This Document Contains Chapters 7 to 8 CHAPTER 7 RETAIL LOCATIONS ANNOTATED OUTLINE INSTRUCTOR NOTES I. Types of Locations • Store location is often the most important decision made by a retailer. • Location is typically the prime consideration in a customer's store choice. • Location decisions have strategic importance because they can be used to develop a sustainable competitive advantage. • Location decisions are generally risky. They are hard to change because retailers frequently have to either make substantial investments to buy and develop real estate or commit to long- term leases with developers. • Many types of locations are available for retail stores – each with their own strengths and weaknesses. Choosing a particular location type involves evaluating a series of trade-offs. • These trade-offs generally concern the cost of the location versus its value to customers. • Trade area is the geographic area encompassing most of the customers who would patronize a specific site. See PPT 7-5 Discuss the importance of store location based on students' shopping preferences. For the following types of products, how far would they travel to reach a store: 1. Eggs and milk 2. Socks 3. Running shoes 4. Home theater system Ask students to evaluate the best location in the area around the university. What are the characteristics of the location that make it so attractive? See PPT 7-8 and 7-9 II. Unplanned Retail Locations • Some retailers put their stores in unplanned locations. In an unplanned location, there is no centralized management to determine where specific stores are and how they are operated. A. Freestanding Sites This Document Contains Chapters 7 to 8 • A freestanding site is a retail location that's not connected to other retailers, although many are located adjacent to malls. • Retailers with large space requirements, such as warehouse clubs and hypermarkets, are often freestanding. • Outparcels, which are stores that are not connected to other stores in a shopping center but are located on the premises, typically in a parking area, are freestanding locations that are popular for fast food restaurants or banks. • These locations enable retailers to have a drive-through window, dedicated parking, and clear visibility from the street. • Advantages of freestanding locations are greater visibility, lower rents, ample parking, no direct competition, greater convenience for customers, fewer restrictions on signs, hours, or merchandise, and ease of expansion. • The most serious disadvantage is the lack of synergy with other stores. A retailer in a freestanding location must be a primary destination point for customers. It must offer customers something special in terms of merchandise, price, promotion, or services to get them into the store. See PPT 7-11 Have the students visited a retailer in a freestanding site? What made them travel to such a retailer? What retailers are best suited for a freestanding site? B. City or Town Locations • Some retailers are finding urban locations attractive, particularly in cities that are redeveloping their downtowns and surrounding urban areas. • In general, urban areas have low occupancy costs, and locations in the See PPT 7-12 central business districts often have high pedestrian traffic. • Many urban areas are going through a process of gentrification – the renewal and rebuilding of offices, housing, and retailers in deteriorating areas – coupled with an influx of more affluent people that displaces the former poorer residents. • Redevelopment opportunities for retailers are also emerging in so-called brownfields – former industrial locations with a history of chemical pollutants, as developers and investors give these areas serious consideration for clean-up. 1. Central Business Districts • The central business district (CBD) is the traditional downtown business area in a city or town. • Although CBD locations in the United States declined in popularity among retailers and their customers for years, many are experiencing revival as they become gentrified, drawing in new residents and retailers. • Because shoplifting can be common and parking is often limited, CBDs generally require the retailers to hire security. • Shopping flow in the CBD may be slow on evenings and weekends when area businesses are closed as parking problems and driving time discourage customers from driving in from the suburbs. See PPT 7-13 Ask students whether they shop in the CBD of the town/city in which they live. Ask them in which city(s) they love to shop in the CBD. Why? If they were going to open a shop, would they consider a CBD location? Why or why not? We would expect cities like San Francisco, New York, London, Paris to be mentioned as great “shopping cities.” 2. Main Street Locations • Main Street is the traditional shopping area in smaller towns, or a secondary business district in a suburb or within a Ask students if national retailers have started to invade the “Main Street” in their neighborhoods. larger city. Their occupancy costs are lower than those of the primary CBD. They do not draw as many people and offer smaller overall selection through fewer stores. Main Streets typically don't off the entertainment and recreational activities available in the more successful primary CBDs. See PPT 7-14 for a comparison of CBDs and Main Street locations. 3. Inner-City Locations • The inner city in the United States refers to high density urban areas that have higher unemployment and lower median incomes than the surrounding metropolitan area. Some retailers have avoided opening stores in the inner city because they believe it is riskier and achieves lower returns than other areas. As a result, inner city consumers often have to travel to the suburbs to shop, even for food items. • That said, retailing can play an important role in inner city redevelopment activities by bringing needed services and jobs to inner city residents, as well as property taxes to support redevelopment efforts. What are the various ethical issues in retailers charging higher margins in inner cities? What are the reasons retailers remain successful even though their prices may be higher in inner cities? See PPT 7-15 III. Shopping Centers • A shopping center is a group of retail and other commercial establishments that is planned, developed, owned, and managed as a single property. • By combining many stores at one location, the developer attracts more consumers to the shopping center than if the stores were at separate locations. • Shopping center management maintains common facilities (common area maintenance, or CAM) such as the parking area and restrooms, and is responsible for security, outdoor signage and advertising for the center. See PPT 7-16 • Most shopping centers have at least one or two major retailers, referred to as anchors. • In strip shopping centers, supermarkets are typically the anchors, whereas department stores traditionally anchor enclosed shopping malls. Lifestyle centers may not have anchors, while power centers are often made of “anchors” exclusively. A. Neighborhood and Community Shopping Centers (Strip Centers) • Strip centers are attached rows of stores managed as units, with onsite parking usually located at the front of the stores. • The primary advantages of these centers are that they offer customers convenient locations and easy parking. They also offer relatively low rents for retailers. • The primary disadvantages are that there is no protection from the weather. Strip centers also offer less assortment and entertainment options for customers than malls. See PPT 7-18 Ask students for examples of neighborhood and community shopping centers in the campus area and discuss. What are the pros and cons of these locations? B. Power centers • A power center is a shopping center that is dominated by several large anchors, including discount stores, off- price stores, warehouse clubs, or category specialists. • Unlike traditional strip centers, power centers often include several freestanding (unconnected) anchors and only a minimum number of specialty tenants. • Now many power centers are larger than regional malls and have trade areas as large as regional malls. See PPT 7-19 Why would a smaller retailer locate in a power center anchored by discount stores and off-price stores? What types of merchandise would likely be carried by the smaller retailer? • Power centers offer low occupancy costs and modest levels of consumer convenience and vehicular and pedestrian traffic. C. Shopping Malls • Shopping malls are enclosed, climate controlled, lighted shopping centers with retail stores on one or both sides of an enclosed walkway. • Shopping malls are classified as either regional malls (less than 1 million square feet) or super regional malls (more than 1 million square feet). • Shopping malls