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Marketing Selection and Retail Location
Analysis
Marketing Selection and Retail Location
Analysis
Chapter 7
Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.
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Learning Objectives
Learning Objectives
Explain the criteria used in selecting a target market.
Identify the different options, both store-based andnonstore-based, for effectively reaching a targetmarket and identify the advantages and disadvantagesof business districts, shopping centers, andfreestanding units as sites for retail location.
Define geographic information systems (GIS) anddiscuss their potential uses in a retail enterprise.
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Learning Objectives
Learning Objectives
Describe the various factors to consider in identifyingthe most attractive geographic market for a new store.
Discuss the various attributes to consider inevaluating retail sites within a retail market.
Explain how to select the best geographic site for astore.
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Selecting a Target Market
Selecting a Target Market
Home Page
Is the introductory or first material viewers see whenthey access a retailers Internet site. It is the equivalentto a retailers store-front in the physical world.
Virtual Store
Is the collection of all the pages of information on theretailers Internet site.
Ease of Access
Refers to the consumers ability to easily and quicklyfind a retailers Web site in cyberspace.
LO 1
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Selecting a Target Market
Selecting a Target Market
Market Segmentation
Identifying a Target Market
LO 1
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Selecting a Target Market
Selecting a Target Market
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
LO 1
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Ease of AccessEase of Access
LO 1:Exhibit 7.1
Number of Web Sites
Difficulty FindingDesired Site
Through Search
Engine
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Target MarketTarget Market
The Limited has a well-defined target market:the moderate-income,
career-oriented womanwho is fashionconscious.
LO 1
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Location of Store-Based RetailersLocation of Store-Based Retailers
Store-Based Retailers operate from a fixed storelocation that requires customers to travel to the storeto view and select merchandise or service.
Nonstore-Based Retailers intercept customers athome, at work, or at a place other than a store wherethey might be susceptible to purchasing.
LO 2
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Retail Formats for Accessing a Target MarketRetail Formats for Accessing a Target Market
LO 2:Exhibit 7.2
Retail Formats
Store-Based Nonstore-Based
Freestanding
Business
District
Nontraditional
Shopping
Centers/Malls
Interactive
TV
Mail-Order
Internet
Automated
Merchandising
Systems
Direct
Selling
Street
Peddling
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Location of Store-Based RetailersLocation of Store-Based Retailers
Central Business Districts (CBD) usually consists ofan unplanned shopping area around the geographicpoint at which all public transportation systems
converge; it is usually in the center of the city andoften where the city originated historically.
Secondary Business District (SBD) is a shopping areathat is smaller than the CBD and that revolves aroundat least one department or variety store at a major
street intersection.
LO 2
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Location of Store-Based RetailersLocation of Store-Based Retailers
Neighborhood Business District (NBD) is a choppingarea that evolves to satisfy the convenience-orientedshopping needs of a neighborhood, generally contains
several small stores (with the major retailer being asupermarket or a variety store), and its located on amajor artery of a residential area.
Shopping Center (or mall) is a centrally owned ormanaged shopping district that is planned, has
balanced tenancy (the stores complement each otherin merchandise offerings), and is surrounded byparking facilities.
LO 2
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Location of Store-Based RetailersLocation of Store-Based Retailers
Anchor Stores are the stores in a shopping center thatare the most the most dominant and are expected todraw customers to the shopping center.
Free-Standing Retailer generally locates along majortraffic arteries and does not have any adjacentretailers to share traffic with.
LO 2
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Shopping Center Advantages over a CBDShopping Center Advantages over a CBD
Heavy traffic resulting from the wide range of productofferings.
Cooperative planning and sharing of common
resources.
Access to highways and availability of parking.
Lower crime rate.
Clean, neat environment.
LO 2
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Shopping Center DisadvantagesShopping Center Disadvantages
Inflexible store hours (open during mall hours only).
High rents.
Restrictions as to what merchandise the retailer maysell.
Inflexible operations and required membership in thecenters merchant organization.
Possibility of too much competition and the fact that
much of the traffic is not interested in a perticularproduct offering.
Dominance of the smaller stores by the anchortenants.
LO 2
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Advantages of Freestanding RetailingAdvantages of Freestanding Retailing
Lack of direct competition.
Generally lower rents.
Freedom in operations and hours.Facilities that can be adapted to individual needs.
Inexpensive parking.
LO 2
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Limitations of Freestanding RetailingLimitations of Freestanding Retailing
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.
