CHAPTER 8
Retail Site Location
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Learning Objectives
Learning Objective 8-1 Summarize the factors considered in
locating a number of stores.
Learning Objective 8-2 Review the characteristics of a
particular site.
Learning Objective 8-3 Understand how retailers analyze the
trade area for a site.
Learning Objective 8-4 Determine the forecasted sales for a
new store location.
Learning Objective 8-5 Illustrate the site selection process.
Learning Objective 8-6 Explain the different types and terms of
leases.
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EXHIBIT 8-1 Factors Affecting the Attractiveness of an
Area for Locating Stores
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Evaluating Areas for Locations and Determining the Number of Stores in an
Area
Considerations
in Evaluating
Store
Locations
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• Economic
• Population and employment growth
levels, how it will effect demand for
merchandise sold in its stores
• Competition
• Strategic fit
• Right demographic and lifestyle fit,
size and composition of
households in an area
• Operating costs
• Proximity of area, Local and state
regulations has effect.
Evaluating a Site for Locating a Retail Store
1 of 2
Site Characteristics
• Traffic flow and accessibility
• Natural barriers
• Artificial barriers
• Parking
• Congestion
• Visibility
• Ability to see the store
• Adjacent tenants
• Cumulative attraction
• locations with complementary as well as competing adjacent retailers
have the potential to build traffic.
• Restrictions and costs
• rental
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Evaluating a Site for Locating a Retail Store
1. 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,
divided or limited-access highways, or parks may also affect
accessibility.
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Evaluating a Site for Locating a Retail Store
2. Parking
• 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.
• If there are not enough spaces or the spaces are too far
from the store, customers will be discouraged from
patronizing the site and the store.
• On the other hand, if there are too many open spaces,
the shopping centre may be perceived as having
unpopular stores. Congestion is an excess level of traffic
that can result in customer delays.
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Evaluating a Site for Locating a Retail Store
3. Visibility
• 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. However, most
retailers still want a direct, unimpeded view of their store.
• In an area with a highly transient population, such as a
tourist centre or large city, good visibility from the road is
particularly important.
• The meaning of visibility changes somewhat in the modern
mobile era when shoppers have smartphones in hand. They
can readily search for the location of a store they want.
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Evaluating a Site for Locating a Retail Store
4. Adjacent Tenants
 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.
 Customers are able to make their choice easily in the case of convenience
shopping, or they want to have a good assortment so that they can ‘shop
around’ in the case of shopping goods.
 The principle of cumulative attraction 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.
5. Restrictions and Costs
 Some locations may place restrictions on the type of retail tenants that are
allowed in a shopping centre in their lease agreements. These restrictions
may work in favour 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.
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Traffic Flow
Airports are an
appealing
location for
some retailers
because there
are lots of
potential
customers with
time to shop.
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© EyesWideOpen/Getty Images
Parking at a Retail Store
The parking around this Best Buy store contributes to the
quality of this location.
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© Michael Neelon/Alamy Stock Photo
Evaluating a Site for Locating a Retail Store
2 of 2
Locations within a Shopping Center
• Affects both sales and occupancy costs.
• Strip shopping center – closest to the supermarket
more expensive as more foot traffic
• Enclosed shopping mall – retailers who sell
comparison shopping goods locate close to the
department store anchors
• Locate stores that appeal to similar target markets
• Principle of cumulative attraction (next slide)
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Principle of Cumulative Attraction
Based on the principle
of cumulative
attraction, stores
selling similar
merchandise to similar
target markets, such
as Rolex and Piaget,
should locate in close
proximity to one
another to increase the
appeal of the location
to its customers.
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Defining Trade Areas 1 of 6
Trade Area Definition
• Primary trading area
• 50 to 70 percent of
customers
• Secondary trading
area
• 20 to 30 percent of a
store’s sales
• Tertiary trading area
or fringe trading area
• Customers who come
from widely dispersed
areas, might travel long
distances
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Defining Trade Areas 3 of 6
Measuring the Trade Area for a Retail Site
• Customer spotting
Sources of Information about Trade Areas
• Demographic data from the U.S. Census Bureau
• Census every ten years
• Census blocks
• Block group
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Defining Trade Areas 4 of 6
Sources of Information about Trade Areas continued
• Geographic Information System Suppliers
• GIS used to store, retrieve, map, analyze geographic data
• Identified with coordinate system that references particular
place on Earth
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EXHIBIT 8-4 GIS Map for the Trade Area of a Bank
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Jump to long description in
appendix
Source: ESRI
Exhibit 8-5 Information Provided by GIS Report
Gender
Education
Occupation
Household expenditures by
NAICS categories
Income
Travel time to work
Age
Disposable Income
Geodemographic market
segment
Transportation mode to
work
Race/ethnicity
Net worth
Household composition
Market potential index
Employment status
Spending potential index
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Source: ESRI
EXHIBIT 8-7 Location of Target Customers In a
Shopping Center Trade Area
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Jump to long description in
appendix
Source: ESRI
Defining Trade Areas 6 of 6
Competition in the Trade Area
• Sources of information
• Retailer websites
• Yelp – business directory service
• Trade association directories
• Chamber of Commerce
• Chain Store Guide
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Estimating Potential Sales for a Store Site
Learning Objective 8-4 Determine the forecasted sales for a new store location.