have several advantages over alternative locations. • First, because of the many different types of stores, the merchandise assortments available within those stores, and the opportunity to combine shopping with entertainment, shopping malls attract many shoppers and have a large trade area. • Second, retailers and their customers don’t have to worry about the weather. • Third, malls offer retailers a strong level of homogeneous operations with the other stores, such as uniform hours of operation. • Although shopping centers are an excellent site option for many retailers, they have some disadvantages. • First, mall rents are higher than those of strip centers, freestanding sites, and most central business districts. • Second, some tenants may not like mall management’s control of their operations. Managers can, for instance, dictate store hours and window displays. See PPT 7-20, 7-21 Ask students if they spend more/less time in shopping malls than they did 5 years ago. [ It will probably be less. Ask them why.] Do students notice some significant differences between one shopping mall and another? If so, what are these? [Prompt students on differences in types of stores, overall ambience and environment of the shopping mall, general levels of service through the various stores in the shopping mall, etc.] • Third, competition within shopping centers can be intense. • Shopping malls are facing several challenges, leading to declining mall traffic and sales. • First, many people simply do not have time to stroll through a mall. Strip centers, freestanding locations, and power centers are more convenient as they offer convenient parking and easy access. • Second, most retailers in shopping malls sell fashionable apparel, a merchandise category that has seen limited growth due to more casual lifestyles. • Third, many malls are getting old and have not been subject to any significant remodeling, making them somewhat rundown and less appealing to customers than they once were. • Fourth, the consolidation in retailing, particularly in the department store segment, has decreased the number of potential anchor tenants, leaving some malls with diminished drawing power. D. Lifestyle Centers • Lifestyle centers, the fastest growing type of retail development, are shopping centers with an open-air configuration of specialty stores, entertainment and restaurants with design ambience and amenities such as fountains and street furniture. • Lifestyle centers resemble the main streets in small towns, where people stroll from store to store, have lunch, sit for a while on a park bench talking to friends. Thus, they cater to the “lifestyles” of consumers in their trade areas. See PPTs 7-23 • Due to the ease of parking, lifestyle centers are very convenient for shoppers. But they typically have less retail space than enclosed malls and thus smaller trade areas, attracting fewer customers than enclosed malls. Many are located near higher income areas so the higher purchases per visit compensate for the fewer number of shoppers. E. Mixed-Use Developments • Mixed-use developments (MXDs) combine several different uses in one complex, including shopping centers, office towers, hotels, residential complexes, civic centers, and convention centers. See PPT 7- 24 F. Outlet Centers • Outlet centers are shopping centers that consist mostly of manufacturers’ outlets. • Outlet centers have progressed from no-frills warehouses to well-designed buildings with landscaping, gardens, and food courts that make them hard to distinguish from more traditional shopping and lifestyle centers. • Outlet centers are larger in size today than they were a decade ago, with some outlets having more the one million square feet. • In the U.S. only two or three new outlet centers open each year, yet outlet centers are becoming very popular outside the U.S. • Tourism is an important factor in generating traffic for many outlet centers. Thus, many are located in with convenient interstate access and close to popular tourist attractions. See PPT 7-25 Ask students if they have been to an outlet center. What types of products have they purchased from such centers? Was the visit an everyday shopping trip or part of a vacation? G. Theme / Festival Centers • Theme/festival centers are shopping centers that typically employ a unifying theme that is carried out by the individual shops in their architectural design, and to an extent, in their merchandise. The biggest appeal of these centers is to tourists. • These centers typically contain tenants similar to specialty centers, except there usually are no large specialty stores or department stores. See PPT 7-26 H. Larger, Multiformat Developments - Omnicenters • New shopping center developments are combining enclosed malls, lifestyle centers, and power centers. Although centers of this type do not have an official name, they may be referred to as omnicenters. • Omnicenters represent a response to several trends in retailing, including the desire of tenants to lower common area maintenance charges by spreading the costs among more tenants and function inside larger developments that generate more pedestrian traffic and longer shopping trips. • In addition these centers reflect the growing tendency of consumers to cross-shop, as well as the desire for time-scarce consumers to participate in one-stop shopping. See PPT 7-27 IV. Other Location Opportunities • Airports, resorts, stores within a store, and temporary stores are interesting location alternatives for many retailers. See PPT 7-28 A. Temporary Stores • Retailers and manufacturers sometimes open temporary or pop-up stores to a See PPT 7-29 focus on a new product or a limited group of products. These temporary stores introduce and remind consumers of a brand or store, but they are not designed primarily to sell the product. B. Store within a Store • Another nontraditional location for retailers is within other, larger stores. Retailers, particularly department stores, have traditionally leased space to other retailers such as sellers of fine jewelry or furs. • Grocery stores have been experimenting with the store-within-a- store concept for years with service providers like banks, film processors, and video outlets. See PPT 7-30 C. Merchandise Kiosks • Merchandise kiosks are small, temporary selling spaces typically located in the walkways of enclosed malls, airports, train stations, or office building lobbies. • They usually have short-term leases and are often operated seasonally. • Some are staffed and represent a miniature store or cart that could be easily moved. Others are twenty-first century versions of a vending machine. • For mall operators, kiosks are an opportunity to generate rental income in otherwise vacant space and to offer a broad assortment of merchandise for visitors. They also can generate excitement leading to additional sales for the entire mall. See PPT 7-31 Ask students which categories of merchandise are best suited for sale in merchandise kiosks. Discuss some of the merchandise kiosks that students most frequently see in the mall. D. Airports See PPT 7-32 • One important high-pedestrian area that has become popular with national retail chains is airports. • Sales per square foot at airport malls are often three to four times as high as at regular mall stores. However, rents are higher too. Also, costs can be higher – hours are longer, and since the location is often inconvenient for workers, businesses have to pay higher wages. • The best airport locations tend to be ones where there are many layovers and international flights. Are airports good places to buy products? Why or why not? Which products have students purchased from an airport retailer? V. Location and Retail Strategy • Location type decisions need to be consistent with the shopping behavior and size of the retailer’s target market and its positioning. PPT 7-33 illustrates the need to match the retailer’s strategy with its location type. A. Shopping Behavior of Consumers in Retailer’s Target Market • A critical factor affecting the location consumers select to visit is the shopping situation in which they are involved. • Three shopping situations are: (1) convenience shopping, (2) comparison shopping, and (3) specialty shopping. See PPT 7-34 Ask students how the nature of the consumer’s shopping behavior will affect their preferred store location. 1. Convenience Shopping • When consumers are engaged in convenience shopping situations, they are primarily concerned with minimizing their effort to get the product or service they want. • Stores selling primarily convenience goods usually locate their stores close to where their customers are and make See PPT 7-35 Ask students where they are most likely to purchase convenience items such as soda, gum and milk. Why do they select those particular locations? it easy for them to park, find what they want, and go about their other business. 