Chapter - 6

Store Location
Chapter Objectives:

Role of location in retail business

Delineate the process of deciding location Understand Trading Area and Site Identification Process Decide locations for Networks

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Role of location in retail business

Location becomes a very critical decision for a retailer for several reasons

location is generally one of the most important factors customers consider while choosing a store

store location is the least flexible element of a retailers strategy mix due to its fixed nature, the amount of investment and the length of lease agreements
good location may let a retailer succeed even if its strategic mix is mediocre a store inherits a lot of its character from its location

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The Process Of Deciding Location

In deciding a store location, two broad decisions need to be made:

the current and future potential of the catchment area of the store
the exact site of the store

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The Process Of Deciding Location

The process could consist of the following four steps:

Evaluate alternate trading areas, geographical area, level of competition and shopper profile Determine what type of sites are desirable from the three basic locational formats - isolated, unplanned district or planned centre Select the general locations for the store Evaluate alternative specific store sites Determining Locations for Networks

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The Process Of Deciding Location

Evaluate alternate trading areas, geographical area, level of competition and shopper profile

1.

1(a) Trading Areas can be divided into three zones:

primary zone - the highest density of costumers to population and the highest per capita sales secondary zone - generating about 20 percent of a stores sales tertiary zone - includes some out shoppers who are willing to travel greater distances to patronize certain stores.

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The Process Of Deciding Location

1(b) Geographical Area

Transportation network, banking facilities and other support services play an important role in the development of retail in a given area Physical barriers, such as toll bridges, poor roads, high traffic, railway crossings, one way streets, would reduce the size and determine the shape of the trading areas Economic barriers (difference in sales tax between towns) also affect the size and shape of trading areas Customers also consider psychological barriers

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The Process Of Deciding Location

1(c) The role of competition in deciding the location

It can be defined as saturated, under stored or over stored A retailer would assess the impact and decide whether competition would divide the market or it would help grow the market The level of competition in a market can be measured with certain ratios based on the output of the stores in a given area such as average sales per retail store, average sales per retail store category, average sales per square foot of selling

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The Process Of Deciding Location

1(d) Shopper Profile: A retailer could consider the following

Growth of population and its income

Size and composition of households

The composition of the population

Knowledge about an areas population characteristics can be gained from reports of organizations like Central Statistical Organization of India, NCAER, A C Nielsen and IMRB.

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The Process Of Deciding Location

4.

Methods Of Estimating Demand :

These take into account environment parameters like opportunity, size, competition in estimating demand and shopper behaviour.

Space Sales Ratio Method This method is based on the assumption that a store's sales are dependent on its size in comparison to the competition Proximal Area Method * This method attaches a great importance to the proximity of location of the store. * it assumes that convenience is the primary driver of store choice

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The Process Of Deciding Location

4.

Methods Of Estimating Demand

Analogue Model in order to estimate the size and sales potential of a new location, would like to match the customer demographics, the competition, and the sales of currently operating stores with similar parameters at a prospective location Reillys Law The purpose of Reillys Law of retail gravitation is to establish a point of difference between two cities or communities, so that the trading area of each can be determined

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The Process Of Deciding Location

4.

Methods Of Estimating Demand

Huffs Gravity Model Huffs Gravity model is based on the premise that the probability that a given customer will shop in a particular store or shopping centre increases with the size of the store or centre and reduces with the distance or travel time

Multiple Regression Model The multiple regression model uses logic similar to the Analogue approach, but uses statistics rather than judgment to predict sales for the new store.

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The Process Of Deciding Location

Determining Locations for Networks
Developing such a network requires systematic evaluation of the impact of each store on the entire network of outlets Proximal-area-based models Competition-ignoring model (CIM) Objective function: Minimize total travel distance Allocation rule: Travel to nearest centre. Comments: Assumes negative linear relationship between distance and utilization. Ignores competitive locations. Market-share model (MSM) Objective function: Maximize demand within proximal areas of outlets belonging to the firm. Allocation rule: Travel to nearest outlet. Comments: Consider location of competitive outlets. Locates in interstitial sites between proximal areas of existing outlets. Spatial-interaction-based models Objective function: Maximize expected market share or profit. Allocation rule: Based on spatial-interaction- model. Comments: Considers trade-off between distance and non-distance factors. Allocates fixed demand among outlets based on spatial-interaction- model.

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The Process Of Deciding Location (For Networks)

Covering Models Set-covering model Objective function: Locates minimum number of outlets to serve all demand within specified accessibility criterion. Allocation rule: Consumers patronize nearest outlet. Comments: Optimal location pattern assures universal accessibility.

Maximal-covering model Objective function: Minimize proportion of demand within accessibility criterion. Allocation rule: Consumers patronize nearest outlet. Comments: Determine trade-off between service level and investment in outlets.

Weighted-covering model Objective function: Maximize utilization. Allocation rule: Travel to nearest outlet. Comments: Assumes stepwise relationship between accessibility and utilization.

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The Process Of Deciding Location

2.

Analysing The Site

This analysis can be done on the basis of:

Store type and size: Isolated Store, Unplanned Business District, Planned Business District Economies of scale: Retailers generally do not choose on the basis of best locations but for multiple locations. This enables them to achieve economies of scale in promotion and distribution. Legal aspects of the site: Zoning, rent, tenancy laws, taxation, sales tax rate across states, Value-Added Taxation (VAT).

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The Process Of Deciding Location

3.

Select the general locations for the store based on:

Formats Neighborhood Frontage Infrastructure Basement vs. other floors Bundling of purchases by customers Rent Legal requirements Future expansions

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End of Chapter 6

Managing Retailing Oxford University Press 2007

All rights reserved