Retail Site Location
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Factors that affect the choice of suitable
retail site location:
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Economic conditions
Strategic fit
Competition
Operating costs
Site Location – 3 Levels of
Analysis
Trade Area Issues
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Attractiveness of trade area
How many outlets:
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More stores increases economies of scale
and reduces costs
More stores also result in more
cannibalization and less sales per store
Trade Area Issues
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Factors affecting the demand
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Demographic and lifestyle characteristics of
customers
Business climate
Retailers’ perspective to manage multiple
stores
competition
Factors Affecting
Attractiveness of a Site
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Match between trade area demographics
and retailer’s target market
Likelihood of customers coming to location
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Convenience
Other attractive retailers at location
Principle of Cumulative Attractiveness:
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A cluster of similar and complementary retailing
activities will have greater drawing power.
Location Convenience Factors
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Macro perspective:
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Road pattern and condition
Natural and artificial barriers
Micro perspective:
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Visibility
Traffic flow
Parking
Congestion
Ingress/egress traffic
Location Within a Center
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In High Traffic Areas
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Near Stores Selling Complementary
Merchandise
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Near Anchor
Center of Shopping Area
Clustering Specialty Stores Appealing to
Teenagers
Better locations cost more
Demand Estimate for New
Location
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Definition of the Trade Area
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Primary zone: 60 to 65% of customers
Secondary: 20% of customers
Tertiary Zones: Occasional shoppers
Approaches for Estimating Demand
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Analog Approach
Regression Approach
Huff Gravity Model
Analog Approach
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Describe the site and trade area
characteristics for its most successful
existing/operating stores
Find a site with similar characteristics
Regression Approach
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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
Huff Gravity Model
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Estimates sale of a retail store based on:
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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)
Huff Gravity Model
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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
Huff Gravity Model
Koramangala
Market size: Rs20million
Existing store
Size: 5000sft
New Store
Size: 10000sft
Madiwala
Market size: Rs30million
= 2 for the store locations
Factors Defining Trade Areas
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Accessibility
Natural & Physical Barriers
Type of Shopping Area
Type of Store
Competition
Parasite Stores
Sources of Information
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Customer Spotting
Census Data
Geodemographic Information Systems
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ACORN
Information on Competition
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Yellow Pages
Customer Spotting
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Credit card or checks
Customer loyalty programs
Manually as part of the checkout
process
Automobile license plates
Negotiating a Lease
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Types of Leases:
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Percentage leases: rent based on % of sales
Fixed rate lease
Terms of the Lease:
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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