Regression Analysis
• Factors that affect existing stores will have same impact on
stores being considered for new sites
• Statistical model predicts sales at existing locations
Analog Approach
• Used by small chains
• Retailer describes site and trade area for successful store and
tries to find a site that is similar
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ILLUSTRATION OF SITE SELECTION
EDWARD BEINER PURVEYOR OF FINE EYEWEAR 1 of 5
Learning Objective 8-5 Illustrate the site selection process.
Using the analog approach to
evaluate potential sites
1.
2.
3.
4.
Conduct a competitive analysis.
Define present trade area.
Analyze trade area characteristics.
Match characteristics of present
trade area with potential sites.
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Courtesy of The Edward Beiner Group
EXHIBIT 8-8 Competitive Analysis of Potential Locations
Edward Beiner Company
Trade
Area
Total
Eyeglasses
Potential
Estimated
Eyeglasses
Sold
Trade
Area
Potential
Units
Trade Area
Potential
Percentage
Relative
Level of
Competition
Eyeglasses/
Year/Person
Trade Area
Population
South
Miami
0.2
85,979
17,196
7,550
9,646
56.09%
Low
Site A
0.2
91,683
18,337
15,800
2,537
13.83
Medium
Site B
0.2
101,972
20,394
12,580
7,814
38.32
Low
Site C
0.2
60,200
12,040
11,300
740
6.15
High
Site D
0.2
81,390
16,278
13,300
2,978
18.29
©McGraw-Hill Education.
Medium
Jump to Appendix 7 long image description
ILLUSTRATION OF SITE SELECTION
EDWARD BEINER PURVEYOR OF FINE EYEWEAR 2 of 5
Step 1: Conduct Competitive Analysis
•
On the basis of the information in Exhibit 8–8,
Edward Beiner should locate its new store at site B.
The trade area potential is high and competition is
relatively low.
•
Relative competition is only one issue to consider.
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EXHIBIT 8-9 Trade Area for Edward Beiner Purveyor
of Fine Eyewear
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Jump to long description in
appendix
Source: ESRI
ILLUSTRATION OF SITE SELECTION
EDWARD BEINER PURVEYOR OF FINE EYEWEAR 3 of 5
Step 2: Define Present Trade Area
•
The zones are based on drive times: 5 minutes for
the primary trade area (red), 10 minutes for the
secondary trade area (purple), and 20 minutes for
the tertiary trade area (green).
•
Not only do the north–south highways bring traffic to
the area, but heavy traffic often makes them difficult
to cross. Biscayne Bay also limits the trade area on
the east.
©McGraw-Hill Education.
ILLUSTRATION OF SITE SELECTION
EDWARD BEINER PURVEYOR OF FINE EYEWEAR 4 of 5
Step 3: Identify Trade Characteristics
•
Average household income $92,653
•
Three-mile ring around Edward Beiner is very
affluent
•
Population more than 50 percent Hispanic
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ILLUSTRATION OF SITE SELECTION
EDWARD BEINER PURVEYOR OF FINE EYEWEAR 5 of 5
Step 4: Match Characteristics of Present Trade
Area with Potential Sites
•
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Edward Beiner current trade area
•
High income
•
White-collar occupations
•
Large percentage of older residents
•
Upscale geodemographic segments
•
Relatively low competition
EXHIBIT 8-10 Four Potential Locations for a New Store
Average
Household
Income
White-Collar
Occupations
Percentage
Residents Age
45 and Over
Predominant
Geographic
Segments
Edward
Beiner
Optical
$100,000
High
37%
Top One
Percent
Low
Site A
60,000
High
25
Young
Immigrant
Families
Medium
Site B
70,000
Low
80
Gray Power
Low
Site C
100,000
High
30%
Young Literati
High
Site D
120,000
High
50
Upper-Income Medium
Empty-Nesters
Store
Location
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Level of
Competition
Negotiating a Lease 1 of 3
Learning Objective 8-6 Explain the different types and terms of leases.
Types of Leases
• Percentage Leases
• Percentage lease with a specified maximum
• Percentage lease with a specified minimum
• Sliding scale lease e.g. 1st $200k sales, pay 4%, 3% on
sales > $200k
• Fixed-Rate Leases
• Graduated lease – e.g. rent = $1k/ month for first 2 years,
$1.2k for next 3 years.
