Professor Vipin 2014
Unit 3
Retail Operations
Factors Influencing Location of Retail Store
Proper establishment of shop is very important for success in retail trade. While deciding the location of
a retail outlet the following factors should be taken into consideration:
1. Selection of the area: Before commencing his business, a retailer should decide about the area
which he would like to serve. While deciding the area of operations, he should examine the
population of the area, its nature (permanent or shifting), income level of the people, nearness
to big markets, transport and communication facilities, etc. All these factors will reveal the
demand potential of the area.
2. Choice of the site: Once the area is decided, a specific site is selected for location of the retail
shop. A retailer may open his shop in special markets or in residential areas. The shop should be
near the consumers in a congested locality or at a place frequently visited by the consumers.
The place of location should be easily accessible to consumers.
3. Scale of operation: A retailer should decide the size of his business. Size will depend upon his
financial and managerial resources, capacity to bear risks and demand potential of the area.
4. Amount of capital: Then the retailer has to decide the amount and sources of capital. The
amount of capital required depends on the size of business, terms of trade, availability of credit,
cost of decoration of shop and display of goods. Adequate finance is necessary for success in any
business.
5. Decoration of shop: The layout and decoration of shop are decided so that customers find the
place attractive and comfortable for shopping. The retailer should arrange and display the goods
in an attractive manner to attract more and more customers.
6. Selection of goods: The goods to be sold are selected on the basis of the nature, status and
needs of the customers. Changes in incomes, habits and fashions of customers must be
considered in the choice of goods.
7. Source of supply: The wholesalers and manufacturers from whom goods are to be pur-chased
must be selected carefully. Availability of supplies, reputation of the brand, price range, and
distance from the shop, means of transport, etc. should be considered.
8. Sales policy: The retailer should adopt a suitable sales policy to increase sales and profits. Sales
policy and prices should be decided keeping in mind competition and customers.
Market area analysis
Each economic activity has a location, but the various demands (raw materials, labor, parts, services,
etc.) and flows each location generates also have a spatial dimension called a market area.
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A market area is the surface over which a demand or supply offered at a specific location is expressed.
For a factory it includes the areas to where its products are shipped; for a retail store it is the tributary
area from which it draws its customers.
Transportation is particularly important in market area analysis because it impacts on the location of the
activities as well as their accessibility. The size of a market area is a function of its threshold and range:
Market threshold: Minimum demand necessary to support an economic activity such as a service. Since
each demand has a distinct location, a threshold has a direct spatial dimension. The size of a market has
a direct relationship with its threshold.
Market range: The maximum distance each unit of demand is willing to travel to reach a service or the
maximum distance a product can be shipped to a customer. The range is a function of transport costs,
time or convenience in view of intervening opportunities. To be profitable, a market must have a range
higher than its threshold.
In the case of a single market area its shape in an isotropic plain is a simple concentric circle having the
market range as radius. Since the purpose of commercial activities is to service all the available demand,
when possible, and that the range of many activities is limited, more than one location is required to
service an area. For such a purpose, a hexagonal-shaped structure of market areas represents the
optimal market shape under a condition of isotropy. This shape can be modified by non-isotropic
conditions mainly related to variations in density and accessibility.
Trade Area Analysis
A trade area analysis is an important part of business planning. The trade area analysis shows where
your customers live in relation to your existing or potential business site(s). The trade area analysis
compares the number of customers by distance from a business site to the number of households in the
study area. This yields the market penetration rate (number of customer households to total
households) or open market rate enabling you to pinpoint a radius drive time that defines your trade
area.
This information is vital to:
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Knowledgeably invest in marketing and sales campaigns such as direct mail or cable TV
advertising
Evaluating new sites to relocate your existing business to be closer to your current customers or
expanding into a new area where prospective customers live
Selling or purchasing a franchise
Negotiating a lease
Profiling your customers using the Tapestry segmentation system and then identifying where
prospective customers live who have spending habits like your best customers
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Site Evaluation
Retailers desire to set up their outlets in the best possible locations. The optimum store location for a
retailer is based on many factors like the type of industry, the product category being sold, and the
degree of competition. Retail stores are located where the opportunities offered by the market are at a
maximum.