2. Comparison Shopping • Consumers involved in comparison shopping situations have a general idea about the type of product or service they want, but they do not have a strong preference for a brand, model or specific retailer to patronize. • Enclosed malls or shopping districts devoted to one type of merchandise attract consumers by facilitating their comparison shopping activities. • Category specialists offer the same benefit of comparison shopping as a collection of co-located specialty stores because consumers can see almost all of the brands and models in a particular product category. • This comparison shopping makes category killers destination stores, places where consumers will go even if it is inconvenient. See PPT 7-36 Ask students to discuss product categories they often comparison shop for. Where do they go to compare? Describe the types of retailers they patronize for comparison shopping situations. 3. Specialty Shopping • When consumers go specialty shopping, they know what they want and will not accept a substitute. • The retailer becomes a destination store. Thus, consumers are willing to travel to an inconvenient location. Discuss specialty stores students have been to. Would those stores improve their business by being more conveniently located? Why or why not? See PPT 7-37 VI. Legal Considerations • The legal issues that affect site decision include environmental issues, zoning, building codes, signs, and licensing requirements. A. Environmental Issues • Two environmental issues have received particular attention in recent See PPT 7-38 for a review of these issues. years. First is “above-ground risks” such as asbestos-containing materials or lead pipes used in construction. The second issue is hazardous materials that have been stored in the ground. This issue may be of particular importance to a dry cleaner or an auto repair shop. • Retailers may protect themselves against environmental hazards with protective lease clauses in their leases, and/or by purchasing environmental protection insurance policies. B. Zoning and Building Codes • Zoning determines how a particular site can be used. Building codes are similar legal restrictions that can determine the type of building, signs, size and type of parking lot, etc. that can be used at a particular location. See PPT 7-39 for a review of other legal issues retailers must consider. C. Signs • Restrictions on the use of signs can impact a particular site's desirability. Size and style may be restricted by building codes, zoning ordinances, or even the shopping center management. D. Licensing Requirements • Licensing requirements may vary in different parts of a region. For instance, some Dallas neighborhoods are "dry," meaning no alcoholic beverages can be sold; and in other areas, only wine and beer can be sold. VI Summary • Location decisions are particularly important because of their high-cost, long-term commitment and impact on customer patronage. • Choosing a particular location type involves evaluating a series of trade- offs including the occupancy costs of the location, the pedestrian and vehicle traffic associated with the location, the restrictions placed on store operations by the property management, and the convenience of the location for customers. ANSWERS TO “GET OUT AND DO ITS” 2. INTERNET EXERCISE Go to the web page for Faneuil Hall Marketplace at: www.faneuilhallmarketplace.com and the online site for CocoWalk at: http://www.cocowalk.net. What kinds of centers are these? List their similarities and differences. Who is the target market for each of these retail locations? Faneuil Hall Marketplace – “It's the seat of American history and the site of one of America's most famous shopping and dining experiences, Faneuil Hall Marketplace. For over 250 years, the marketplace has played an integral role in the life of Boston's residents.” Restaurants, shopping, history (close to the Freedom Trail) events and entertainment. This urban market place is located in Boston, Massachusetts and it attracts both locals and tourist of all ages. CocoWalk – “Miami’s ultimate destination for shopping, dining & entertainment. As the first lifestyle center in Florida, CocoWalks’ unique grounds and buildings were carefully designed to blend seamlessly into the surroundings of Coconut Grove, a bayside boating village known for being eclectic, sometimes eccentric and always exciting”. Shops, boutiques, a movie theater, restaurants, cafes, bars and live entertainment. This center caters to Miami residents and international visitors with upscale shops and sophisticated restaurants. 3. GO SHOPPING Go to your favorite shopping center, and analyze the tenant mx. Do the tenants appear to complement one another? What changes would you make in the tenant mix to increase the overall performance of the center? Students’ answers will vary. Typically, in most shopping centers, the tenant mix is complementary. Many retailers want to open locations close to their competitors, especially for comparison shopping purposes. Ask students if there is a retailer that they would like to see in their favorite shopping center that isn’t currently there now. What stores would they remove from the shopping center to improve the overall quality of the shopping experience at the shopping center? 4. GO SHOPPING Visit a lifestyle center. What tenants are found in this location? Describe the population characteristics around this center? How far would people drive to shop at this lifestyle center? What other types of retail locations does this lifestyle center compete with? Students’ answers will vary. In most lifestyle centers, the tenants are going to be a mix of higher-end specialty stores with a few smaller format department stores. Stores like Williams- Sonoma and Pottery Barn tend to locate in lifestyle centers. When describing the population surrounding the center, it will likely be in a more affluent part of town versus other shopping centers. Lifestyle centers typically compete with other lifestyle centers or regional shopping malls, and in some instances, power centers. 5. INTERNET EXERCISE Go to the home page for Simon Property Group, www.simon.com/about_simon/our_business/default.aspx, and read about the business that Simon is in. What is the difference between their businesses? Simon Malls is a property management group specializing in three different types of properties: malls, premium outlets, and The Mills. The malls of Simon are “premier malls that provide an unparalleled retail and dining experience for guests.” While, the premium outlets provide guests with outlet shopping experiences for designer and name brands like Coach, Gap, Nike, and Polo Ralph Lauren. The Mills are totally unique to Simon. Simon operates 15 of The Mills facilities. The Mills offers outlet shopping, value retail, dining, and entertainment in 12 states. 6. INTERNET EXERCISE Go to the homepage of your favorite enclosed mall and describe it in terms of the following characteristics: number of anchor stores, number and categories of specialty stores, number of sit-down and quick service restaurants, and types of entertainment offered. What are the strengths and weaknesses of this assortment of retailers? What are the unique features of this particular mall? Student answers will vary depending on the mall selected. Students should be able to categorize the different retailers (anchor stores versus specialty stores, etc.). How much entertainment does the mall provide? Does that appeal to students? Do students visit the malls because of the stores or because of the supplementary services like dining and entertainment? 7. GO SHOPPING Visit a power center that contains a Target, Staples, Sports Authority, Home Depot, or other category specialists. What other retailers are in the same location? How is this mix of stores beneficial to both shoppers and retailers? Other retailers in this type of shopping center may include a food store, clothing stores such as Old Navy, a book store, craft store, and possibly some quick service and family restaurants. Students should consider how the retailers prefer low occupancy costs, high traffic levels and are trying to reach the same target customers. Shoppers enjoy the convenience of easy parking and many retailers located together. 