Module 5 Trading Area Analysis

8/3/2019 Module 5 Trading Area Analysis

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Chapter 9Trading-Area Analysis

RETAILMANAGEMENT:

A STRATEGIC

APPROACH, 9th Edition

BERMAN EVANS


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Chapter Objectives

To demonstrate the importance of storelocation for a retailer and outline the

process for choosing a store locationTo discuss the concept of a trading areaand its related componentsTo show how trading areas may bedelineated for existing and new stores


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Chapter Objectives_2

To examine three major factors intrading-area analysis

Population characteristicsEconomic base characteristicsCompetition and level of saturation


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Location, Location, LocationCriteria to consider include

population size and traitscompetitiontransportation accessparking availabilitynature of nearby stores

property costslength of agreementlegal restrictions


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Figure 9.1 Importance of

Location to Esprit


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Choosing a Store Location

Step 1: Evaluate alternate geographic (trading)areas in terms of residents and existing retailers

Step 3: Select the location type

Step 2: Determine whether to locate as anisolated store or in a planned shopping center

Step 4: Analyze alternate sites contained in thespecific retail location type


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Trading-Area Analysis

A trading area is a geographic area containing

the customers of a particular firm or group of

firms for specific goods or services


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Benefits of Trading Area Analysis

Discovery ofconsumerdemographics and

socioeconomiccharacteristicsOpportunity todetermine focus of

promotional activitiesOpportunity to viewmedia coveragepatterns

Assessment of effectsof trading area overlapAscertain whetherchain s competitorswill open nearbyDiscovery of idealnumber of outlets,

geographicweaknessesReview of other issues,such as transportation


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Figure 9.2 The Trading Areas of

Current and Proposed Outlets


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GIS Software

Geographic Information Systems digitized mapping with key locational

data to graphically depict trading-areacharacteristics such as

population demographics

data on customer purchases listings of current, proposed, andcompetitor locations


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Figure 9.3a

The TIGER Map Service
http://tiger.census.gov/


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Figure 9.3b

The TIGER Map Service
http://tiger.census.gov/


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Figure 9.4

GIS Software in Action - A


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Figure 9.4

GIS Software in Action - B


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Private Firms Offering

Mapping SoftwareClaritas

ESRI

GDT

GeoVue

Mapinfo

SRC
http://www.demographicsnow.com/http://www.geovue.com/http://www.geographic.com/http://www.esri.com/http://www.claritas.com/http://www.mapinfo.com/


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Figure 9.5 The Segments of a

Trading Area


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Figure 9.6 Delineating

Trading-Area Segments


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The Size and Shape of

Trading AreasPrimary trading area - 50- 80% of a storescustomersSecondary trading area - 15-25% of astores customers Fringe trading area - all remainingcustomers


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Destinations versus Parasites

Destination stores have a betterassortment, betterpromotion, and/orbetter image

It generates a tradingarea much larger than

that of its competitors Dunkin Donuts: It s

worth the trip!

Parasite stores do notcreate their own trafficand have no realtrading area of theirown

These stores dependon people who are

drawn to area for otherreasons


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Trading Areas and Store Type

Largest

TRADINGAREAS

Smallest

Department stores

Supermarkets

Apparel stores

Gift stores

Convenience stores


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Figure 9.7 Carrefour Shanghai


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The Trading Area of a New Store

Different tools must be used when an areamust be evaluated in terms of opportunitiesrather than current patronage and trafficpatterns Trend analysis Consumer surveys Computerized trading area analysis

models


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Computerized Trading-Area Analysis Models Location Assessment Procedures

Checklist Analysis

Analogue Analysis

Financial Analysis

Regression Analysis


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Location Assessment

ProceduresChecklist Analysis- Consists of a simple framework, covering

relevant factors regarding geo-demographics, shopping behavior,competition, cost and accessibilty to the

particular site

- Simple and informal in approach


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Location Assessment

ProceduresAnalogue AnalysisAttempts to predict economic performance(turnover) of a particular site by assessingits potential against the already runningstores after incorporating differencesbetween the proposed site and existing

outletsIntroduced by Applebaum in 1970


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Location Assessment

Procedures

Financial Analysis

This method involves the financialanalysis in respect of the development &operation of an outlet, comparing thedevelopment costs against expectedreturns


