Location Strategy:
Site Selection
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Questions
■ What types of locations are available to
retailers?
■ What are the relative advantages and
disadvantages of each location type?
■ What criteria are used to evaluate the
attractiveness of a specific site?
■ What are the different types and terms of a retail
lease?
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Steps in the Location Planning Process
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Evaluate Alternative Trading Areas
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Determine the Type of Location Desired
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Select the Specific Site within the Desired
Location
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Determining the Type of Location Desired
■ Central Business District
■ Shopping Centers
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Neighborhood / Community
Shopping Centers
Power Centers
Enclosed Malls
Lifestyle Centers
■ Freestanding Site
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Tradeoff Between Location Types
There are relative advantages
and disadvantages to consider
with each location.
Rent
Traffic
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Types of Locations
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Central Business District (CBD)
Disadvantages
Advantages
The traditional downtown area of a city or town
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Draws people into areas during business hours
Pedestrian traffic
Hub of public transportation
Residents
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Potential urban decay
Higher security costs
Parking is poor
Evenings and weekends are slow
Spike Mafford/Getty Images
7-7
Freestanding Site
■ Location for individual store unconnected to
other retailer
■ Advantages:
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Convenience
High traffic and visibility
Separation from competition
Fewer restrictions
■ Disadvantages:
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Lack of synergy with other
stores
Little pedestrian traffic
Can have higher occupancy costs
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
7-8
Shopping Centers
A group of retail and other commercial establishments
that are planned, developed, owned, and managed
as a single property..
Advantages:
•Located where the people are
•Synergy with other stores
•Shared operating costs
Disadvantages:
•High rent
•Limited flexibility
•Competition intense
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
7-9
Types of Shopping Centers
■ Neighborhood and Community Centers (Strip
Centers)
■ Power Centers
■ Enclosed Malls
■ Lifestyle Centers
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Neighborhood and Community Centers
Usually anchored by a
supermarket or discount
Store.
The McGraw-Hill Companies, Inc./Andrew Resek, photographer
Managed as a unit
Attached row of stores
Onsite parking
7-11
Power Centers
■ Open air set up
■ Limited small specialty stores
■ Many located near enclosed malls
PhotoLink/Getty Images
Shopping centers that consist primarily of
collections of big-box retail stores such as
discount stores (Target), off-price stores
(Marshall’s), warehouse clubs (Costco),
and category specialists (Lowe’s, Best Buy,
Dick’s)
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Shopping Malls
■ Enclosed climate controlled, shopping centers
with retail stores on both sides of an enclosed
walkway.
■ Parking provided around
perimeter.
■ Anchored by major
department stores
■ Have seen decline in
popularity in recent
years. Why?
The South China Mall in Dongguan, China
7-13
Challenge to Malls
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Time pressured society makes it impractical to wander malls
Fashion apparel sold in malls experiencing limited growth
Malls are getting old and rundown – unappealing to shop
Strategies?
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Make shopping more enjoyable (e.g., sofas, children’s playing areas)
Great food destination (fast food and full-service restaurants)
Tailor make its offering to cater to changing demographics (e.g.,
repositioning older shopping centers for Hispanic markets)
Mall renovation and redevelopment
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Lifestyle Centers
■ Usually located in affluent
residential neighborhoods
■ Includes upscale chain
specialty stores
■ Open-air configuration
■ Design ambience and
amenities
■ Designed to resemble the
main streets in small town
■ Restaurants and often a
cinema or other entertainment
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Stores and Restaurants at Lifestyle Centers
Williams-Sonoma
Victoria’s Secret
Restoration Hardware
Barnes & Noble/Borders
Coldwater Creek
Pottery Barn
The Gap
Banana Republic
Bed Bath & Beyond
Eddie Bauer
Panera Bread
Ann Taylor
Starbucks
Aeropostale
Dick’s Sporting Goods
Hallmark
Johnny Rockets
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Selecting a Specific Site: Criteria
Accessibility
The degree of ease with which a customer may get into and
out of the site
Visibility
Store sites ability to be seen by pedestrian and vehicular traffic
Store Composition
Evaluate the number and size of stores in the area, as well as
their affinity
Parking facilities
Size and shape of the site
Age and condition of the site
Occupancy costs and terms of the lease
Maintenance costs
Zoning compatibility
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Traffic Flow and Accessibility
When traffic is greater, more
customers shop
Good for convenience retailers
Not necessary for destination
retailers
Too much can impede access to
store
Accessibility to store is as
important as traffic flow
PhotoLink/Getty Images
8-18
Selecting a Specific Site:
Additional Considerations for Shopping Centers
• What is the trading area of the shopping
center?
• Is the type of center appropriate for the
store?
• What is the occupancy rate?
• Is the site adjacent to the anchor tenants?
• Will adjacent stores complement or compete
with your store?
• What are the restrictions on the retailer’s
strategy?
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Adjacent Tenants
■ Complementary (also competing) adjacent
retailers build traffic
■ What other retailers would Save-a-Lot want to
be located near?
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Big Lot, Family Dollar, or even Wal-Mart
All target price-sensitive consumers
■ In an enclosed mall, what retailers would
Abercrombie & Fitch want to be located near?
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American Eagle Outfitter, Ann Taylor, Body Shop,
Electronic Boutique?
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Types of Leases: Percentage Lease
Percentage leases – lease based on a % of sales.
Retailers also typically pay a maintenance fee
based on a percentage of their square footage of
leased space.
Most malls use some form of percentage lease.
May have a maximum or minimum threshold
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Types of Leases: Fixed Rate Leases
Fixed Rate Leases - used by community and
neighborhood centers.
-Retailer pays a fixed amount per month over the life
of the lease.
-Not as popular as percentage leases
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Terms of the Lease
■ Prohibited Use Clause
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Limits the landlord from leasing to certain tenants.
Some tenants take up parking spaces and don’t bring
in shoppers: bowling alley, skating rink, meeting hall,
dentist, or real estate office
Some tenants could harm the shopping center’s
wholesome image: bars, pool halls, game parlors, offtrack betting establishments, massage parlors and
pornography retailers
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Terms of the Lease
■ Exclusive Use Clause
Prohibits the landlord from leasing to retailers selling
competing merchandise
 Specify no outparcels
 Specify if certain retailer leaves center, they can
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terminate lease
■ Escape Clause
Allows the retailer to terminate its lease if sales don’t
reach a certain level after a specified number of years, or
if a specific co-tenant in the center terminates its lease
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