Retailers usually go through four step process to select a store location: a) analyzing alternate trade
areas; b) determining the most beneficial type of location; c) selecting a general site and; d) selecting a
specific site. A trade area refers to the geographical area from which retailers attract customers. When
two or more shopping centers are situated close to each other, then their trade areas would overlap.
Every trade area consists of three parts, primary, secondary and fringe. The size and shape of the trade
area depends on the size of the store, the type of the store, competitor’s placement, and the time taken
to travel to the store. Reilly's Law and Huff's model help retailers define their trade area. Globally,
retailers use geographic information systems to analyze and delineate their trade areas. And three
major factors that help retailers analyze their trade areas accurately: the characteristics of the
population, the characteristics of the economic base, the competition and the level of retail saturation.
There are three types of locations that a retailer can consider for locating its store – isolated store,
unplanned business districts and planned shopping centers. Important factors that are considered when
selecting a site are: sales potential; accessibility; pedestrian traffic; terms of occupancy; and the legal
and political environment.
The retailer must go through all these steps of location and site evaluation to find the "one hundred
percent location"
Retail Operations
Store Layout
It is very vital for a business to plan the store layout, atmosphere, and create irresistible visual
merchandising displays. In the process it would be necessary to view floor plans and other retail store
designs, learn how to select and care for store fixtures, as well as using special lighting techniques to
accent products and find store layout software and vendors selling store fixtures and displays. A wellplanned retail store layout allows a retailer to maximize the sales for each square foot of the allocated
selling space within the store. Store layouts generally show the size and location of each department,
any permanent structures, fixture locations and customer traffic patterns.
Each floor plan and store layout will depend on the type of products sold, the building location and how
much the business can afford to put into the overall store design. The straight floor plan is an excellent
store layout for most any type of retail store. It makes use of the walls and fixtures to create small
spaces within the retail store. The straight floor plan is one of the most economical store designs.
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The diagonal floor plan is a good store layout for self-service types of retail stores. It offers excellent
visibility for cashiers and customers. The diagonal floor plan invites movement and traffic flow to the
retail store. The angular floor plan is best used for high-end specialty stores. The curves and angles of
fixtures and walls are makes for a more expensive store design.
However, the soft angles create better traffic flow throughout the retail store. The geometric floor plan
is a suitable store design for clothing and apparel shops. It uses racks and fixtures to create an
interesting and out-of-the ordinary type of store design without a high cost. The mixed floor plan
incorporates the straight, diagonal and angular floor plans to create the most functional store design.
The layout moves traffic towards the walls and back of the store.
Visual Merchandizing
Visual merchandising builds upon or augments the retail design of a store. It is one of the final stages in
setting out a store in a way customers find attractive and appealing.
Many elements can be used by visual merchandisers in creating displays including color, lighting, space,
product information, sensory inputs (such as smell, touch, and sound), as well as technologies such as
digital displays and interactive installations.
As methods of visual merchandising can be used color and style, symmetry and rhythm, face and side
presentation etc.
Store Designing
1. Grid Layout: Grid Layout is a type of store layout in which counters and fixtures are placed in
long rows or “runs,” usually at right angles, throughout the store. Following are the advantages
and disadvantages of Grid layout. A store organized using a grid layout is very simple. The aisles
of the store are arranged parallel to one another and lead to the checkout lanes located at the
front of the store where customers enter and exit. Most people have seen this type of layout
used in grocery or drug stores.
2. Diagonal Layout: Diagonal layouts are very similar to grid layouts. Like a grid layout, the
merchandise in the store is separated into aisles which lead to the checkout area. However, in a
diagonal layout, the aisles are set at an angle to the front entrance of the store. Doing this helps
maximize the space available in a smaller store.