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Negotiating a Lease 2 of 3
Terms of the Lease
• Cotenancy Clause
• Certain percentage of center be leased to specified stores
included
• Prohibited-use Clause
• Limits center from leasing to certain kinds of tenants e.g pool,
bars (may harm image)
• Exclusive-use Clause
• Prohibits center from leasing to tenants that sell competing
products
• Outparcel e.g. ATM, kiosk
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Negotiating a Lease 3 of 3
Terms of the Lease continued
• Common Area Maintenance Costs
• Involve extensive negotiations
• Assign responsibility for taking care of common areas
• Might include
• Contributions for capital improvements
• Paying for new roof
• Participate in purchase of adjoining land parcels
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The end
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Key Terms 1 of 6
accessibility (1) The degree to which customers can easily get into and out of
a shopping center; (2) ability of the retailer to deliver the appropriate retail
mix to customers in the segment.
analog approach A method of trade area analysis also known as the similar
store or mapping approach. The analysis is divided into four steps: (1)
describing the current trade areas through the technique of customer
spotting; (2) plotting the customers on a map; (3) defining the primary,
secondary, and tertiary area zones; and (4) matching the characteristics of
stores in the trade areas with the potential new store to estimate its sales
potential.
artificial barrier In site evaluations, for accessibility, a barrier such as railroad
tracks, a major highway, or a park.
block group A collection of adjacent census blocks that contain between 300
and 3,000 people that is the smallest unit for the sample data.
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Key Terms 2 of 6
census A count of the population of a country as of a specified date.
census block An area bounded on all sides by visible (roads, rivers) and/or
invisible (county, state boundaries) features that is the smallest geographic
entity for which census data are available.
common area maintenance (CAM) clause Shopping center real estate
contract clauses that assign responsibility for maintaining common areas,
such as parking lots and sidewalks.
congestion The amount of crowding of either cars or people.
cotenancy clause A clause in a leasing contract that requires a certain
percentage of a shopping center be leased, while others name specific
retailers or types of retailers that are to remain open.
cumulative attraction The principle 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.
©McGraw-Hill Education.
Key Terms 3 of 6
customer spotting A technique used in trade area analysis that “spots”
(locates) residences of customers for a store or shopping center.
exclusive-use clause A clause in a lease that prohibits the landlord from
leasing to retailers selling competing products.
fixed-rate lease A lease that requires the retailer to pay a fixed amount per
month over the life of the lease.
fringe trading area The outermost ring of a trade area; includes customers
who occasionally shop at the store or shopping center. Also called tertiary
trading area.
geographic information system (GIS) A computerized system that enables
analysts to visualize information about their customers’ demographics,
buying behavior, and other data in a map format.
graduated lease A lease that requires rent to increase by a fixed amount over
a specified period of time.
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Key Terms 4 of 6
metropolitan statistical area (MSA) A city with 50,000 or more inhabitants or
an urbanized area of at least 50,000 inhabitants and a total MSA population
of at least 100,000 (75,000 in New England).
micropolitan statistical area city with only 10,000 inhabitants in its core urban
area.
natural barrier A barrier, such as a river or mountain, that impacts accessibility
to a site.
outparcel A building or kiosk that is in the parking lot of a shopping center but
isn’t physically attached to a shopping center.
percentage lease A lease in which rent is based on a percentage of sales.
percentage lease with a specified maximum A lease that pays the lessor, or
landlord, a percentage of sales up to a maximum amount.
percentage lease with a specified minimum The retailer must pay a
minimum rent no matter how low sales are.
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Key Terms 5 of 6
primary trading area The geographic area from which a store or shopping
center derives 50 to 70 percent of its customers.
prohibited-use clause A clause in a lease that keeps a landlord from leasing
to certain kinds of tenants.
regression analysis A statistical approach for evaluating retail locations 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.
secondary trading area The geographic area of secondary importance in
terms of customer sales, generating about 20 percent of a store’s sales.
sliding scale lease A part of some leases that stipulates how much the
percentage of sales paid as rent will decrease as sales go up.
©McGraw-Hill Education.
Key Terms 6 of 6
spending potential index (SPI) Compares the average expenditure in a
particular area for a product to the amount spent on that product nationally.
tertiary trading area The outermost ring of a trade area; includes customers
who occasionally shop at the store or shopping center.
trade area A geographic sector that contains potential customers for a
particular retailer or shopping center.
traffic flow The balance between a substantial number of cars and not so
many that congestion impedes access to the store.
visibility Customers’ ability to see the store and enter the parking lot safely.