LO 2
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Nonstore-based Retail FormatsNonstore-based Retail Formats
Direct Selling
Street Peddling
Interactive TVMail-Order
Internet
Automated Merchandising Systems
LO 2
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ISCS Shopping Center DefinitionsISCS Shopping Center Definitions
LO 2
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ISCS Shopping Center DefinitionsISCS Shopping Center Definitions
LO 2
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Typical Size & Trading Area of Shopping CentersTypical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Neighborhood
Gross Leasable
Square Feet
30,000 to 150,000
Primary Trade Area3 Miles
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Typical Size & Trading Area of Shopping CentersTypical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Community
Gross Leasable
Square Feet
100,000 to 350,000
Primary Trade Area3-6 Miles
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Typical Size & Trading Area of Shopping CentersTypical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Regional
Gross Leasable
Square Feet
400,000 to 800,000
Primary Trade Area5-15 Miles
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Typical Size & Trading Area of Shopping CentersTypical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping
Center
Super-Regional
Gross Leasable
Square Feet
800,000
Primary Trade Area5-25 Miles
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Question to PonderQuestion to Ponder
Given the wide variety of locations available to targetspecific consumer groups, what new locations willprovide the greatest opportunities for the retailers of
tomorrow?
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Geographic Information SystemsGeographic Information Systems
Thematic Maps
Uses of GIS
LO 3
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Geographic Information SystemsGeographic Information Systems
Geographic Information System (GIS) is acomputerized system that combines physicalgeography with cultural geography.
Culture is the buffer that people have created betweenthemselves and the raw physical environment andincludes the characteristics of the population, humanlycreated objects, and mobile physical structures.
LO 3
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Geographic Information SystemsGeographic Information Systems
Thematic Maps use visual techniques such as colors,shading, and lines to display cultural characteristics ofthe physical space.
LO 3
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GIS ComponentsGIS Components
LO 3:Exhibit 7.4
Data
Inputs
Physical GeographyLatitude/LongitudeLand/Water
TerrainRainfall/SnowTemperature
Cultural GeographyDemographicsManmade StructuresConsumption Patterns
Work PatternsLeisure BehaviorDeviant Behavior
GIS
(Data Aggregation and
Analysis via Computer)
Output
Maps and Other
Displays of Information
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Uses ofGISUses ofGIS
Market selection.
Site analysis.
Trade area definition.New store cannibalization.
Advertising management.
Merchandise management.
Evaluation of store managers.
LO 3
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Market IdentificationMarket Identification
Retail Location Theories
Market Demand Potential
Market Supply Factors
LO 4
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Selecting a Retail LocationSelecting a Retail Location
LO 4:Exhibit 7.5
Identify the most attractive
markets in which to operate
Select the best site(s)
available
Identify the most attractive
sites that are available
within each market
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Market IdentificationMarket Identification
Trading Area
Is the geographic area from which a retailer, or groupof retailers, or community draws its customers.
LO 4
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Retail Location TheoriesRetail Location Theories
Retail Gravity Theory
Saturation Theory
Buying Power Inde
x
LO 4
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Retail Location TheoriesRetail Location Theories
Retail Gravity Theory
Suggests that there are underlying consistencies inshopping behavior that yield to mathematical analysis
and prediction based on the notion or concept ofgravity.
LO 4
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Retail Location TheoriesRetail Location Theories
Reillys Law of Retail Gravitation based on Newtoniangravitational principles, explains how large urbanizedareas attract customers from smaller rural
communities.
LO 4
Dab
d
1 +Pb
Pa
=
whereDab is the breaking point from city A, measured in miles along theroad to city B;
dis 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.
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Retail Location TheoriesRetail Location Theories
Point of Indifference
Is the extremity of a citys trading area wherehouseholds would be indifferent between shopping in
that city or an alternative city in a differentgeographical direction.
LO 4
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Trading Area for City ATrading Area for City A
LO 4:Exhibit 7.6
City B
(Population 14,000)
3.5 miles
City A(Population 240,000)
City C
(Population 21,000)
1
4.5m
iles
1.3 miles
X
YZ 3.7 miles
3.2 miles
City D
(Population 30,000)
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Retail Location TheoriesRetail Location Theories
Saturation Theory
Examines how the demand for goods and services of apotential trading area is being served by current retail
establishments in comparison with other potentialmarkets.
LO 4
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Retail Location TheoriesRetail Location Theories
Retail Store Saturation is a condition where there isjust enough store facilities for a given type of store toefficiently and satisfactorily serve the population andyield a fair profit to the owners.
Understored is a condition in a community where thenumber of stores in relation to households is relativelylow so that engaging in retailing is an attractiveeconomic endeavor.
Overstored is a condition in a community where thenumber of stores in relation to households is so largethat engaging in retailing is usually unprofitable ormarginally profitable.
LO 4
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Retail Location TheoriesRetail Location Theories
Index of Retail Saturation (IRS) is the ratio of demandfor a product (households in the geographic areamultiplied by annual retail expenditures for a particularline of trade per household) divided by availablesupply (the square footage of retail facilities of aparticular line of trade in a geographic area).
LO 4
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 tradeper household in the area;RF is the square footage of retail facilities of a particular line oftrade in the area (including square footage of the proposedstore).