8. INTERNET EXERCISE Go to www.pbs.org/itvs/storewars/ . This site contains information about the Ashland’s town council’s decision to allow Walmart to open a store in Ashland, Virginia. Summarize the pros and cons of allowing Walmart to open a store in town. Were you surprised by the town council’s decision? Why or why not? The people of Ashland that were in favor of the new Walmart said that they liked it because of the convenience of one-stop shopping, the creation of new jobs, improvement in the roads and infrastructure of the town, and a larger selection of products at better prices. The residents that were against the new Walmart said that it would increase traffic, decrease city revenue, and destroy the unique character of downtown Ashland. Eventually, the town council approved the building of Walmart. Students should discuss if they were surprised or not by this decision. ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS 1. Why is store location such an important decision for retailers? Location decisions are particularly important because of their high-cost, long-term commitment and impact on customer patronage. Location is typically one of the most influential considerations in a consumer’s store choice decision. Further, location decisions have strategic importance because they can be used to develop a sustainable competitive advantage. 2. Pick your favorite store. Describe the advantages and disadvantages of its current location, given its target market. Students store choices will likely vary considerably. The store’s target market must be clearly defined. And then the location should give the store a competitive advantage with the target market they have defined. Store: Urban Outfitters The target market for this store can be defined as young men and women from ages 16 to 25 that live in the city or want the urban look. The best location for this store would be in a central business district. This is a traditional downtown business area in a city or a town. The store will draw from the business activity of the downtown area. There is an inflow of people from public transportation and a high level of pedestrian traffic. Store: The GAP The primary target market segments for this store are men and women ranging from as young as 15 to 40 years old looking for value in basic clothing. The best location for this store would be in a shopping center, particularly a mall. A shopping center consists of a group of retail and other commercial establishments that is planned, developed, owned, and managed as a single property. A mall focuses on pedestrians and gains its advantage because it can have a set of stores that carry similar merchandise assortments. The target market looking for basics, can shop at the GAP and also shop at complementary stores nearby. This allows the target market to have a one stop shopping experience. Store: Verizon The target market segments of Verizon are men and women ages 18 and up looking for a cellular phone for convenience and safety. A great location for Verizon would be a kiosk. A kiosk is located in mall common areas, is stationary, and has many conveniences of a store such as telephones, electricity, and moveable shelves. Advantages of these selling spaces are the prime mall locations, the relative inexpensiveness, and the short-term leases available, which reduce owner’s risk. This is a perfect location for a Verizon store because the items are very small and require little shelf space. A customer looking to get a phone, does not need a lot of frills, but instead wants the information and the phone at a convenience. Also this location will appeal to their target market. As they walk down the mall they may be induced to purchase without previous planning. 3. Home Depot typically locates in either a power center or a freestanding site. What are the strengths of each location for this home improvement retailer? The tenant mix of a power center lends itself to attracting customers who would want to shop at Home Depot. Home Depot will also benefit from this location due to increased traffic flow of customers who will shop at a power center. Home Depot will benefit from a free-standing location due to probable lower rent, abundant parking, lack of direct competition, and the ability to design and operate the store with few or no restrictions. 4. As a consultant to 7-Eleven convenience stores, American Eagle Outfitters, and Porsche of America, what would you say is the single most important factor in choosing a site for these three very different types of stores? The most important criterion that is common to all types of stores is a location that attracts the right segment of consumers. However, since the segments targeted are different and the merchandise/services offered are also different, these differences would also affect the location decision for each of the retailers. For 7-Eleven, consumers who are shopping for convenience products – food as well as non food items – are the primary target. Since these consumers do not wish to travel far and are willing to pay a slightly higher price as compared to grocery stores, the best locations for 7-Eleven stores are smaller, neighborhood strip centers. For American Eagle Outfitters, the CBDs, Main Street or regional and super regional shopping centers may attract their target consumers, while for Porsche of America, upscale commercial neighborhoods – typically a commercial avenue further away from downtown – will likely appeal to their target customers. 5. Retailers are locating in shopping centers and free-standing locations in central business districts that have suffered decay. As a result, these areas are rejuvenating, a process known as gentrification. Some people have questioned the ethical and social ramifications of this process. Discuss the benefits and detriments of gentrification. The benefits of gentrification include the redevelopment of urban areas that are in a state of decay. Usually, these areas would continue to decay if it weren’t for the interested retailers. Some retail developers argue that gentrification projects have positive effects on fighting crime and drugs. Gentrification also allows retailers to develop buildings that would be financially impossible to duplicate in today’s market. These structures often have significant historical value. Finally, retail gentrification promotes the development of projects such as housing and offices. This allows whole neighborhoods to make a comeback. Gentrification may negatively impact the historical and/or cultural makeup of an area. In addition, gentrification may be so successful that neighboring properties may increase in value to the point that existing tenants may not be able to afford the higher rents and/or taxes. This is especially controversial in terms of displacement of lower income individuals and families. Gentrification projects are often highly speculative due to the expensive financing and high risks usually associated with projects of this kind. When financing is a problem, a project may have to be temporarily stopped or abandoned before completion, which results in further accelerating decay of empty buildings and an uncertain future for existing businesses and people. 6. Staples, OfficeMax and Office Depot all have strong multichannel strategies. How do competition and the Internet affect their strategies for locating stores? Since all three stores sell mostly standardized and easily specified office supplies, the products stocked by them can be conveniently and easily sold through the Internet. The primary target markets for this type of retail outlets are small office/home office businesses. The Internet enables these firms to target medium and large firms as well. At the same time, the Internet is also an opportunity to target customers far removed from their primary concentration areas (Southeast for Office Depot and Northeast for Staples) without incurring the additional costs of each store location in markets where consumers may be sparse. While it does cost a tremendous amount of capital to set up and successfully operate an Internet site, the costs of the site are spread to a wider target market and trading area as compared to the costs of setting up individual stores in multiple locations. So the Internet enables these firms to optimize on marketing efforts to various target markets as well as the costs of setting up new stores in locations that may not generate sufficient traffic. Since these three competitors offer similar merchandise it is import to offer some type of rewards program to build store loyalty. Another way to differentiate in this industry is to offer unique customer services such as delivery, printing and computer support. 