Chapter 7
Marketing Selection and Retail Location
Analysis
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
0
Learning Objectives

Explain the criteria used in selecting a target market.

Identify the different options, both store-based and
nonstore-based, for effectively reaching a target
market and identify the advantages and disadvantages
of business districts, shopping centers, and
freestanding units as sites for retail location.

Define geographic information systems (GIS) and
discuss their potential uses in a retail enterprise.
1
Learning Objectives

Describe the various factors to consider in identifying
the most attractive geographic market for a new store.

Discuss the various attributes to consider in
evaluating retail sites within a retail market.

Explain how to select the best geographic site for a
store.
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Selecting a Target Market
LO 1

Home Page
Is the introductory or first material viewers see when
they access a retailer’s Internet site. It is the equivalent
to a retailer’s store-front in the physical world.
• Virtual Store
Is the collection of all the pages of information on the
retailer’s Internet site.
• Ease of Access
Refers to the consumer’s ability to easily and quickly
find a retailer’s Web site in cyberspace.
3
Selecting a Target Market
LO 1

Market Segmentation

Identifying a Target Market
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Selecting a Target Market
LO 1

Market Segmentation
Is dividing of a heterogeneous consumer population into smaller,
more homogenous groups on demographic, economic,
psychographic, and behavioral characteristics.
• Market segment should be measurable.
• Market should be accessible.
• Market should be substantial enough to be profitable.
• Target market
Is the group of customers that the retailer is seeking to serve
5
Ease of Access
LO 1: Exhibit 7.1
Difficulty Finding
Desired Site
Through Search
Engine
Number of Web Sites
6
Target Market
LO 1

The Limited has a welldefined target market:
the moderate-income,
career-oriented woman
who is fashion
conscious.
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Location of Store-Based Retailers
LO 2
• Store-Based Retailers operate from a fixed store
location that requires customers to travel to the store
to view and select merchandise or service.
• Nonstore-Based Retailers intercept customers at
home, at work, or at a place other than a store where
they might be susceptible to purchasing.
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Retail Formats for Accessing a Target Market
LO 2: Exhibit 7.2
Retail Formats
Store-Based
Business
District
Freestanding
Nonstore-Based
Shopping
Centers/Malls
Nontraditional
Street
Peddling
Direct
Selling
Mail-Order
Interactive
TV
Automated
Merchandising
Systems
Internet
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Location of Store-Based Retailers
LO 2

Central Business Districts (CBD) usually consists of
an unplanned shopping area around the geographic
point at which all public transportation systems
converge; it is usually in the center of the city and
often where the city originated historically.

Secondary Business District (SBD) is a shopping area
that is smaller than the CBD and that revolves around
at least one department or variety store at a major
street intersection.
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Location of Store-Based Retailers
LO 2

Neighborhood Business District (NBD) is a chopping
area that evolves to satisfy the convenience-oriented
shopping needs of a neighborhood, generally contains
several small stores (with the major retailer being a
supermarket or a variety store), and its located on a
major artery of a residential area.

Shopping Center (or mall) is a 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.
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Location of Store-Based Retailers
LO 2

Anchor Stores are the stores in a shopping center that
are the most the most dominant and are expected to
draw customers to the shopping center.

Free-Standing Retailer generally locates along major
traffic arteries and does not have any adjacent
retailers to share traffic with.
12
Shopping Center Advantages over a CBD
LO 2

Heavy traffic resulting from the wide range of product
offerings.

Cooperative planning and sharing of common
resources.

Access to highways and availability of parking.

Lower crime rate.

Clean, neat environment.
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Shopping Center Disadvantages
LO 2
Inflexible store hours (open during mall hours only).
 High rents.


Restrictions as to what merchandise the retailer may
sell.

Inflexible operations and required membership in the
center’s merchant organization.
Possibility of too much competition and the fact that
much of the traffic is not interested in a perticular
product offering.
 Dominance of the smaller stores by the anchor
tenants.

14
Advantages of Freestanding Retailing
LO 2
• Lack of direct competition.
• Generally lower rents.
• Freedom in operations and hours.
• Facilities that can be adapted to individual needs.
• Inexpensive parking.
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Limitations of Freestanding Retailing
LO 2
• 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 that may have to be built rather than rented.
• Zoning laws that may restrict some activities.
16
Nonstore-based Retail Formats
LO 2
• Direct Selling
• Street Peddling
• Interactive TV
• Mail-Order
• Internet
• Automated Merchandising Systems
17
ISCS Shopping Center Definitions
LO 2
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ISCS Shopping Center Definitions
LO 2
19
Typical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Neighborhood
Gross Leasable
Square Feet
30,000 to 150,000
Primary Trade Area
3 Miles
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Typical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Community
Gross Leasable
Square Feet
100,000 to 350,000
Primary Trade Area
3-6 Miles
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Typical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Regional
Gross Leasable
Square Feet
400,000 to 800,000
Primary Trade Area
5-15 Miles
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Typical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Super-Regional
Gross Leasable
Square Feet
800,000
Primary Trade Area
5-25 Miles
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Question to Ponder

