Retailing
MKTG 3346
Retail Location and Site
Selection
Professor Edward Fox
Cox School of Business/SMU
Retail Site Selection
When Are these Decisions Made?
 Openings
 Expansions
 Closings
What are the effects of proposed changes in retail sites
on the revenues of new and existing stores?
Retail Site Selection
Why Does It Matter?
 Access to consumers
 Number
 Characteristics
 Growth
 Locations of other stores
 Cannibalization – own stores
 Agglomeration
Competition
Complementarity
According to Wal-Mart’s Real Estate group, the
difference between good and bad locations exceed $25
million in gross profit
Retail Site Selection
How Is It Done?
Select:
Geographic market
Site within the geographic market
If an opening or expansion, the format/size of
the store to be opened
Retail Site Selection
Agglomeration
 Agglomeration captures the countervailing effects of
complementarity and competition among retailers
 Intra-type - Stores of the same type locating near
one another
Facilitates consumer search
Examples: “motor miles” and “restaurant rows”
 Inter-type - Stores of different types locating near
one another
Facilitates multi-purpose shopping, virtual one-stopshopping, and offers a wider variety of goods to
choose from
Examples: shopping centers and shopping malls
Recognizes that consumers may use multiple
stores to meet their needs - shopping strategically!!
Retail Site Selection
Agglomeration
 “Trip chaining” – Make
unrelated purchases on the
same trip
 Price search – Search until
you find an attractive price
 “Cherry picking” – Visit
multiple stores for their bargain
prices
Retail Agglomeration
Trip Chains
 Trip chains reflect the routing problem faced by shoppers
 Consumers minimize shopping costs by reducing
travel, subject to fulfilling diverse product/service
needs
 Price search
 Our research incorporates price uncertainty, allowing
shoppers to terminate or continue a shopping trip
(unplanned)
 Data limitations require that we:
 Consider visits only to selected store formats
 Assume that shopping trips begin from the consumer’s
home
Retail Site Selection
Agglomeration
How does retail location affect multi-store shopping?
(research with Steve Postrel and Amanda McLaughlin)
RETAIL LOCATION
Relative to customers
Relative to other stores
Retail
Competition
Destination
Effect
Specifically, how are retailer revenues affected by nearby
supermarkets, drug stores, mass merchandisers and
supercenters, dollar stores and warehouse clubs?
Retail Site Selection
Where Do Consumers Work?
 Another consideration in retail site selection is where
consumers work
 Do shopping trips begin from home?
 From work?
Retail Site Selection
How Is It Done?
RFRS
 Location information of
stores and consumer
panelists, along with
demographics, trends and
seasonality, are used to
analyze consumer spending
across retail chains to
assess the revenue impact
of potential store sites
Panel Data
Store Location Block-Group Demo
and Size Data
and Pop Data
Revenue Forecasting
for Retail Sites
Retailer 4
Retailer 3
Retailer 2
Retailer 1
Revenues
RFRS
Data Inputs
 Panel data
 Including demographics
 Currently available in 21 major markets
 Sources are IRI and AC Nielsen
 Store and shopper locations
 We can use straight-line distances, road distances,
or traffic-adjusted travel times for shoppers to stores
 Store square footage
 A wide variety of competing retailers can be
incorporated into the model
RFRS
Model
For every household in the panel, our models predict:
(1) Number of visits quarterly
(2) Spending per visit
Predictors
(1) Travel times/distances
(2) Store sizes
(3) Retail agglomeration
(4) Trends
(5) Seasonality
(6) Demographics
RFRS
Forecasting
 Model estimates form the basis for forecasting and
sensitivity analysis whenever new sites or scenarios are
considered
 Potential/actual new stores
 Potential/actual store closings
 Future periods
 Population changes
RFRS
An Example
 What is the impact of the closing of Montgomery Wards
stores in Chicago?
 Which Montgomery Wards locations would offer the
most advantageous sites?
RFRS
An Example
 Montgomery
Wards store
locations and
sample of
shoppers
providing
expenditure data
RFRS
An Example
 Where will Montgomery Ward’s sales go?
71.9%
10.7%
4.8%2.7%
Target
Sam's Club
9.9%
Wal-Mart
Other
Kmart
RFRS
An Example
 What if Kmart
opened a store
at any current
MW site?
RFRS
An Example
 What if Target
opened a store
at any current
MW site?
RFRS
An Example
 What if WalMart opened a
store at any
current MW
site?