7. In many malls, quick service food retailers are located together in an area known as a food court. What are the advantages and disadvantages of this location for the food retailers? What is the new trend for food retailers in the shopping environment? Mall food courts allow customers to find the fast-food retailers in the center of the shopping mall. Since food courts usually have public seating in one area within the food court, each fast-food retailer does not have to provide separate seating room for customers. The common area charges associated with these kinds of arrangements are significantly less than if each fast-food retailer provided a separate seating area. This arrangement enables the fast-food retailers to lease a smaller amount of expensive space. Finally, food courts provide a variety of alternatives therefore creating a synergy that attracts a larger group of potential customers. Groups of potential customers, such as families, can patronize a variety of fast-food retailers at one time. In terms of disadvantages, food courts require the fast-food retailers to be located next to each other, thus making the immediate environment extremely competitive. In addition, since malls with food courts usually insist that the fast-food retailers locate within the food court, there is no opportunity to try to locate to a better position within the mall. Also, food courts tend to have limited space, therefore creating less flexibility in store design and expansion. The new trend for food retail in malls is providing a more upscale, sit-down dining experience in sit down restaurants. Mall developers have learned that good food options can be a powerful attractor of customer traffic. 8. Why would a Payless ShoeSource store locate in a neighborhood shopping center instead of a regional shopping mall? A Payless Shoe Source might locate in a strip shopping center because these centers offer customers convenient locations and easy parking, and offer retailers relatively lower rents than regional shopping centers. This may enable Payless to offer lower prices than a store offering comparable merchandise at the mall, and may also serve to offset the opportunity cost of being located in a lower traffic location. 9. How does the mall near you home or university combine the shopping and entertainment experience? Answers here will vary widely. Students may describe efforts at traditional shopping centers, such as special promotions, food courts, holiday events or music/video offerings. Others may respond with entertainment features typically found at lifestyle centers, including concerts and events, more restaurants and clubs, and recreation centers. 10. Consider a big city that has invested in an urban renaissance. What components of the gentrification project attract both local residents and visiting tourists to spend time shopping, eating and sightseeing in this location? Local residents will likely be attracted to the convenience of retailers located in or nearby their neighborhoods, along with the needed services, jobs, enhanced safety, visibility and choices among retailers that would accompany the gentrification project. Visiting tourists may be more attracted to the historical significance and unique entertainment elements built into the project. CHAPTER 8 RETAIL SITE LOCATION ANNOTATED OUTLINE INSTRUCTOR NOTES I. Evaluating Specific Areas for Locations • Retail site selection is a very strategic decision. Once a location is chosen, a retailer must live with it for many years. Even if a retailer finds the "right" neighborhood, the wrong site can spell disaster. • Areas that retailers consider for locating stores might be countries, areas within a country such as a province or state, particular cities or areas within a city. • In the United States, retailers often focus their analysis on a Metropolitan Statistical Area (MSA) because consumers tend to shop within an MSA. • An MSA is a core urban area containing a population of more than 50,000 inhabitants, together with adjacent communities that have a high degree of economic and social integration with the core community. • An MSA can consist of one or several counties and is usually named after the major urban area in the MSA. • A micropolitan statistical area is a smaller unit of analysis with only 10,000 inhabitants in its core urban area. • The best areas for locating stores are those that generate the highest long- term profits for a retailer. Some factors affecting the long-term profit generated by stores that should be considered when evaluating an area include: See PPT 8-4 See PPT 8-3 A. Economic Conditions See PPT 8-5 • It is important to examine an area’s level and growth of population and employment because locations involve a commitment of resources over a long time horizon. • A large, fully employed population means high purchasing power and high levels of retail sales. • Retail location analysis must also consider how long growth will take place and how it will affect demand for merchandise sold in the area’s stores. • Most retailers prefer to locate in areas where the population is large and growing. However, other retailers adopt the strategy of moving into newly developing areas, counting on developing suburbs to bring future growth. Under what circumstances is it desirable for retailers to establish stores in sparsely populated areas? Is it ever a good idea? Consider Subway restaurants-typically these stores go into underdeveloped areas hoping the area surrounding the store grows. B. Competition • The level of competition in an area also affects demand for a retailer’s merchandise. • Wal-Mart’s early success was based on a location strategy of opening stores in small towns with little competition. It offered consumers in small towns quality merchandise at low prices. Ask students if they think Wal-Mart’s early location strategy could work for another type of retailer. If so, which one(s)? If not, why not? See PPT 8-6 C. Strategic Fit • In addition to population level, growth and competition, the area needs to have consumers who are in the retailer’s target market, those who are attracted to the retailer’s offering and interested in patronizing its stores. • The area must have the right demographic and lifestyle profiles. See PPT 8-7 D. Operating Costs • Costs of operating stores can vary dramatically across areas. • Operating costs may be affected by the population of the area, the proximity of the area to other areas in which the retailer operates stores or distribution centers, and also the local and state regulatory environments. See PPT 8-8 II. Number of Stores in an Area • Retailers must consider the trade-offs between lower operating costs and potential sales cannibalization from having multiple stores in an area. See PPT 8-9 A. Economies of Scale from Multiple Stores • Since retail chains plan to go into an area with a network of stores, they attempt to achieve promotion and distribution economies of scale for all the multiple locations. • Multiple stores in an area are needed to justify the cost of building a new distribution center. Ask students for examples of retail chains with multiple locations within, say, a 20-mile radius. B. Cannibalization • While there are scale economies gained from opening multiple locations in an area, there also are diminishing returns associated with locating too many additional stores in an area due to cannibalization (one store taking sales away from another). • Because a primary retailing objective is to maximize profits for the entire chain, retailers should continue to open stores only as long as profits continue to increase. • In this case, the retailer would continue to open stores as long as the marginal revenues achieved by opening a new store are greater than the marginal costs. • For franchise operations, the objectives of the franchisor and the franchisee differ, and thus, disputes can arise over the number of locations in an area. • The franchisor is interested in maximizing total store sales, while the franchisee is interested in just the sales and profits from its store(s). • To reduce the level of conflict, most franchise agreements grant franchisees an exclusive territory to protect them from another franchisee cannibalizing their sales. III. Evaluating a Site for Locating a Retail Store • Having decided to locate stores in an area, the retailer’s next step is to evaluate and select the specific site. • In making this decision, retailers consider three factors, including site characteristics: See PPT 8-10 and 8-11 for a summary of characteristics used to evaluate retail sites. A. Traffic Flow and Accessibility • One of the most important factors affecting store sales is the number of vehicles and pedestrians that pass by the site, or the traffic flow. • When the traffic is greater, more consumers are likely to stop in and shop at the store. • Traffic counts are particularly important for retailers offering merchandise and services bought on impulse, but less important for destination retailers. • The accessibility of a site is the ease with which a customer can get into and out of it. • Natural barriers, such as rivers or mountains, and artificial barriers, such as railroad tracks, major highways or parks, may also affect accessibility. See PPT 8-12 Ask students to describe two local retail sites with high