

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

Main Streets vs. CBDs

Occupancy costs lower than CBDs They dont attract as many people There are not as many stores Smaller selections offered Not as much entertainment Some planners restrict store operations

Inner City

Unmet demand tops 25% in many inner city markets

Inner city retailers achieve high sales volume, higher margins and higher profits Inner city customer wants branded merchandise

3. Shopping Centers
Shopping Center Management Controls:

Parking Security Parking lot lighting Outdoor signage Advertising Special events for customers

Types of Shopping Centers

Neighborhood and Community Centers (Strip Centers) Power Centers Enclosed Malls Lifestyle Centers Fashion Specialty Centers Outlet Centers

Neighborhood and Community Centers

Managed as a unit
The McGraw-Hill Companies, Inc./Andrew Resek, photographer

Advantages Convenient locations Easy parking Low occupancy costs

Disadvantages
Limited trade area Lack of entertainment No protection from weather

Attached row of stores Onsite parking

Power Centers
Shopping centers that consist primarily of collections of big-box retail stores such as discount stores (Target), offprice stores (Marshalls), warehouse clubs (Costco), and category specialists (Lowes, Best Buy, Dicks)

Open air set up

Free-standing anchors
Limited small specialty stores Many located near enclosed malls Low occupancy costs Convenient

Modest vehicular and pedestrian traffic

Convenient Modest vehicular and pedestrian traffic Large trade areas

Shopping Malls

Regional shopping malls (less than 1 million square feet) Super regional malls (more than 1 million square feet)

Advantages and Disadvantages of Shopping Malls

Advantages:
Many different types of stores Many different assortments available Attracts many shoppers Main Street for todays shoppers Never worry about the weather Comfortable surrounding to shop Uniform hours of operation

Disadvantages:
Occupancy costs are high Tenants may not like mall management control of operations Competition can be intense
7-33

Lifestyle Centers

Usually located in affluent residential neighborhoods

Includes 50K sq. ft. of upscale chain specialty stores

Open-air configuration
Design ambience and amenities Upscale stores Restaurants and often a cinema or other entertainment Small department store format may be there

Fashion Specialty Centers

Upscale apparel shops Tourist areas/central business districts Need not to be anchored Dcor is elegant High occupancy costs Large trade area

Outlet Centers

These shopping centers contain mostly manufacturers and retail outlet stores

Courtesy of Bealls, Inc.

Theme/Festival Centers

Located in places of historic interests or for tourists Anchored by restaurants and entertainment facilities

4. Other Location Opportunities

Airports

Resorts
Store

within a Store Temporary or pop-up stores

Alternative Locations Airports

Airports: Why wait with nothing to do? Rents are 20% higher than malls Sales/square ft are 3-4 times higher than malls Best airports are ones with many connecting flights

Kim Steele/Getty Images

Alternative Locations Resorts

Captive audience Well-to-do customer Customers have time to shop

Alternative Locations Store within a Store

Located within other, larger stores Examples:

Grocery store with service providers (coffee bars, banks, clinics, video outlets)

Alternative Locations Hospitals

Patients cannot leave Gifts are available

E. Evaluating Location Alternatives

Procedures for evaluation location alternatives include Factor rating method Load-distance model Center of gravity approach Break-even analysis

Transportation method

Factor Rating Example

A Load-Distance Model Example: Matrix Manufacturing is considering where to locate its warehouse in order to service its four Ohio stores located in Cleveland, Cincinnati, Columbus, Dayton. Two sites are being considered; Mansfield and Springfield, Ohio. Use the load-distance model to make the decision.

Calculate the rectilinear distance:

dAB 30 10 40 15 45 miles

Multiply by the number of loads between each site and the four cities

Calculating the Load-Distance Score for Springfield vs. Mansfield

Computing the Load-Distance Score for Springfield City Load Distance ld Cleveland 15 20.5 307.5 Columbus 10 4.5 45 Cincinnati 12 7.5 90 Dayton 4 3.5 14 Total Load-Distance Score(456.5) Computing the Load-Distance Score for Mansfield City Load Distance ld Cleveland 15 8 120 Columbus 10 8 80 Cincinnati 12 20 240 Dayton 4 16 64 Total Load-Distance Score(504)

The load-distance score for Mansfield is higher than for Springfield. The warehouse should be located in Springfield.

The Center of Gravity Approach

This approach requires that the analyst find the center of gravity of the geographic area being considered
Computing the Center of Gravity for Matrix Manufacturing
Coordinates Load

Location
Cleveland Columbus Cincinnati Dayton Total

(X,Y) (11,22) (10,7) (4,1) (3,6)

(li) 15 10 12 4 41

lixi 165 165 165 165 325

liyi 330 70 12 24 436

Computing the Center of Gravity for Matrix Manufacturing liXi 325 7.9 ; Yc.g. liYi 436 10.6 Xc.g. li 41 li 41
Is there another possible warehouse location closer to the Wiley 2007 C.G. that should be considered?? Why?

Break-Even Analysis

Break-even analysis computes the amount of goods required to be sold to just cover costs Break-even analysis includes fixed and variable costs Break-even analysis can be used for location analysis especially when the costs of each location are known

Step 1: For each location, determine the fixed and variable costs Step 2: Plot the total costs for each location on one graph Step 3: Identify ranges of output for which each location has the lowest total cost Step 4: Solve algebraically for the break-even points over the identified ranges

Break-Even Analysis

Remember the break even equations used for calculation total cost of each location and for calculating the breakeven quantity Q. Total cost = F + cQ

Total revenue = pQ Break-even is where Total Revenue = Total Cost Q = F/(p-c)

Q = break-even quantity p = price/unit c = variable cost/unit F = fixed cost

Example using Break-even Analysis: Clean-Clothes Cleaners is considering four possible sites for its new operation. They expect to clean 10,000 garments. The table and graph below are used for the analysis.

Example 9.6 Using Break-Even Analysis Location Fixed Cost Variable Cost Total Cost A $350,000 $ 5(10,000) $400,000 B $170,000 $25(10,000) $420,000 C $100,000 $40(10,000) $500,000 D $250,000 $20(10,000) $450,000

From the graph you can see that the two lowest cost intersections occur between C & B (4667 units) and B & A (9000 units) The best alternative up to 4667 units is C, between 4667 and 9000 Wiley 2007 units the best is B, and above 9000 units the best site is A

The Transportation Method

The transportation method of linear programming can be used to solve specific location problems It is discussed in detail in the supplement to this text It could be used to evaluate the cost impact of adding potential location sites to the network of existing facilities It could also be used to evaluate adding multiple new sites or completely redesigning the network