Chapter 7

Retail Locations

Retail Locations

Retail Strategy Financial Strategy

Human Resource Management

Retail Locations

Site Locations

Information and Distribution Systems

Customer Relationship Management

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?

Elements in Retail Mix

Location Strategy
Customer Service

Store Display
And Design Merchandise Assortment

Communication Mix

Pricing

What Are the Three Most Important Things in Retailing?

Location! Location! Location!

Eddie Tan/Life File/Getty Images

Facts on Retail Space

Currently the U. S. has 23 square feet of retail space in shopping centers for every person. In UK the per capita retail space is 23 Sq Ft. In Canada the per capita retail space is 13 Sq Ft. In Australia the per capita retail space is 6.5 Sq Ft. In India the per capita retail space is 2 Sq Ft.

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

Free Standing Sites City or Town Locations
Inner City Main Street

Shopping Centers
Strip Shopping Centers Shopping Malls

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 customers

Tradeoff Between Locations

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

Rent Traffic

Types of Locations

Unplanned Retail Locations

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 No drawing power
JCPenney, Sears, Walgreens are shifting to stand alone locations

Unplanned Retail Locations

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

City or Town Locations

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

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
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), off-price stores (Marshalls), warehouse clubs (Costco), and category specialists (Lowes, Best Buy, Dicks) Open air set up Limited small specialty stores Many located near enclosed malls Low occupancy costs Convenient Modest vehicular and pedestrian traffic Convenient Large trade areas

Shopping Malls
Regional shopping malls (less than 1 million square feet) Super regional malls (more than 1 million square feet)
The South China Mall in Dongguan, China

The Largest Shopping Malls

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

Challenge to Malls
Time pressured society makes it impractical to wander malls Fashion apparel sold in malls experiencing limited growth Malls are getting old and rundown unappealing to shop Anchor tenants are decreasing due to retail consolidation Strategies?
Make shopping more enjoyable (e.g., sofas, childrens playing areas) Great food destination (fast food and full-service restaurants) Tailor make its offering to cater to changing demographics (e.g., repositioning older shopping centers for Hispanic markets) Mall renovation and redevelopment

Lifestyle Centers

Attractive to specialty retailers

Stores and Restaurants at Lifestyle Centers

Williams-Sonoma Victorias Secret

Restoration Hardware
Barnes & Noble/Borders Pottery Barn The Gap Bed Bath & Beyond Eddie Bauer Ann Taylor Starbucks Aeropostale Hallmark Johnny Rockets Dicks Sporting Goods Panera Bread Coldwater Creek

Banana Republic

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

Theme/Festival Centers
Located in places of historic interests or for tourists Anchored by restaurants and entertainment facilities

Larger, Multi-format Developments: Omnicenters

Combines enclosed malls, lifestyle center, and power centers Larger developments are targeted
to generate more pedestrian traffic and longer shopping trips To capture cross-shopping consumers

Mixed Use Developments (MXDs)

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

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

Alternative Locations
Resorts

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

Royalty-Free/CORBIS

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

Matching Location to Retail Strategy

The selection of a location type must reinforce the retailers strategy be consistent with
the shopping behavior size of the target market The retailers position in its target market

Department Stores Regional Mall Specialty Apparel Central Business District, Regional malls Category Specialists Power Centers, Free Standing Grocery Stores Strip Shopping Centers Drug Stores Stand Alone

Shopping Behavior of Consumers in Retailers Target Market

Factors affecting the location choice
Consumer Shopping Situations
Convenience shopping Comparison shopping Specialty shopping

Density of Target Market

Ex. Convenience stores in CBD; comparison shopping stores next to Wal-Mart

Uniqueness of Retailing Offering

Convenience of locations is less important

Convenience Shopping

Minimize the customers effort to get the product or service by locating store close to where customers are located

Comparison Shopping
Customers have a good idea of what type of product they want, but dont have a strong preference for brand, model or retailer.
Competing retailers locate Near one another Typical for furniture, appliances, apparel, consumer electronics, hand tools and cameras.

Category Specialists
Offer the benefits of comparison shopping Consumers can see almost all brands and models in one store Destination stores

Specialty Shopping

Customers know what they want Designer labels Convenient location matters less

Virtual Shopping

Factors Affecting the Demand for a Region or Trade Area

It is important to examine an areas level and growth of population and employment

Competition
Some retailers are growing very fast in India:
Lack of competition High level of disposable income Large, untapped labor force

Strategic Fit
Ann Taylor High income, dual career families Hot Topic teen, pop culture, grunge

McDonalds families with kids

Royalty-Free/CORBIS

REI outdoor enthusiasts

Operating Costs
Varies across areas Affected by proximity of area considered vs. other areas where retailer operates Local and state legal environment has effect

How Many Stores to Open in an Area?