levels of attractiveness. Then, ask for two sites with very low levels of attractiveness. Contrast these retailers on their site characteristics. Ask students how much traffic impacts their decision to visit a retailer. See PPT 8-13 B. Location Characteristics • The amount and quality of parking facilities are critical to a site’s overall accessibility. It’s hard to assess how many parking spaces are enough, although location analysts use parking ratios as a starting point. • Congestion is an excess level of traffic that can result in customer delays. • Visibility refers to customers' ability to see the store from the street. Good visibility is less important for stores with a well-established and loyal customer base. • Locations with complementary, as well as competing, adjacent retailers have the potential to build traffic. Complementary retailers target the same market but with non-competing merchandise. See PPT 8-13 C. Restrictions and Costs • Some locations may place restrictions on the type of retail tenants that are allowed in a shopping center in their lease agreements. These restrictions may work in favor of the retailer, by restricting competing retailers from the location. The restrictions may also work to the disadvantage of the retailer by limiting their efforts to create visibility with signs and other external features. See PPT 8-17 D. Locations Within a Center • Since the better locations cost more, retailers must consider their importance. • In a strip shopping center, the more expensive locations are closest to the supermarket. Thus, these locations are most desirable to retailers that rely in impulse shopping from the supermarket’s customers. Ask students, given cost considerations, where would you locate a florist or a shoe repair shop in a neighborhood shopping center. • In a regional multilevel shopping center, shopping goods stores like American Eagle Outfitters or Wet Seal may be clustered in the more expensive locations near a department store to facilitate comparison. • Another consideration is to locate stores that appeal to similar target markets close together. This is based on the principle of cumulative attraction which states that a cluster of similar and complementary retailing activities will generally have greater drawing power than isolated stores that engage in the same retailing activities. This principle applies to both stores that sell complementary merchandise and those that compete directly with one another. Ask students why stores in antique malls seem to be more successful than antique stores surrounded by other types of stores. IV. Trade Area Characteristics • Retailers estimate the demand for a new location by defining its trade area and then estimating how much people within the trade area will spend. A. Trade Area Definition • A trade area is a contiguous geographic area which accounts for the majority of a store’s sales and customers. Trade areas can be divided into three zones. • The primary zone is the geographic area from which the store or shopping center derives 50 to 70 percent of its customers. • The secondary zone is the geographic area of secondary importance in terms of customer sales, generating about 20- 30 percent of a store’s sales. • The tertiary zone (the outermost area) includes customers who occasionally shop at the store or shopping center and come from widely dispersed areas. • The best way to define the three zones is based on driving time rather than distance. However, it is much easier to See PPT 8-19 Pick a store or shopping center and have students define the trade area. Point out all the factors that shape the trade area. Why isn’t it round? After they’ve defined the general boundaries, then get them to explain how they would determine the primary and secondary zones. collect information about the number of people and their characteristics in the different zones by geographical distance than driving time. Thus, retailers often define the zones by distance. B. Factors Affecting the Size of the Trade Area • The actual boundaries of a trade area are determined by the store’s accessibility, natural and physical barriers, type of shopping area, type of store, and level of competition. • A destination store is one in which the merchandise, selection, presentation, pricing or other unique features act as a magnet for customers. It is a place where consumers will go even if it is inconvenient. • A parasite store is one that does not create its own traffic and whose trade area is determined by the dominant retailer in the shopping center or retail area. • The level of competition also affects the size and shape of a trade area for a particular store. Trade areas may shrink for retailers offering identical merchandise to others, and expand for retailers offering complementary goods to those carried by other retailers. See PPT 8-20 C. Measuring the Trade Area for a Retail Site • The purpose of the customer spotting technique is to spot, or locate, the residences of the customers for a store or shopping center. • This can be accomplished in a number of ways - credit card or check purchases, customer loyalty programs, or manually as part of the checkout process. • Another method is to record automobile license plates in the parking See PPT 8-21 lot and trace them to the owner by purchasing the information from state governments or private research companies. This method is thought to be less accurate and is illegal in some states. • It is more challenging to estimate the trade area for a new store location than for existing locations. However, retailers typically use information about the trade areas for existing stores to estimate that trade areas for new stores. D. Sources of Information about the Trade Area • Retailers use Decennial Census of the United States, demographic and GIS (geographical information system) data to describe their potential customer in an attempt to assess how much they will buy in the proposed trade area. See PPT 8-21 1. Demographic Data from U.S. Census Bureau • A census is a count of the population of a country as of a specified date. • However, since the Census is taken only once every 10 years, it's often out of date and requires supplementary reports and updates by government agencies and private firms. • Census information includes: number of persons per household, household relationships, sex, race, age, and marital status. Additionally, a report on each building identifies the number of housing units at the address, the status of plumbing facilities, the number of rooms, whether the dwelling is owner-occupied, the housing value, the rent, and the vacancy status. • The U.S. Census Bureau prepares periodic reports summarizing the data from two sources: the census demographics for each person and additional data collected from a sample of the population. • The smallest geographic entity for which census data is available is a census block, an area bounded on all sides by visible (roads, rivers, etc.) and/or invisible (county, state boundaries) features. • The smallest unit for the sample data is the block group, a collection of adjacent blocks that contain between 300 and 3,000 people. Data are also available at higher levels of aggregation. 2. Geographic Information System (GIS) Suppliers • Geographic Information Systems (GIS) is a system of hardware and software used to store, retrieve, map and analyze geographic data, along with the operating personnel and the data that go into the system. This computerized systems that enable analysts to visualize information about their customers’ demographics, buying behavior, and other data in a map format. • Using GIS, analysts can identify the boundaries of a trade area and isolate target customers groups. • They provide a user-friendly interface so the data can be accessed and analyzed easily. Frequently, the outputs from the system are maps that enable retailers to visualize the implications of the data quickly. • Major GIS firms (such as ESRI) offer a wide range of tools that are useful for assessing consumer demand in an area. See PPT 8-22 and 8-23 Ask students why they would use a demographic data or GIS vendor when the Census information is free. 3. Tapestry Segments • ESRI and other GIS suppliers have developed schemes for classifying geographical areas in the United States by combining census and survey data See PPT 8-24 and 8-25 for discussion and an example of a tapestry segment. about people’s lifestyles and purchasing behavior with the mapping capabilities of GIS. • The analysis is based on the premise that “birds of a feather flock together”. Specifically, people that live in the same neighborhoods tend to have similar lifestyle and consumer behavior patterns. Students can visit the website and see (generally) what Tapestry Segment they are in. E. Competition in