MARKET SELECTION AND RETAIL LOCATION
MANAGEMENT
• Many retail experts consider the most critical determinants of
success in retailing to be (1) selecting a target market and (2)
evaluating alternative ways to reach this target market.
• Traditionally, for retailers desiring to reach a given target
market, this has meant selecting the best location for a store.
• It has been emphasised that while the other elements of
the retail mix are important, location is the most
important because customers must be able to
conveniently reach your store if those elements are to
affect shopping behaviour.
• The easier it is to reach the store, the more store traffic a
store will have, which leads to higher sales.
• Today, however, retailers are finding alternative ways to
reach customers, and therefore, location is more than just
a store’s physical location.
• Regardless of whether a retailer is planning a traditional
store in a geographic space, a virtual store in cyberspace,
or both, its first step is to develop a cost-effective way to
reach the household or individual consumer once the retailer
has identified as its target market.
• Location is also the least flexible resource and since it is
most difficult to change one needs to proceed very carefully
in the process of selecting the right location for the proposed
retail store.
• Location is all about being in the right place, so that the
customer can get the right merchandise at the right time.
LOCATION CONT`D
• In the retail mix that is constituted by the merchandise,
price, promotion, service and location, if a retailer gets his
location right, he has got his retail business right.
• A retailer can have the best range of merchandise and a
great ambience within the store but a bad location can
instantly bring to naught all of that, resulting in the
ultimate downfall of the retail business, which if situated
in another location would have been enormously
successful.
Reaching the Target Market
• There are two basic retail formats that can be used to reach
target markets: store-based and non-store-based retailing.
Store-based retailers operate from a fixed store location that
requires customers to travel to the store to view and purchase
merchandise and or services.
Non-store-based retailers reach customers at home, at
work, or at places other than a physical store where they
might be open to purchasing.
• Location of Store-based Retailers
• There are four basic types of store-based retail locations:
business districts, shopping centers and malls, freestanding
units, and non-traditional.
Business Districts –
• Historically, many retailers were located in a central
business district (CBD), usually an unplanned shopping area
around the geographic point where all public transportation
systems converge.
• Many traditional department stores are located in the CBD
along with a good selection of specialty shops.
• The CBD has several strengths and weaknesses.
• Among its strengths are easy access to public transportation;
wide product assortment; variety in images, prices, and
services; and proximity to commercial activities.
• Some weaknesses to consider are inadequate (and usually
expensive) parking, older stores, high rents and taxes, traffic
and delivery congestion, potentially a high crime rate, and
the often-decaying conditions of many inner cities.
• Often, the weaknesses of CBDs have resulted in a retail
situation known as inner-city retailing. In larger cities,
secondary and neighbourhood business districts have been
developed.
• Secondary business district – shopping area that is
smaller than the CBD, revolves around at least one
departmental or variety store, and is located at a major
street intersection.
• A neighborhood business district (NBD) – shopping area
that evolves to satisfy the convenience-oriented shopping
needs of a neighbourhood.
• The NBD generally contains several small stores, with the
major retailer being either a supermarket or a variety store, and
is located on a major artery/road of a residential area.
• The single factor that distinguishes these business districts from a
shopping center or mall is that they are usually unplanned.
• Like CBDs, the store mixture of SBDs and NBDs evolves partly by
planning, partly by luck, and partly by accident. No one plans, that there
will be two department stores, four jewelry stores, two camera shops,
three shoe shops, twelve apparel shops, and one theater in a SBD.
• Shopping centers and malls – centrally owned or
managed shopping district that is planned, has balanced
tenancy (the stores complement each other in merchandise
offerings), and is surrounded by parking facilities.
• A shopping center has one or more anchor stores
(dominant large-scale stores that are expected to draw
customers to the center) and a variety of smaller stores.
kumasi city mall...as an example
• To ensure that these smaller stores complement each other,
the shopping center often specifies the proportion of total
space that can be occupied by each type of retailer.