Given the wide variety of locations available to target
specific consumer groups, what new locations will
provide the greatest opportunities for the retailers of
tomorrow?
24
Geographic Information Systems
LO 3
• Thematic Maps
• Uses of GIS
25
Geographic Information Systems
LO 3
• Geographic Information System (GIS) is a
computerized system that combines physical
geography with cultural geography.
• Culture is the buffer that people have created between
themselves and the raw physical environment and
includes the characteristics of the population, humanly
created objects, and mobile physical structures.
26
Geographic Information Systems
LO 3
• Thematic Maps use visual techniques such as colors,
shading, and lines to display cultural characteristics of
the physical space.
27
GIS Components
LO 3: Exhibit 7.4
Cultural Geography
Physical Geography
Latitude/Longitude
Land/Water
Terrain
Rainfall/Snow
Temperature
Data
Inputs
Demographics
Manmade Structures
Consumption Patterns
Work Patterns
Leisure Behavior
Deviant Behavior
GIS
(Data Aggregation and
Analysis via Computer)
Output
Maps and Other
Displays of Information
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Uses of GIS
LO 3
• Market selection.
• Site analysis.
• Trade area definition.
• New store cannibalization.
• Advertising management.
• Merchandise management.
• Evaluation of store managers.
29
Market Identification
LO 4
• Retail Location Theories
• Market Demand Potential
• Market Supply Factors
30
Selecting a Retail Location
LO 4: Exhibit 7.5
Identify the most attractive
markets in which to operate
Identify the most attractive
sites that are available
within each market
Select the best site(s)
available
31
Market Identification
LO 4

Trading Area
Is the geographic area from which a retailer, or group
of retailers, or community draws its customers.
32
Retail Location Theories
LO 4
• Retail Gravity Theory
• Saturation Theory
• Buying Power Index
33
Retail Location Theories
LO 4
• Retail Gravity Theory
Suggests that there are underlying consistencies in
shopping behavior that yield to mathematical analysis
and prediction based on the notion or concept of
gravity.
34
Retail Location Theories
LO 4
• Reilly’s Law of Retail Gravitation based on Newtonian
gravitational principles, explains how large urbanized
areas attract customers from smaller rural
communities.
d
Dab
=
Pb
1+
Pa
where Dab is the breaking point from city A, measured in miles along the
road to city B;
d is the distance between city A and city B along the major highway;
Pa is the population of city A; and
Pb is the population of city B.
35
Retail Location Theories
LO 4
• Point of Indifference
Is the extremity of a city’s trading area where
households would be indifferent between shopping in
that city or an alternative city in a different
geographical direction.
36
Trading Area for City A
LO 4: Exhibit 7.6
City B
(Population 14,000)
3.5 miles
14.5 miles
X
3.2 miles
Z
City C
(Population 21,000)
City A
(Population 240,000)
3.7 miles
Y
1.3 miles
City D
(Population 30,000)
37
Retail Location Theories
LO 4
• Saturation Theory
Examines how the demand for goods and services of a
potential trading area is being served by current retail
establishments in comparison with other potential
markets.
38
Retail Location Theories
LO 4
• Retail Store Saturation is a condition where there is
just enough store facilities for a given type of store to
efficiently and satisfactorily serve the population and
yield a fair profit to the owners.
• Understored is a condition in a community where the
number of stores in relation to households is relatively
low so that engaging in retailing is an attractive
economic endeavor.
• Overstored is a condition in a community where the
number of stores in relation to households is so large
that engaging in retailing is usually unprofitable or
marginally profitable.
39
Retail Location Theories
LO 4
• Index of Retail Saturation (IRS) is the ratio of demand
for a product (households in the geographic area
multiplied by annual retail expenditures for a particular
line of trade per household) divided by available
supply (the square footage of retail facilities of a
particular line of trade in a geographic area).
IRS = (H X RE)/RF
Where IRS is the index of retail saturation for and area;
H is the number of households in the area;
RE is the annual retail expenditures for a particular line of trade
per household in the area;
RF is the square footage of retail facilities of a particular line of
trade in the area (including square footage of the proposed
store).
40
Retail Location Theories
LO 4
• Buying Power Index (BPI) is an indicator of a market’s
overall retail potential and is composed of the
weighted measures of effective buying income
(personal income, including all nontax payments such
as social security, minus all taxes), retail sales, and
population size.
BPI = 0.5(the area’s percentage of U.S. effective buying income)
+ 0.3(the area’s percentage of U.S. retail sales)
+ 0.2(the area’s percentage of U.S. population)
41
Market Demand Potential
LO 4
• Population Characteristics
• Buyer Behavior Characteristics
• Household Income
• Household Age Profile
• Household Composition
• Community Life Cycle
• Population Density
• Mobility
42
Identifying Communities with High Demand Potential for
Fast-Food Drive-In Restaurant
LO 4: Exhibit 7.7
43
Market Supply Factors
LO 4
• Square Feet Per Store
• Square Feet Per Employee
• Growth in Stores
• Quality of Competition
44
Site Analysis
LO 5
• Site Analysis
Is the evaluation of the density of demand and supply
within each market with the goal of identifying the best
retail site(s).
• Size of Trading Areas
• Description of Trading Area
• Demand Density
• Supply Density
• Site Availability
45
Site Analysis
LO 5
• Size of Trading Areas
• Description of Trading Area
• Demand Density
• Supply Density
• Site Availability
46
Customer Spotting Map for a Supermarket
LO 5: Exhibit 7.8
City Limits
Store
2 miles from
store
4 miles from
store
3 miles from
store
1 mile from
store
47
Description of Trading Area
LO 5