the Trade Area • One of the powerful methods of measuring competition is over the Internet. • Other sources of competitive information are: directories published by trade associations, chambers of commerce, Chain Store Guide, and municipal and county governments. See PPT 8-26 V. Estimating Potential Sales for a Store Site • Methods for estimating potential sales for a store site include the Huff Gravity Model, regression analysis and the analog method, all described below. See PPT 8-27 A. Huff Gravity Model • This model, following Newton’s law of gravity, is 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 the store or center grows and the distance or travel time from customers to the store or center shrinks. • The objective of Huff’s approach is to determine the probability that a customer residing in a particular area will shop at a particular store or shopping center. • To forecast sales, the location analyst multiplies the probability that the customer will shop at a particular place See PPT 8-28 through 8-30 for an application of the Huff Gravity Model Pick two shopping centers, one big and one small. Draw them on the board, and put an X in the middle. Ask students if the two centers were equidistant from where they lived, where they would shop and why. They would hopefully say they would shop at the bigger center because it has a bigger assortment. Now move the X closer to the smaller center and ask the question again. As the X gets closer to the smaller center, the propensity of the students to shop at the smaller center will get larger. Now ask them if a close location is more important for convenience goods or specialty goods. Of course, it is more by an estimate of the customer’s expenses. Then, all the estimated expenditures in an area are aggregated to estimate sales from the area. important for convenience goods. This explains the exponent. B. Regression Analysis • The regression analysis approach is based on the assumption that factors that affect the sales of existing stores in a chain will have the same impact on stores located at new sites being considered. • Here, the retailer employs a technique called multiple regression to estimate a statistical model that predicts sales at existing store locations. • The technique can consider the effects of the wide range of factors discussed in this chapter. See PPT 8-31 through 8-33 for a Regression Analysis application VII. Negotiating a Lease Ask students why it is important to understand lease terms when choosing a site? A. Types of Leases • Most retailers lease store sites. There are two basic types of leases: percentage and fixed-rate. See PPT 8-34 1. Percentage lease • Rent is based on a percentage of sales. Rents go up and down with sales and inflation. Percentage lease with specified maximum/minimum • Maximum-Retailer pays percentage of sales up to a maximum point. • Minimum-Retailer pays minimum amount no matter how low sales are. Sliding scale • Percentage/sale amount decreases in specified dollar amount intervals as sales go up (e.g., 4% for first $200,000, 3% for sales >$200,000, etc.) See PPT 8-35 B. Fixed-Rate Lease See PPT 8-36 • Commonly used by community and neighborhood centers and not as popular as % based leases. Retailer pays fixed monthly rent for the life of the lease. Graduated lease • Changing fixed rent payments (i.e. first 3 years-$1,000 per month, next 5 years-$1,250 per month.) Maintenance-increase-recoupment lease • May be used with any of the above leases where landlord may increase rent if expenses increase beyond a certain point. C. Terms of the lease • Lease terms may often be slanted in favor of lessor. It is up to lessee (retailer) to make sure that its needs are accounted for. • A prohibited use clause limits the landlord from leasing to tenants that take up parking but do not bring shoppers such as a bowling alley. Also, restricts against leasing to certain kinds of tenants such as bars, pornography retailers, etc. • An exclusive use clause prohibits the landlord from leasing to retailers selling competing products. A discount store for example, may not want another discounter leasing in the same center. • Retailers may specify in its lease that if a complimentary retailer leaves the shopping center, it has the option of canceling the lease. • An escape clause allows the retailer to terminate its lease if sale don’t reach a certain level after a specified number of years and/or a specific co-tenant in the center terminates its lease. See PPT 8-37 VIII. Summary • Location decisions have strategic importance because they have significant effects on store choice and are difficult advantages for competitors to duplicate. Picking good sites for stores is part science and part art. ANSWERS TO “GET OUT AND DO ITS” 2. INTERNET EXERCISE Go to http://www.esri.com/library/fliers/pdfs/tapestry_segmentation.pdf and identify five segments that you would expect to be found in your zip code, then go to ESRI Data—Tapestry Segmentation at http://www.esri.com/data/esri_data/tapestry.html and scroll down to the box, What’s in a neighborhood?, and then type in your zip code.” Compare the segments that are found in your zip code with your initial prediction. Are they similar or different? Answers will vary depending on zip code. This exercise will expose student to geodemographic market segmentation. “Tapestry Segmentation classifies all U.S. residential neighborhoods into 65 segments based on socioeconomic and demographic characteristics.” 3. INTERNET EXERCISE Go to http://www.esri.com, the homepage for ESRI Geographical Information Systems, and read about GIS. Afterwards, explain how retailers can make better decisions with GIS. “A geographic information system (GIS) integrates hardware, software, and data for capturing, managing, analyzing, and displaying all forms of geographically referenced information. GIS allows us to view, understand, question, interpret, and visualize data in many ways that reveal relationships, patterns, and trends in the form of maps, globes, reports, and charts.” Retailers can use GIS to find patterns, map distribution, find locations by criteria, measure population density, assess competition, evaluate change, etc. 4. INTERNET EXERCISE The U.S. Census Bureau tracks key population characteristics, such as age, gender, disability, employment, income, language, poverty, race, and so forth. Go to the U.S. Census Bureau homepage at http://factfinder.census.gov/home/saff/main.html?_lang=en and, using the Population Finder, look up key demographic data for your state. Explain which factors would be most important for retailers considering this location to evaluate. This list should include some/all of the following characteristics: Description of family and household Educational attainment Number and age of children Veteran or civilian status Marital status Disability status Gender Residence tenure Fertility Place of birth Grandparents U.S. citizenship status School enrollment World region of birth if foreign born 5. GO SHOPPING Go to a shopping mall. Get or draw a map of the stores. Analyze whether the stores are clustered in some logical manner. For instance, are all the high-end stores together? Is there a good mix of retailers catering to comparison shoppers near one another? Responses will vary depending on the mall selected. Differences and similarities could be used for a team or class discussion. Students will likely note that most anchor stores are located at opposite ends of the mall from each other. Some competitors like Gap and Abercrombie may choose to locate near each other to facilitate comparison shopping. Highly specialized stores for items like sunglasses or jewelry might request to be far away from competition with in the mall. 6. GO SHOPPING Visit a jewelry store in an enclosed mall and one in a neighborhood strip shopping center. List the pros and cons for each location. Which location is the most desirable? Why is this the case? Students’ answers will vary. Some pros of locating in an enclosed mall include: increased security, increased pedestrian traffic, and more opportunity for comparison shopping. Some cons of locating in an enclosed mall are: less convenient for customers, more overhead costs, and less visibility from the road. Pros of the neighborhood strip shopping center include: accessibility, drive by traffic, and high visibility. Cons include: decreased security and less control over tenant mix. Given the specialized nature of a jewelry store, most jewelry retailers will likely be destination stores. An advantage of an enclosed mall is the increase in security, which is especially important for expensive products like jewelry. Therefore, an enclosed mall is probably a more desirable location for a jewelry store versus a neighborhood strip shopping center. ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS 1. Which factors do retailers consider when evaluating an area of the country to locate stores? How do retailers determine the trade area for a store? The best areas for locating stores are those that generate the highest long-term profits for a retailer. Some of these factors include: (1) economic conditions, (2) competition, (3) strategic fit of the area’s population with the retailer’s target market, and (4) the costs of operating the stores. Retailers determine trade area by identifying primary, secondary and tertiary trade zones. The primary trading area is the area from which the shopping center or store derives 50-70 percent of its customers. The secondary trading area is the area generating 20-30 percent of its customers and the tertiary trading area includes remaining customers who shop at the site but come from far away. The appropriate definition of the three zones should be based on customer’s driving time. Some retailers use distance rather than driving time for this determination as it is easier to collect this information. 2. True Value Hardware plans to open a new store. Two sites are available, both in middle-income neighborhood centers. One neighborhood is 20 years old and has been well maintained. The other was recently built in a newly planned community. Which site is preferable for True Value? Why? Due to the high cost of home maintenance, middle-income neighborhoods are good candidates for a store such as True Value. The neighborhood that is 20 years old is a good choice, because the homes there will need repairs and continual maintenance. Since the homes in this neighborhood have been well maintained, the indication is that the homeowners do need supplies that True Value carries on a regular basis. The newly planned community may also be a good location, since new homes also will require regular maintenance. In addition, True Value will carry supplies that new homeowners need, such as picture hangers and other similar items. A new community also has the advantage of having a customer base that is not already loyal to any particular store. Thus, being the first hardware store may help them to develop a long-term customer base. 3. Trade areas are often described as concentric circles emanating from the store or shopping center. Why is this practice used? Suggest an alternative method. Which would you use if you owned a store in need of a trade area analysis? In general, consumers would prefer to shop within their area(s) of primary residence so as to minimize travel and other times. The more a consumer has to travel to obtain a product, the more the actual physical and opportunity costs (of time) for the consumer- something the consumer would do only for lower priced products or for unique merchandise. Due to these shopping behaviors of most consumers, trading area polygons assume that a majority of the consumers would come to a store or center from areas closest to it, while number of consumers arriving at a store or center would decrease as with increasing distance from the store or center. The idea of concentric circles makes sense since consumers may arrive from any direction. An alternate method could be to use city blocks especially in well-laid, planned or newer cities. Here, city squares could be used, since the major streets traversed run north-south and east-west. Depending on the trade area being considered, either method could be used, but adapted to the specific region by considering the major roadways, travel conditions, natural and artificial barriers as well as the type of store for which the analysis is being done. 4. Under what circumstances might a retailer use the analog approach for estimating demand for a new store? What about regression analysis? The analog approach is also called the similar store approach since it attempts to match the current store's trading area characteristics with potential new areas having similar characteristics. Retailers would use this approach when it is indeed possible to identify trading areas with similar characteristics. Also, the analog approach works best when a retailer has a relatively small number of outlets (say, 20 or fewer). As the number of stores increases, it becomes more difficult to organize the data in a meaningful way. The regression approach is best when there are multiple variables expected to explain sales, since it is difficult to keep track of multiple predictor variables when using a manual system like the analog approach. However, more number of data points (i.e., prior stores) are needed for the regression results to be reliable. Also, proper training is needed to run regression analysis and interpret the results. In general, the analog approach may provide a better qualitative assessment of good or poor potential locations, while the regression approach provides a quantitative average of potential in an area. 5. Retailers have a choice of locating on a mall’s main floor or second or third level. Typically, the main floor offers the best, but most expensive, locations. Why would specialty stores such as Radio Shack and Foot Locker choose the second or third floor? These two stores are destination stores with a national reputation. When people are in the market for an electronic gadget or athletic shoes, they will search out the stores that carry them. As such, the customer will be willing to walk to a second or third floor. Stores like these do not necessarily need to be in a highly visible area {with the highest rent). 6. What retail locations are best for department stores, consumer electronics category killers, specialty apparel stores, and warehouse stores? Discuss your rationale. Department stores often occupy anchor positions in traditional shopping centers offering them good pedestrian traffic and other incentives. Their location in shopping centers provides a number of nearby complementary retailers to offer added convenience and variety to shoppers. Consumer electronics category killers are considered destination stores. This enables them to take advantage of a number of benefits such as increased parking and convenience for customers and lower rents. Given their need for space and their position as destination stores with good attraction capabilities, warehouse stores often choose to locate on freestanding sites with ample parking. 7. If you were considering the ownership of a Taco Bell franchise, what would you want to know about the location in terms of traffic, population, income, employment, and competition? What else would need to be researched about a potential location? Several factors should be considered in learning about a potential franchise location. In terms of traffic, the potential franchisee should learn how much vehicle (or in a food court, pedestrian) traffic passes the site and at what times of day. In terms of population, the potential franchisee needs to know both the actual population figures and projections of growth. Is the area growing, stagnating or decreasing in terms of population? In terms of income and employment, the potential franchisee should consider the level of employment and incomes within its expected trade areas. In terms of competition, the potential franchisee should look at the number and type of similar retailers in the immediate area to be certain the area is not over-stored. In addition, the prospective franchisee should consider whether the location is considered part of an exclusive territory (no other Taco Bells in the immediate area) and how large the exclusive trade area will be. 8. A drugstore is considering opening a new location at shopping center A, with hopes of capturing sales from a new neighborhood under construction. Two nearby shopping centers located nearby, B and C, will provide competition. Using the following information and the Huff gravity model, determine the probability that residents of the new neighborhood will shop at shopping center A: Shopping center Size (000 Sq. Ft.) Distance from new Neighborhood (miles A 3,500 4 B 1,500 5 C 300 3 Assume that b = 2 and NNR = New Neighborhood Resident P(NNR/A) = 3,500 ÷ 4 2 (3,500 ÷ 4 2 ) + ( 1,500 ÷ 5 2) + (300 ÷ 32) P(NNR/A) = 218.75 218.75 + 60 + 33.33 P(NNR/A) = .70 OR 70% probability that a resident of the new neighborhood will purchase drugstore products at a drugstore in Shopping Center “A.” Chapter 8 – Retail Site Location ESRI provides geographical information that retailers use in making site location decisions. Some examples of information available on its website can be found at: Descriptions of solutions – www.esri.com Description of geodemographic segments - http://www.esri.com/data/esri_data/tapestry Solution Manual for Retailing Management Michael Levy, Barton A. Weitz, Dhruv Grewal 9780078028991
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