Economies of Scale
One promotional costs for all stores

vs.

Cannabilization
open stores as long as profits increase

Justifies cost of distribution center

Increases sales per store

Target needs of regional market

Management has control of market

Evaluating a Site
When evaluating and selecting a specific site, retailers consider: The characteristic of the site The characteristic of the trading area The estimated potential sales that can be generated

Site Characteristics

Traffic Flow and Accessibility

When traffic is greater, more customers shop Good for convenience retailers Not necessary for destination retailers Too much can impede access to store Accessibility to store is as important as traffic flow

Convenience of Going to Site Accessibility

Road pattern and condition

Natural and artificial barriers Visibility

Traffic flow
Parking Congestion

What Should Retailers Consider for Parking?

Observe shopping center at various times Employee parking availability Shoppers that use cars Parking by non-shoppers Typical length of a shopping trip

Adjacent Tenants
Principle of Cumulative Attractiveness

Grouping Retailers in an Enclosed Mall

Cost and Restrictions

Costs
Rent Common Area Maintenance Fee/Insurance Advertising Fee

Restrictions
Signage Tenant MIx Operating hours

Steps in Evaluating Sales Potential of a Site

Define Trade Area
Drive Time vs. Geographic Distance Primary, Secondary, Tertiary

Estimate Sales Potential

Huff Model Analog Approach Regression Analysis

Zones in a Trade Area

Trade Area

Primary zone - 60 to 65 percent of its customers Secondary zone - 20 percent of a stores sales

Tertiary zone - customers who occasionally shop at the store or shopping center

Factors Defining Trade Areas

Accessibility

Natural & Physical Barriers

Type of Shopping Area Type of Store Competition Parasite Stores

Measuring Trade Areas

Customer Spotting Use Census Data Geodemographic Information Systems Information on Competition Yellow Pages

Customer Spotting
Purpose: to spot, or locate, the residences of customers for a store or shopping center. How to obtain data:

credit card or checks

customer loyalty programs manually as part of the checkout process automobile license plates

Census Data

Only once in 10 years.

Each household in the country is counted to determine the number of persons per household, household relationships, sex, race, age and marital status.

Geographic Information System (GIS)

GIS a system of hardware and software used to store, retrieve, map and analyze geographic data along with the operating personnel and the data that goes into the system. coordinate system (latitude and longitude) spacial features (rivers and roads) some firms offer services combine GIS with updated census data, consumer spending patterns and lifestyles

GIS Map for a Store Trading Area

Metro Renters
Young 20s Well educated Professional Large cities Median income $50,000 Spend on themselves Surf Internet

Geodemographic Profile
What is the geodemographic profile for your neighborhood?

http://www.esribis.com/reports/ziplookup.ht ml

Location of Target Customers in Shopping Center Trade Area

Indices for Assessing Sales Potential

Market Potential Index (MPI)
Number of Households Purchasing a Product or Service in a Trade Area

Spending Potential Index (SPI)

Average Amount Spent on a Product or Service by a Household in a Trade Area

Sources for Measuring Competition

The Internet - lists current locations and future sites. Yellow Pages

Other Sources: Directories published by trade associations, chambers of commerce, Chain Store Guide, International Council of Shopping Centers, Urban Land Institute, local newspaper advertising departments, municipal and county governments, specialized trade magazines, list brokers

Methods for Estimating Demand

Huffs Model
Analog Approach Regression Analysis

Huffs Gravity Model

Based on the premise that the probability that a given customer will shop in a particular store or shopping center becomes larger as the size of store or center grows and distance or travel time from customer shrinks

Application of Huff Gravity Model

Regression Analysis and Analog Approach

RA = Factors affecting the sales of existing stores in a chain will have the same impact on the stores located at new sites being considered. Analog Approach = retailer describes the site and trade area characteristics for its most successful stores and attempts to find a similar site.

Types of Leases
Percentage Fixed - Rate Percentage leases lease based on a % 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 Leases

Percentage 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 sales

Percentage 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

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 leases

Graduated Lease - a variation of the fixed rate lease

-Rent increases by a fixed amount over a specified period of time.

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, offtrack betting establishments, massage parlors

Exclusive Use Clause

Prohibits the landlord from leasing to retailers selling competing merchandise
Specify no outparcels Specify 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.