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Retail Site Location

Retail Site Location. Factors that affect the choice of suitable retail site location: Economic conditions Strategic fit Competition Operating costs. Site Location – 3 Levels of Analysis. Trade Area Issues. Attractiveness of trade area How many outlets:

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Retail Site Location

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  1. Retail Site Location • Factors that affect the choice of suitable retail site location: • Economic conditions • Strategic fit • Competition • Operating costs

  2. Site Location – 3 Levels of Analysis

  3. Trade Area Issues • Attractiveness of trade area • How many outlets: • More stores increases economies of scale and reduces costs • More stores also result in more cannibalization and less sales per store

  4. Trade Area Issues • Factors affecting the demand • Demographic and lifestyle characteristics of customers • Business climate • Retailers’ perspective to manage multiple stores • competition

  5. Factors Affecting Attractiveness of a Site • Match between trade area demographics and retailer’s target market • Likelihood of customers coming to location • Convenience • Other attractive retailers at location • Principle of Cumulative Attractiveness: • A cluster of similar and complementary retailing activities will have greater drawing power.

  6. Location Convenience Factors • Macro perspective: • Road pattern and condition • Natural and artificial barriers • Micro perspective: • Visibility • Traffic flow • Parking • Congestion • Ingress/egress traffic

  7. Location Within a Center • In High Traffic Areas • Near Anchor • Center of Shopping Area • Near Stores Selling Complementary Merchandise • Clustering Specialty Stores Appealing to Teenagers • Better locations cost more

  8. Demand Estimate for New Location • Definition of the Trade Area • Primary zone: 60 to 65% of customers • Secondary: 20% of customers • Tertiary Zones: Occasional shoppers • Approaches for Estimating Demand • Analog Approach • Regression Approach • Huff Gravity Model

  9. Analog Approach • Describe the site and trade area characteristics for its most successful existing/operating stores • Find a site with similar characteristics

  10. Regression Approach • Assumes that factors (independent variables) affecting the revenues (dependent variable) of existing stores in a chain will have the same impact on stores located at new sites

  11. Huff Gravity Model • Estimates sale of a retail store based on: • Size of store (larger store has more pulling power) • Time taken to travel to the store (store that take more time to travel, has less pulling power)

  12. Huff Gravity Model • Probability of a customer going to a specific store location: Pxy= Where: Pxy= probability that customer x shops at location y S = size of the store at location y T = travel time for customer x to get to location y ᾳ = exponent ᾳ reflects the relative effect of travel time vs store size

  13. Huff Gravity Model Koramangala Market size: Rs20million 10 minutes 5 minutes Existing store Size: 5000sft 5 minutes 15 minutes Madiwala Market size: Rs30million New Store Size: 10000sft = 2 for the store locations

  14. Factors Defining Trade Areas • Accessibility • Natural & Physical Barriers • Type of Shopping Area • Type of Store • Competition • Parasite Stores

  15. Sources of Information • Customer Spotting • Census Data • Geodemographic Information Systems • ACORN • Information on Competition • Yellow Pages

  16. Customer Spotting • Credit card or checks • Customer loyalty programs • Manually as part of the checkout process • Automobile license plates

  17. Negotiating a Lease • Types of Leases: • Percentage leases: rent based on % of sales • Fixed rate lease • Terms of the Lease: • Prohibited use clause (bars, massage parlors, betting establishments) • Exclusive use clause (type of outlets) • Escape clause: To exit if sales do not meet certain levels

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