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Appendix of Image Long
Descriptions
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Appendix 1 EXHIBIT 8-2 Location of Customers
Patronizing a Retailer’s Store
Four retail locations are shown on a map: city central store,
city east store, north east store, and south east store.
Surrounding each store, three zones radiate outward. The
zones show how far customers travel (in 3, 6, and 9 minute
ranges) to reach that particular store. The map indicates
there is very little overlap between each store’s patrons,
except for the area between the city east and south east
stores.
Return to original slide
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Appendix 2 EXHIBIT 8-3 Zones In a Trade Area
A shopping center is located at the center of the
map. Surrounding it, three zones radiate outward.
Each represents a different length of driving time it
takes for customers to reach the shopping center.
The zones represented are 5 minutes, 10 minutes,
and 15 minutes.
Return to original slide
©McGraw-Hill Education.
Appendix 3 EXHIBIT 8-4 GIS Map for the Trade
Area of a Bank
A map shows three branches of a bank spread throughout
the map area. Lines stretch from each of the branch
locations, indicating the residences of the bank’s customers
compared to where they do their banking. At the center of
the map, the proposed new branch is highlighted. The lines
radiating from this location to bank customers intersect with
the lines of the other branches, suggesting cannibalization.
Return to original slide
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Appendix 4 EXHIBIT 8-6 GIS Data for Retail
Expenditures In a Trade Area
The proposed location is 100 South Wacker Drive, Chicago, IL 60606-4006. The ring is a 1 mile radius. The latitude and
longitude are also listed.
Top Tapestry Segments include metro renters 68.4 percent; laptops and lattes 23.4 percent; city strivers 2.7 percent;
main street, USA 1.8 percent; and metropolitans 1.6 percent.
The demographic summary covers segments for 2010 and 2015. Population: 45,534; 50,151. Households: 24,338;
26,808. Families: 7,223; 7,843. Median age: 35.7; 35.8. Median household income: 81,441 dollars; 100,632 dollars.
The spending potential, average amount spent, and total are listed for different segments.
Apparel and services: 120 potential; 2,873.94 dollars average; 69,945,928 dollars total. Men’s: 112 potential; 512.65
dollars average; 12,476,953 dollars total. Women’s: 104 potential; 861.55 dollars average; 20,968,522 dollars total.
Children’s: 121 potential; 485.96 dollars average; 11,827.277 dollars total. Footwear: 84 potential; 349.13 dollars
average; 8,497,153 dollars total. Watches and jewelry: 173 potential; 335.43 dollars average; 8,163,589 dollars total.
Apparel products and services: 352 potential; 329.21 dollars average; 8,012,434 dollars total.
Computer. Computers and hardware for home use: 169 potential; 324.62 dollars average; 7,900,647 dollars total.
Software and accessories for home use: 169 potential; 48.15 dollars average; 1,171,788 dollars total.
Entertainment & Recreation: 155 potential; 4,996.06 dollars average; 121,594,105 dollars total. Fees and Admissions:
155 potential; 960.54 dollars average; 23,377,534 dollars total. Membership fees for clubs: 155 potential; 253.65 dollars
average; 6,173,216 dollars total. Fees for participant sports, excluding trips: 145 potential; 154.42 dollars average;
3,758,358 dollars total. Admission to movie/theatre/opera/ballet: 172 potential; 260.56 dollars average; 6,341,578
dollars total. Admission to sporting events, excluding trips: 149 potential; 88.77 dollars average; 2,160,410 dollars total.
Fees for recreational lessons: 147 potential; 201.16 dollars average; 4,895,736 dollars total. Dating services: 257
potential; 1.98 dollars average; 48,236 dollars total.
TV/Video/Audio: 161 potential; 2,003.60 dollars average; 48,763,617 dollars total. Community antenna or cable TV: 157
potential; 1,130.81 dollars average; 27,521,629 dollars total.
Return to original slide
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Appendix 5 EXHIBIT 8-7 Location of Target Customers
In a Shopping Center Trade Area
A shopping center is marked at the center of the map.
Three marked areas spread out from the shopping center,
indicating a small primary trade area first, then a larger
secondary trade area, and, finally, the tertiary trade area,
which is the largest of the three. Scattered through the
map, dots indicate the location of customers with a
desirable geodemographic profile. According to the map,
while some are located close to the shopping center, most
of the desired customers are outside of the tertiary trade
area.
Return to original slide
©McGraw-Hill Education.
Appendix 6 EXHIBIT 8-9 Trade Area for Edward
Beiner Purveyor of Fine Eyewear
The map has an Edward Beiner store marked on it.
Radiating outward from it are three zones based on drive
times for the trade areas. They are 5 minutes for the
primary area, 10 minutes for the secondary area, and 20
minutes for the tertiary trade area.
Return to original slide
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