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Location Assessment Procedures

Regression ModelsMultiple regression models have beendeveloped around a number of determinantssuch as; Demographics (d), accessibility (a), Competitive environment, ( c) and trade area

characteristics (t) to estimate the potentialturnover of the prospective outlet

Turnover = f(d,a,c,t)

Regression coefficients testify effects of eachdecision variable


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Reilly s Law

-Spatial Interaction Theory

Reilly s law of retail gravitation, a

traditional means of trading-areadelineation, establishes a point ofindifference between two cities or

communities, so the trading area ofeach can be determined


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SPATIAL INTERACTION THEORY

Reilly s Law ; The likelihood that a city (or shopping center) will attract shoppers from a

Hinterland, increases with the size of the city (orshopping center)

Defined as the flow of goods, people or

Information among places, in response tolocalized supply and demand.


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Reilly s Law

2 R j = kP j / Dij

R- Retail attractiveness of a central place (or shoppingcenters) j

To a potential customer residing at i

Increases proportionately with the population P

(or size in square feet) of j

And increases inversely with the square of the distance ij


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Limitations of Reilly s Law

Distance is only measured by majorthoroughfares; some people will travel

shorter distances along cross streetsTravel time does not reflect distancetraveled. Many people are more concernedwith time traveled than with distanceActual distance may not correspond withperceptions of distance


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Huff s Law

- Spatial Interaction Model

Huff s law of shopper attraction delineatestrading areas on the basis of product

assortment (of the items desired by theconsumer) carried at various shopping

locations, travel times from the shopper s

home to alternative locations, and thesensitivity of the kind of shopping totravel time.


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Central Place Theory

Established by Christeller & Losh, 60years ago

Attempts to explain the spatialdistribution of urbanization

It states that a central place and itsmarket area best expresses this patternof settlement


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The range shows average maximumdistance from the store to consumerswilling to purchase

Each central place has its own specificmarket area

The range should be at least equal to itsthreshold area


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The store will earn profits only if itsrange is larger than its threshold.

Bigger the threshold, larger is the rangeneeded

Location of stores are hierarchical basedon these thresholds


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LAND VALUE THEORY

- BID RENT & URBAN RENT THEORY

With the objective of attracting most of

the customers from adjoining areas ofcentral sites, retailers are prepared to bithigh rentals,

But the amount they are willing to spendis INVERSELY related to the CBD


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LAND VALUE THEORY

- BID RENT & URBAN RENT THEORYRentper Acre

Bid Rent Function

CBD Distance

The Bid Rent Function


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Table 9.1 Chief Factors to Consider inEvaluating Retail Trading Areas

Total size anddensity

Age distribution Average educational

level Percentage of

residents owninghomes

Total disposableincome

Per capita disposableincome

Occupationdistribution

Trends

Population Size and Characteristics


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Management Management trainee Clerical

Availability of Labor


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Delivery costs Timeliness

Number ofmanufacturers

Number ofwholesalers

Availability of productlines

Reliability of productlines

Closeness to Sources of Supply


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Dominant industry Extent ofdiversification

Growth projections

Freedom fromeconomic andseasonal fluctuations

Availability of creditand financial facilities

Economic Base


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Number and size ofexisting competition

Evaluation ofcompetitor strengthsand weaknesses

Short-run and long-run outlook

Level of saturation

Competitive Situation


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Number and type ofstore locations

Access totransportation

Owning versusleasing opportunities

Zoning restrictions Costs

Availability of Store Locations


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Elements in Trading-Area

Selection

Population

Characteristics

Economic Base

Characteristics

Nature and Saturationof Competition


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Figure 9.9 The Census Tracts ofLong Beach, NY


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Table 9.3 Selected PopulationStatistics for Trading Areas A and B

Characteristics Area A Area B

Total population, 2000 13,732 15,499

Population change, 1990-2000 +8.2 +2.5

College graduates, 25 +, 2000 (%) 41.4 39.2

Median household income, 2000 $61,236 $61,242

Managerial and professionaloccupations (%), 2000 45.3 45.0

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Module 5 Trading Area Analysis

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