• Similarly, the center’s management places limits on the
merchandise lines that each retailer may carry.
Advantages of Shopping Center
• heavy traffic resulting from the wide range of product offerings,
• co-operative planning and sharing of common costs,
• access to highways and available parking,
• a lower crime rate, and
• a clean and neat environment.
Disadvantages
• inflexible store hours because the retailer must stay open
during mall hours and cannot be open at other times,
• high rents
• restrictions as to what merchandise or services the retailer
may sell,
• inflexible operations and required membership in the center’s
merchant organization,
• potentially too much competition and the fact that much of the
traffic is not interested in a particular product offering, and
• an anchor tenant’s dominance of the smaller stores.
Freestanding location – A freestanding retailer is generally
located along major traffic arteries without any adjacent
retailers selling competing products to share traffic.
a single center around a busy area
...without any nearby competition
• Advantages of freestanding retailing:
• lack of direct competition, generally lower rents, freedom
in operations and hours, facilities that can be adapted to
individual needs, and inexpensive parking.
Freestanding retailing does have some limitations:
• lack of drawing power from complementary stores,
• difficulties in attracting customers for the initial visit,
• higher advertising and promotional costs,
• operating costs that cannot be shared with others,
• stores may have to be built rather than rented, and
• zoning laws that may restrict some activities.
• Non-traditional locations – Increasingly, retailers are identifying
non-traditional locations that offer greater convenience.
• Recognising, for example, that a significant number of travelers
spend several hours in airports and could use this time to purchase
merchandise, many airport concourses/forecourts are now flooded
with casual dining, service kiosks, entertainment venues, etc.
• College campuses are also non-traditional retail
locations.
• A number of food courts in student unions and cosmetic
counters in campus bookstores increasing.
• Nonstore-based Retailers – There are great diversity and
variety of nonstore-based retailers.
• Perhaps, the oldest form is the street peddlers who sell
merchandise from a pushcart or temporary stall set up on a
street. Other popular forms of nonstore-based retailing include
direct sellers, catalogue sales, and e-tailing.
Importance of Location
• A retailer chooses his location based on some key factors:
• Proximity to the customer – Being close to one’s customers should
assume the prime significance when a retailer plans his new location.
Consumer research has always revealed that customers prefer to shop in
the closest locations possible.
• Store visibility – The strategic intent of some retail
organizations may be to have their stores in high streets where
the store visibility will be very high.
• The store may have a certain ‘bill board’ value due to its high
traffic location and the resultant effect is the contact of many
‘eye balls’.
IMPORTANCE OF LOCATION CONT`D
• Though the cost may be high to be present in such high street
locations, the store may not need to spend great monies on
promotion as the natural footfalls may be converted easily into
business prospects.
• Store location positioning – is the art of being closer to the
target segments of customers for the retail store, either by
being in the locations where they live or by being in the
locations where they visit.
• For example, for a jewelry store, it may make more sense to be
in a jewelry market where a number of such stores may be
present.
• The larger the store or its reputation, the more it can afford to
be away from the jewelry market, but it may not afford to be
completely in a different location altogether.
• Cost – One of the major operating costs in retailing is the rental
cost that each store incurs and if a retailer gets the rental cost
right in proportion to the business the store can generate, it
becomes easier for the store to breakeven faster.
Criteria to Assess Retail Store Location
Competition – Understanding competition is the most important
aspect in retailing. The level of competition in an area affects the
demand for a retailer’s merchandise.
• The retailer should study competition in terms of similar product
offerings, prices and the levels of service so that efforts can be made to
help customers gravitate towards the store.
• Walmart’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.
CRITERIA CONT`D
Economic Conditions – Because locations involve a commitment of
resources over a long time horizon, it is important to examine an
area’s level and growth of population and employment.
• A large, fully employed population means high purchasing power and
high levels of retail sales.