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Retail Location TheoriesRetail Location Theories
Buying Power Index (BPI) is an indicator of a marketsoverall retail potential and is composed of theweighted measures of effective buying income(personal income, including all nontax payments suchas social security, minus all taxes), retail sales, andpopulation size.
LO 4
BPI = 0.5(the areas percentage of U.S. effective buying income)
+ 0.3(the areas percentage of U.S. retail sales)+ 0.2(the areas percentage of U.S. population)
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Market Demand PotentialMarket Demand Potential
Population Characteristics
Buyer Behavior Characteristics
Household Income
Household Age Profile
Household Composition
Community Life Cycle
Population Density
Mobility
LO 4
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Identifying Communities with High Demand Potential forFast-Food Drive-In RestaurantIdentifying Communities with High Demand Potential forFast-Food Drive-In Restaurant
LO 4:Exhibit 7.7
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Market Supply FactorsMarket Supply Factors
Square Feet Per Store
Square Feet PerEmployee
Growth in StoresQuality of Competition
LO 4
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Site AnalysisSite Analysis
Site Analysis
Is the evaluation of the density of demand and supplywithin 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
LO 5
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Site AnalysisSite Analysis
Size of Trading Areas
Description of Trading Area
Demand DensitySupply Density
Site Availability
LO 5
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Customer Spotting Map for a SupermarketCustomer Spotting Map for a Supermarket
LO 5:Exhibit 7.8City Limits
Store
4 miles from
store 3 miles from
store
1 mile from
store
2 miles from
store
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PSYTEUSA ClusterDemographicPSYTEUSA ClusterDemographic
LO 5:Exhibit 7.9
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Demand DensityDemand Density
Demand Density
Is the extent to which the potential demand for theretailers goods and services is concentrated in certain
census tracts, ZIP code areas, or parts of thecommunity.
LO 5
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Demand Density MapDemand Density Map
LO 5:Exhibit 7.10
Three-Variable Demand-Density Map
Variable 1 = Median income over $22,000Variable 2 = Households per square mile
greater than 1,200Variable 3 = Average growth in population
over last 3 years in excess of3 percent per year
Number ofVariables Met
0 1 2 3
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Supply DensitySupply Density
Supply Density
The extent to which retailers are concentrated indifferent areas of the market under question.
LO 5
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Store Density and Site Availability MapStore Density and Site Availability Map
LO 5:Exhibit 7.11
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Checklist for Site EvaluationsChecklist for Site Evaluations
LO 5:Exhibit 7.12Local 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
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Checklist for Site EvaluationsChecklist for Site Evaluations
LO 5:Exhibit 7.12Traffic 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 areashape
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Checklist for Site EvaluationsChecklist for Site Evaluations
LO 5:Exhibit 7.12Retail 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
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Checklist for Site EvaluationsChecklist for Site Evaluations
LO 5:Exhibit 7.12Site CharacteristicNumber of parking spaces available
Distance of parking areas
Ease of access for delivery
Visibility of site from streetHistory of the site
Compatibility of neighboring stores
Size and shape of lot
Condition of existing building
Ease of entrance and e
xit for trafficEase of access for handicapped customers
Restrictions on sign usage
Building safety code restrictions
Type of zoning
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Checklist for Site EvaluationsChecklist for Site Evaluations
LO 5:Exhibit 7.12Cost 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
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Site SelectionSite Selection
100 Percent Location
Is when there is no better use for a site than the retailstore that is being planned for that site.
LO 6
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Site SelectionSite Selection
Nature of Site
Terms of Purchase or Lease
Expected Profitability
LO 6
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Nature of SiteNature of Site
Traffic Characteristics
Types ofNeighbors
LO 6
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Nature of SiteNature of Site
Store Compatibility
Exists when two similar retail businesses locate nextto or nearby each other and they realize a sales
volume greater than what they would have achieved ifthey were located apart from each other.
LO 6
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Terms of Purchase or LeaseTerms of Purchase or Lease
Length of lease
Exclusivity clause
Guaranteed traffic rate
Anchor clause
LO 6
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Expected ProfitabilityExpected Profitability
Net profit margin
Asset turnover
Return on assets
LO 6
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If Retailers Could Select TheirNeighborsIf Retailers Could Select TheirNeighbors
LO 6
Fast-food restaurant Gas service stationHealth food store Fitness center, medical center
Recycled merchandise Supercenter Home improvement store Supercenter Hardware store Wholesale club, supermarketZales Jewelry Sears, JCPenney, MervynsRecord Giant Wal-Mart; Kmart
Payless Shoes Supercenters, KinderCareLongs Drug Stores TJMaxx, KmartCato Fashion Kmart; Wal-MartBennetton Nordstron; BloomingdalesNursery and Crafts Toys R Us; Circuit City
Retailer Next to