3. Mouse Trap Layout: In a mouse trap layout, when customers enter the store there is only one
direction to go. Customers walk around the perimeter of the store, stopping to pick up items
they need until they reach the checkout aisles located where they originally entered. Mouse
trap layouts are often used in furniture stores and are considered a more traditional style store
layout.
4. Mixed Floor Plan: A mixed floor plan layout incorporates different types of layouts throughout
the store. This is often seen in a department store setting where different floor plans work
better depending on the type of merchandise on display in that particular area. For example, the
house wares section of a department store might use a grid layout while the clothing sections
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work better with a race track layout. Having the flexibility to use different layouts for each type
of merchandise ensures that customers find what they are looking for quickly and easily in every
department.
5. Free Flow Layout: Free Flow Layout is a type of store layout in which fixtures and merchandise
are grouped into free-flowing patterns on the sales floor.
6. Loop Layout: Loop Layout is also known as Racetrack layout. It is a type of store layout in which
a major customer aisle begins at the entrance, loops through the store, usually in the shape of a
circle, square, or rectangle, and then returns the customer the front of the store.
7. Spine Layout: Spine Layout is a type of store layout in which a single main aisle runs from the
front to the back of the store, transporting customers in both directions, and where on either
side of this spine, merchandise departments using either a free-flow or grid pattern branch off
toward the back aisle walls. A store's layout displays the overall image of the store and creates
the perception that customers have about the store's environment. The image of the store not
only attracts customers, but it also causes them to purchase goods while shopping there.
Space Planning
Retail design is a very specialized discipline due to the heavy demands placed on retail space. Because
the primary purpose of retail space is to stock and sell product to consumers, the spaces must be
designed in a way that promotes an enjoyable and hassle-free shopping experience for the consumer.
For example, research shows that male and female shoppers who were accidentally touched from
behind by other shoppers left a store earlier than people who had not been touched and evaluated
brands more negatively.
The space must be specially-tailored to the kind of product being sold in that space; for example, a
bookstore requires many large shelving units to accommodate small products that can be arranged
categorically while a clothing store requires more open space to fully display product.
Inventory Management
Inventory refers to the goods stocked for future use. Every retail chain has its own warehouse to stock
the merchandise to be used when the existing stock replenishes.
Inventory management refers to the storage of products to be used at the time of crisis.
The retailer keeps a track of the stocked goods and makes sure there is surplus inventory to avoid being
“out of stock”. Such a process is called as inventory management.
Techniques of Inventory Management
1. SKU (Stock Keeping Unit): Every product available at the store has a unique code. This code
which helps in the identification and tracking of the products at the retail store is called as stock
keeping unit or SKU. The retailer feeds each and every SKU in the master computer and can
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easily track the product in the stock just by entering the SKU Number. Assigning a unique code
to the products avoids unnecessary searching.
2. New Old Stock (Abbreviated as NOS): The stock which is never been sold by the retailer and now
not even being manufactured comprises the new old stock. Such products do not have takers
and may not be produced anymore.
3. Stock out: Stock out refers to a situation when the retailer fails to fulfill the customer’s
requirement due to lack of merchandise. The merchandise is not available in the current
inventory and thus the customer has to return home empty handed.
Merchandizing Management
Retail Merchandising refers to the various activities which contribute to the sale of products to the
consumers for their end use. Every retail store has its own line of merchandise to offer to the customers.
The display of the merchandise plays an important role in attracting the customers into the store and
prompting them to purchase as well.
Merchandising helps in the attractive display of the products at the store in order to increase their sale
and generate revenues for the retail store.
Merchandising helps in the sensible presentation of the products available for sale to entice the
customers and make them a brand loyalist.
Category Management
Category management is a retailing and purchasing concept in which the range of products purchased
by a business organization or sold by a retailer is broken down into discrete groups of similar or related
products; these groups are known as product categories (examples of grocery categories might be:
tinned fish, washing detergent, toothpastes). It is a systematic, disciplined approach to managing a
product category as a strategic business unit
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