Exhibit 7.9 identifies the 65 neighborhood types or
clusters that MapInfo has distinguished for describing
neighborhoods. This information is used in describing
a trading area.
48
PSYTE USA Cluster Demographic
LO 5: Exhibit 7.9
49
PSYTE USA Cluster Demographic
LO 5: Exhibit 7.9
50
Demand Density
LO 5

Demand Density
Is the extent to which the potential demand for the
retailer’s goods and services is concentrated in certain
census tracts, ZIP code areas, or parts of the
community.
51
Demand Density Map
LO 5: Exhibit 7.10
Three-Variable Demand-Density Map
Variable 1 = Median income over $22,000
Variable 2 = Households per square mile
greater than 1,200
Variable 3 = Average growth in population
over last 3 years in excess of
3 percent per year
Number of Variables Met
0
1
2
3
52
Supply Density
LO 5

Supply Density
The extent to which retailers are concentrated in
different areas of the market under question.
53
Store Density and Site Availability Map
LO 5: Exhibit 7.11
54
Checklist for Site Evaluations
LO 5: Exhibit 7.12
•Local Demographics
•Population and/or household base
•Population growth potential
•Lifestyles of consumers
•Income potential
•Age makeup
•Population of nearby special markets, that is,
daytime workers, students, and tourists, if
applicable
•Occupation mix
55
Checklist for Site Evaluations
LO 5: Exhibit 7.12
•Traffic Flow and Accessibility
•Number and type of vehicles passing location
•Access of vehicles to location
•Number and type of pedestrians passing location
•Availability of mass transit, if applicable
•Accessibility of major highway artery
•Quality of access streets
•Level of street congestion
•Presence of physical barriers that affect trade area
shape
56
Checklist for Site Evaluations
LO 5: Exhibit 7.12
•Retail Competition
•Number and types of stores in area
•Analysis of “key” players in general area
•Competitiveness of other merchants
•Number and location of direct competitors in area
•Possibility of joint promotions with local merchants
57
Checklist for Site Evaluations
LO 5: Exhibit 7.12
•Site Characteristic
•Number of parking spaces available
•Distance of parking areas
•Ease of access for delivery
•Visibility of site from street
•History of the site
•Compatibility of neighboring stores
•Size and shape of lot
•Condition of existing building
•Ease of entrance and exit for traffic
•Ease of access for handicapped customers
•Restrictions on sign usage
•Building safety code restrictions
•Type of zoning
58
Checklist for Site Evaluations
LO 5: Exhibit 7.12
•Cost Factors
•Terms of lease/rent agreement
•Basic rent payments
•Length of lease
•Local taxes
•Operations and maintenance cost
•Restrictive clauses in lease
•Membership in local merchants association required
•Voluntary regulations by local merchants
59
Site Selection
LO 6

100 Percent Location
Is when there is no better use for a site than the retail
store that is being planned for that site.
60
Site Selection
LO 6
• Nature of Site
• Terms of Purchase or Lease
• Expected Profitability
61
Nature of Site
LO 6
• Traffic Characteristics
• Types of Neighbors
62
Nature of Site
LO 6
• Store Compatibility
Exists when two similar retail businesses locate next
to or nearby each other and they realize a sales
volume greater than what they would have achieved if
they were located apart from each other.
63
Terms of Purchase or Lease
LO 6
• Length of lease
• Exclusivity clause
• Guaranteed traffic rate
• Anchor clause
64
Expected Profitability
LO 6
• Net profit margin
• Asset turnover
• Return on assets
65
If Retailers Could Select Their Neighbors
Retailer
Fast-food restaurant
Health food store
Recycled merchandise
Home improvement store
Hardware store
Zale’s Jewelry
Record Giant
Payless Shoes
Long’s Drug Stores
Cato Fashion
Bennetton
Nursery and Crafts
LO 6
Next to
Gas service station
Fitness center, medical center
Supercenter
Supercenter
Wholesale club, supermarket
Sears, JCPenney, Mervyn’s
Wal-Mart; Kmart
Supercenters, KinderCare
TJMaxx, Kmart
Kmart; Wal-Mart
Nordstron; Bloomingdale’s
Toys “R” Us; Circuit City
66