• But population and employment growth alone are not enough
to ensure a strong retail environment in the future.
• Retail location analysts need to determine how long such
growth will continue and how it will affect demand for
merchandise sold in the stores.
Criteria Cont`d
Access to facilities – It is very important to understand the
infrastructural facilities around the area such as easy
accessibility to bus and railway stations, concretized roads,
road density, subways and flyovers, one way streets, visibility
of the location, etc.
• Facilities like bank branches and ATM availability,
availability of public parking space, etc. can be considered as
the parameters to provide customer convenience around the
area.
CRITERIA CONT`D
Strategic Fit – Economic conditions and competition alone
are not enough but the area needs to have consumers who are
in the retailer’s target market – who are attracted to the
retailer’s offerings and interested in patronising its stores.
• Thus, the area must have the right demographic and
lifestyle profile. The size and composition of households
in an area can be an important determinant of success.
Cultural – Cultural characteristics affect how consumers shop and
what goods they purchase. The values, standards, and language that
a person is exposed to, while growing up are indicators of future
consumption behaviour.
• Normally larger cultures are made of many distinct subcultures.
Retailers need to be aware of the different aspects of culture that
will affect the location decision.
CRITERIA CONT`D
Operating Costs – The cost of operating stores can vary across areas.
Operating costs are also affected by the proximity of the area being
considered to other areas in which the retailer operates stores.
• For example, if a store is located near other stores and the retailer’s
distribution centers, the cost of shipping merchandise to the store is
lower, so is the cost and travel time spent by the district manager
supervising the stores’ operations.
Site Characteristics
• Some characteristics of a site that affect store sales and thus are
considered in selecting a site are:
Traffic flow and accessibility - One of the most important
factors affecting store sales is the traffic flow – the number of
vehicles and pedestrians that pass by the site. When the traffic is
greater, more consumers are likely to shop at the store.
• Thus, retailers often use traffic count measures to assess a site’s
attractiveness. Traffic counts are particularly important for
retailers offering merchandise and services bought on impulse
or on frequent trips such as grocery and convenience stores,
and car washes.
SITE CHARACTERISTICS
• The accessibility of the site, which can be as important as
traffic flow, is the ease with which customers can get into and
out of the site.
• Accessibility is greater for sites located near major highways,
on uncongested highways, and at streets with traffic lights and
lanes that enable turns into the site.
Parking –The amount and quality of parking facilities are
critical for evaluating a shopping center.
• On the one hand, if there are no enough spaces or the spaces
are too far from the store, customers will be discouraged from
patronising the site and the store.
• On the other hand, if there are too many open spaces, the
shopping center may be perceived as having unpopular
stores.
• Too much congestion can also make shopping slow,
irritate customers, and generally discourage sales.
SITE CHARACTERISTICS
Visibility – customers’ ability to see the store from the street. Good visibility is
less important for stores with a well-established and loyal customer base, but
most retailers still want a direct, unimpeded view of their store.
• To some extent, this location criterion has shifted due to consumers’ increasing
uses of mobile devices. When shoppers have smartphones in hand, they can
readily search for the location of a store they want to find and receive detailed,
step-by-step or turn-by-turn directions to reach it.
• Adjacent tenants – Locations with complementary, as well as
competing, adjacent tenants have the potential to build traffic.
Complementary retailers target the same market segment but have a
different, non-competing merchandise offering.
• For example, competing fast-food restaurants, automobile dealerships,
antique dealers, or even shoe and apparel stores in a mall may be
located next to one another.
SITE CHARACTERISTICS
• This grouped location approach 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.
• Restrictions and costs – Retailers may place restrictions on the type
of tenants that are allowed in a shopping center in their lease
agreement. Some of these restrictions can make the shopping center
more attractive for a retailer.
• For example, a specialty men’s apparel retailer may prefer a lease
agreement that precludes other men’s specialty apparel retailers from
locating in the same center.