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Module 1

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Introduction to Retailing and Retail Formats

Store Location and Layouts

Merchandise Management Merchandise Plans Buying Merchandise Pricing Buying Systems Financial Performance

Understanding Retail Customers Customer Behavior at Retail Location Customer Relationship Management Supply Chain Management

Introduction to Retailing Retail Formats

Location
Site Selection Store Layout

Location Managing Retailing

Location Analysis

Location Managing Retail

Dr. Paromita Goswami Location Managing Retailing

Learning Objectives

To outline the process for choosing a store location To discuss the concept of a trading area and its related components To examine three major factors: population characteristics, economic base characteristics, competition and level of saturation
Dr. Paromita Goswami Location Managing Retailing

Choosing a Store Location


Step 1: Evaluate alternate geographic (trading) areas in terms of residents and existing retailers Step 2: Determine whether to locate as an isolated store or in a planned shopping center Step 3: Select the location type Step 4: Analyze alternate sites contained in the specific retail location type
Dr. Paromita Goswami Location Managing Retailing

Three Levels of Analysis

Dr. Paromita Goswami Location Managing Retailing

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

Dr. Paromita Goswami Location Managing Retailing

Sources of Information

Customer Spotting Census Data Geodemographic Information Systems Information on Competition Yellow Pages

Dr. Paromita Goswami Location Managing Retailing

Customer Spotting
Purpose: to spot, or locate, the residences of customers for a store or shopping center.
How to obtain data:

credit card or checks


customer loyalty programs manually as part of the checkout process automobile license plates
Dr. Paromita Goswami Location Managing Retailing

Customer Spotting Map for a Supermarket

Location Retail Management

Dr. Paromita Goswami Location Managing Retailing

GIS Components

Location Retail Management

Dr. Paromita Goswami Location Managing Retailing

GIS Software

Geographic Information Systems digitized mapping with key locational data to graphically depict trading-area characteristics such as population demographics data on customer purchases listings of current, proposed, and competitor locations

Dr. Paromita Goswami Location Managing Retailing

GIS Software in Action

Location Retail Management

Dr. Paromita Goswami Location Managing Retailing

The Segments of a Trading Area

Location Retail Management

Dr. Paromita Goswami Location Managing Retailing

The Size and Shape of Trading Areas


Primary trading area - 50-80% of a stores customers Secondary trading area - 15-25% of a stores customers Fringe trading area/ Tertiary - all remaining customers

Dr. Paromita Goswami Location Managing Retailing

Oblong Trade Area Caused by Major Highways and Natural Boundaries

Dr. Paromita Goswami

Location Managing Retailing

Trading Areas and Store Types


Largest

Department stores
Supermarkets

TRADING AREAS

Apparel stores
Gift stores

Smallest

Convenience stores

Dr. Paromita Goswami Location Managing Retailing

Methods of Estimating Demand: Computerized Trading-Area Analysis Models Analog Model Regression Model Gravity Model
Dr. Paromita Goswami Location Managing Retailing

Multiple Regression Steps


Current trade areas are determined by using the customer spotting technique
Primary, secondary, and tertiary zones are determined by plotting customers on a map

Select appropriate measures of performance, such as per capita sales or market share
Select a set of variables that may be useful in predicting performance

Solve the regression equation and use it to project performance for future sites
Dr. Paromita Goswami Location Managing Retailing

Illustration of Regression Approach


1. Specify Regression Model Identify Critical Predictors of Store Sales Sales = B0 + B1 x X1 + B2 x X2 X1 = population in trade area X2 = average household income in trade area 2. Estimate Weights - B0,B1, B2 3. Use Estimated Weights to Forecast sales Sales = -144,146 + 6,937 x X1 + 10,132 x X2 Sales = -144,146 + 6,937 x 55,000 + 10,132 x 28,000 = $521,085
Dr. Paromita Goswami Location Managing Retailing

Reillys Law

Reillys law of retail gravitation, a traditional means of trading-area delineation, establishes a point of indifference between two cities or communities, so the trading area of each can be determined Point of Indifference: Is the extremity of a citys trading area where households would be indifferent between shopping in that city or an alternative city in a different geographical direction

Dr. Paromita Goswami Location Managing Retailing

Reillys Law of Gravitation : An illustration of trading area of Cuttack


d
Dcb = 1+ Pb

Pc where Dcb is the breaking point from Cuttack, measured in miles along the road to Bhubaneswar; d is the distance between Cuttack and Bhubaneswar along the major highway; Pc is the population of Cuttack; and Pb is the population of Bhubaneswar
Dr. Paromita Goswami Location Managing Retailing

Limitations of Reillys Law

Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets Travel time does not reflect distance traveled. Many people are more concerned with time traveled than with distance Actual distance may not correspond with perceptions of distance

Dr. Paromita Goswami Location Managing Retailing

Huffs Law of Gravitation


Huffs law: of shopper attraction delineates trading areas on the basis of product assortment (of the items desired by the consumer) carried at various shopping locations, travel times from the shoppers home to alternative locations, and the sensitivity of the kind of shopping to travel time

Dr. Paromita Goswami Location Managing Retailing

Huffs Model Formula


S T b j ij P n ij S j Tij b j 1
Where

P ij S j

Probability of a customer at a given point of origin i traveling to a particular shopping center j Size of shopping center j Travel time or distance from customer's starting point to shopping center

T ij b

An exponent to T that reflects the effect of travel time on different ij kinds of shopping trips
Dr. Paromita Goswami Location Managing Retailing

University and Shopping Centers: Illustration of Huffs Model

Dr. Paromita Goswami Location Managing Retailing

Huffs Model: The Solution


Pij = 1000 32 (1000 32) + (500 52) + (100 12)

Step 1) Probability = .48 Step 2) .48 x 12,000 students = 5,760 customers Step 3) 5,760 customers x $150 = $864,000

Dr. Paromita Goswami Location Managing Retailing

Elements in Trading-Area Selection

Population Characteristics

Economic Base Characteristics

Nature and Saturation of Competition

Dr. Paromita Goswami Location Managing Retailing

Retail Saturation Theory


Understored: the number of stores in relation to households is relatively low so that engaging in retailing is an attractive economic endeavor Overstored:the number of stores in relation to households is so large that engaging in retailing is usually unprofitable or marginally profitable Saturated: 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

Dr. Paromita Goswami Location Managing Retailing

Retail Saturation
Index of Retail Saturation (IRS): is the ratio of demand for a product divided by available supply IRS = (H X RE)/RF 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)

Dr. Paromita Goswami Location Managing Retailing

Demand Density

Demand Density: Is the extent to which the potential demand for the retailers goods and services is concentrated in certain census tracts, ZIP code areas, or parts of the community

Dr. Paromita Goswami Location Managing Retailing

Demand Density Map

Dr. Paromita Goswami Location Managing Retailing

Supply Density

Supply Density: The extent to which retailers are concentrated in different areas of the market under question

Dr. Paromita Goswami Location Managing Retailing

Store Density and Site Availability Map

Location Retail Management

Dr. Paromita Goswami Location Managing Retailing

Illustration: Which trading area would you choose?

Characteristics Total population, 2007 Population change, 1997-2007 College graduates, 25 +, 20007 (%) Median household income, 2007 Managerial and professional occupations (%), 2007

Area A
13,732 +8.2 41.4 Rs. 61,236 45.3

Area B
15,499 +2.5 39.2 Rs. 61,242 45.0

Dr. Paromita Goswami

Location Managing Retailing