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Chapter 7

Chapter 7. Location. Location, Location, Location. Important because? Prime consideration for customer’s choice Big sustainable competitive advantage 3 types of Location Shopping Center City or Town Location Freestanding Location. Shopping Centers.

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Chapter 7

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  1. Chapter 7 Location

  2. Location, Location, Location • Important because? • Prime consideration for customer’s choice • Big sustainable competitive advantage • 3 types of Location • Shopping Center • City or Town Location • Freestanding Location

  3. Shopping Centers • Group of retail and other commercial establishments that is planned, developed, owned, and managed as a single property • Strip Centers – parking directly in front of stores, open canopies may connect stores but no enclosed walkways. • Malls – enclosed, climate-controlled walkways,

  4. Strip Shopping Centers Traditional – designed to provide convenient shopping for daily shopping within a neighborhood Power Centers – bigger with more anchor stores. May have freestanding anchors. Few small specially tenants. May be located near malls

  5. Shopping Malls • Advantages • Entertainment • Tenant mix can be planned • Controlled external environment • Disadvantages • Higher rent • Lack of control over operations (hours,displays) • Intense competition with centers

  6. Shopping Malls • Problems malls are facing • Increased competition from alternative locations • Shoppers are looking for value alternatives • Buildings are getting old • What malls are doing • Renting to nontrad tenants (dr offices, chapels,,,) • Focusing on entertainment • Demalling

  7. Types of Shopping Malls • Regional Centers • General merchandise mostly apparel • Anchored by department and discount stores • Superregional Centers • Mall of America • Bigger in every way • Lifestyle Centers • Outdoor traditional streetscape layout • Sit-down restaurants and a variety of retailers (no discount stores)

  8. Types of Malls cont. • Fashion/Specialty Centers • Similar to lifestyle centers • Upscale apparel, boutiques, and gift shops • Located in high income trade areas • Outlet Centers • Consist mostly of manufacturers stores sell their brands supposedly at a discount • Strip configuration – enclosed mall – village cluster • Located away from regional centers often in touristy areas

  9. Types of Malls Cont. • Theme/Festival Centers • Center that have unified themes (architectural design and even merchandise • Tourists appeal – Often located in places of historical interest • No large stores • Merchandise Kiosks • Offer limited merchandise assortment • Relatively inexpensive, short term leases, often seasonal

  10. Shopping Malls

  11. City or Town Locations • These locations are typically unplanned, have multiple owners, and have access from the street • Central Business Districts (CBD) • Inner-City Locations • Main Street Locations

  12. City or Town Locations • CBD – is the traditional downtown business area in a city or town. • Declining in popularity • High crime rates, urban decay, weather • Lack of planning, limited parking • Inner-city Locations – high-density urban area populated primarily by ethnic groups • High profit potential but must culturally sensitive and involved in the community, customized assortment

  13. City or Town Locations • Main Street Locations • CBD located in the traditional shopping area of smaller towns or secondary business district in suburb • Cost are generally lower along with traffic • Generally smaller overall selection

  14. Redevelopment Efforts in City and Town Locations • Many are undergoing gentrification (the process of renewing and rebuilding buildings) • Malls declining • Occupancy cost lower • Higher profits due to lower competition and stable customer base • Cities often provide incentives

  15. Freestanding • Retail location that’s not connected to other retailers • Large space requirements • Advantages • Greater visibility • Lower rents • Ample parking • No direct competition • Few restrictions on signs, hours, or merchandise

  16. Freestanding • Disadvantages • Lack of synergy with other stores • Must be a destination • Offer special merchandise, price, promotion, or services

  17. Other Retail Location • MXD’s (Mixed-Use Developments) – combine several different uses in one complexs • Airports • Resorts • Hospitals • Store within a Store

  18. Location CBD Strip Shopping Free Issues Center Mall Standing Security - - + - Long, uniform - + + + hours of operation Planned - - + - shopping area/balanced tenant mix Parking - + - + Occupancy ? + - + costs (e.g. rent) Relative Advantages of Major Retail Locations

  19. Location City Strip Shopping Free Issues Center Mall Standing Pedestrian + - + - traffic Landlord + + - + control Strong + + - + competition Tax ? ??? incentives Relative Advantages of Major Retail Locations

  20. Department store location strategy • Usually located in CBD and in regional and superregional shopping centers • These formats draw a large number of people • Shopping Goods

  21. Specialty Apparel Stores • Thrive in CBD’s Main Street locations, and most types of malls • These location draw large numbers and offer entertainment and recreation • These location facilitate comparison shopping • Specialty goods

  22. Category Specialist • Found in Power Centers or in Freestanding location • Helps keeps cost down • Good parking (large items) • Destination store

  23. Grocery Stores • Strip Centers • Lower costs • Less customer travel time • Carry convenience goods • Wholesale clubs use freestanding • People are willing to travel for savings

  24. Terms of Occupancy • Types of Lease • Percentage lease • Fixed-rate

  25. Percentage Lease • Specified min and max • Maximum – Retailer pays % of sales up to a maximum point • Minimum – Retailer pays a minimum amount no matter how lows sale go • Sliding Scale • %/sale amount decreases as sales go up • 4% for first $200,000 and 3% for sales> $200,000

  26. Fixed-Rate Lease • Retailer pays fixed amount monthly rent for the life of the lease • Graduated Lease – first 3 years $1,000 per month Next 5 years $1,250 • Maintenance increase recoupment lease– Allows landlord to increase rent if expenses increase beyond a certain point • Net Lease – Retailer pays all maintenance and utilities

  27. Terms of the Lease • Prohibited use clause – No leasing to tenants that take up parking but don’t bring in shoppers (bowling alley) • Exclusive use clause – can’t lease to retailers selling competing products • Can limit outparcels (banks or fast food) in the parking lot • Can specify that the lease release of a complimentary business leaves the shopping center

  28. Terms of the Lease • Escape Clause • Retailer can terminate its lease if sales don’t reach a certain level after a time

  29. Legal Considerations • Environmental Issues • Retailer can buy insurance to protect against these risk or write responsibility to landlord in the lease • Zoning and building codes • Signs • Licensing Requirements – liquor license

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