RETAIL STORE LOCATION

STORE LOCATION
Objectives:
Role of location in retail business Delineate the process of deciding location Understand Trading Identification Process Area and Site

Decide locations for Networks

DISCUSSION QUESTIONS
1. What factors do retailers consider when evaluating an area of the country to locate stores? 2. What retail locations are best for departmental stores, consumer electronics, category killers, specialty apparel stores and warehouse stores?

IMPORTANCE OF LOCATION DECISION

Location is a major cost factor because: It involves large capital cost Affects transportation costs Affects human resource cost, e.g salaries Location is a major revenue factor because: It affects the amount of customer traffic Affects volume of business

ROLE OF LOCATION IN RETAIL BUSINESS

Location becomes a very critical decision for a retailer for several reasons
Location is generally one of the most important factors customers consider while choosing a store Store location is the least flexible element of a retailers strategy mix due to its fixed nature, the amount of investment and the length of lease agreements

Good location may let a retailer succeed even if its strategic mix is mediocre
A store inherits a lot of its character from its location

THE PROCESS OF DECIDING LOCATION

In deciding a store location, two broad decisions need to be made: The current and future potential of the catchment area of the store
The exact site of the store

LOCATION PLANNING- TYPES OF LOCATIONS

A. High- Street Locations:
Very busy with high customer traffic Has an array of retail stores in small sizes Has stores that are generally found in clusters based on product categories High real- estate rentals Eg. Linking Rd. Bandra, Brigade Rd. Bangalore, South Extn, New Delhi

B. Destination/ Free Standing Location

Does not have high footfall rate May not be a commercial retail area at all Low real estate rental May have large parking area Eg. Phoenix Mills Compound and Shoppers Stop, Mumbai

LOCATION PLANNING- TYPES OF LOCATIONS

C. Shopping Centre / Mall Locations:
Has existing mall traffic Has a clear environment Has a designated parking area Medium to high rental cost Eg. DLF Mall in NCR, Spencer Plaza in Chennai, Cross Roads in Mumbai

Location Mapping: While planning the location strategy, it is imperative to map the locations so that the extent of each stores location reach is well defined Location Parameters: Necessary to define the store location identification parameters in a format and see if the desired attributes are available

THE PROCESS OF DECIDING LOCATION

The process consists of:

Evaluate alternate geographic (trading) areas in terms of potential characteristics of residents, offices, commercial settlements, and existing retailers Determine what type of sites are desirable from the three basic location formats: isolated, unplanned district, or planned centre Select the general location of the store Evaluate specific alternate store sites

STEPS IN DECIDING STORE LOCATION

STEPS IN LOCATION DECISION MAKING Trading Area Analysis
Site Analysis

Constitution

Travelling Limits/ Barriers Natural Yes Competition No Profile Shopper Profile Size

List Size List Value Physical Psychological Growth of market Clearly differentiated Demographic Enough for Growth/ Others to survive

Type of Site

Economies of Scale

Legal Aspects

Isolated Store / Unplanned Business District/ Planned Shopping Centre

Geographic Area

Infrastructure Economic Activity Housing pattern

SU

LEVELS OF LOCATION DECISION

STEPS IN LOCATION DECISION MAKING

Selection of city

Area within city

Site decision

Size of the citys trading area Population and growth trends Purchasing power and its distribution Trade potential Number, size quality of completion

Customer attraction of shopping district Quantitative and qualitative nature of competition Availability of access route Nature of zoning regulation Direction of the area expansion

Adequacy and potential traffic Complementary nature of adjacent store Adequacy of parking

CB

THE PROCESS OF DECIDING LOCATION

1. Evaluate alternate trading areas, geographical area, level of competition and shopper profile
1(a) Trading

areas can be divided into three zones: Primary zone - the highest density of customers to population and the highest per capita sales Secondary zone - generating about 20 percent of a stores sales Tertiary zone - includes some out shoppers who are willing to travel greater distances to patronize certain stores.

TRADE AREAS FOR VARIOUS PRODUCTS

YR. 2000 YR. 2001
4.05 km 4.3 km

Grocery Apparel

3 km
2.43 km 1.86 km

1 km
1.92 km

Cosmetics Jewelry 4 km
2.14 km 1.88 km

5 km

2.54 km

1.51km

Books
Music

1.5 km

3.26 km 4.6 km

THE PROCESS OF DECIDING LOCATION

1(b) Geographical Area

Transportation network, banking facilities and other support services play an important role in the development of retail in a given area Physical barriers, such as toll bridges, poor roads, high traffic, railway crossings, one way streets, would reduce the size and determine the shape of the trading areas Economic barriers (difference in sales tax between towns) also affect the size and shape of trading areas Economic prosperity eg. Bangalore is a big retailing hub Customers also consider psychological barriers such as avoidance of locations due to racial, religious causes

Location (Margin Free Market): Kerala based retail chain specializing in grocery and toiletry product Target audience middle & lower middle class consumers. Deposit paid by card holders 250 stores in small town of Kerala First retailer to cross Rs, 500 cr turn over (USD 4 mln.) Unable to venture to North India because of steep real estate costs. Location (Nilgiris): Bangalore based retail chain specializing in bakery and dairy products Beginning to look for franchisees in Delhi, Mumbai, and Kolkata Right location and right partners absolutely essential for the success of venture. Zoning (McDonals): Located on the outskirts of Delhi- Ludhiana highway Destination location for consumers and highway travelers Check post established just before McDonald store to comply with new municipal order Every vehicle passing through from Ludhiana have to now pay tax using highway before reaching McDonald Adversely affected business

THE PROCESS OF DECIDING LOCATION

1(c) The role of competition in deciding the location May effect success of a store . It can be defined as saturated, under stored or over stored A retailer would assess the impact and decide whether competition would divide the market or it would help grow the market The level of competition in a market can be measured with certain ratios based on the output of the stores in a given area such as average sales per retail store, average sales per retail store category, average sales per square foot of selling

THE PROCESS OF DECIDING LOCATION

1(d) Shopper Profile: A retailer could consider the following
Growth of population and its income
Life-style store in areas with high income house hold Toy store in areas with higher no. of families

Size and composition of households The composition of the population

Self-service retail outlets in areas with high density of cosmopolitan population

Knowledge about an areas population characteristics can be gained from reports of organizations like Central Statistical Organization of India, NCAER, A.C Nielsen and IMRB.

STEPS IN DECIDING STORE LOCATION

STEPS IN LOCATION DECISION MAKING Trading Area Analysis
Site Analysis

Type of Site

Competition

Economies of Scale

Shopper Profile

Legal Aspects

Isolated Store / Unplanned Business District/ Planned Shopping Centre

Geographic Area

SU

THE PROCESS OF DECIDING LOCATION

2.
Having identified the area, determine the site where the retailer would trade suiting its positioning, costs, merchandise and customers. This analysis is done on the basis of:

Analysing The Site

A.
B.

Store type and size: Isolated Store

Free standing retail outlet located on either a highway or street

Unplanned Business District

Type of location where two or more stores are situated together

Planned Business District

Locations developed as independent shopping areas- malls, govt developed markets eg. Chandigarh

C.

Economies of scale: Retailers generally do not choose on the basis of best locations but for multiple locations. This enables them to achieve economies of scale in promotion and distribution (Subhiksha makes direct purchases). Legal aspects of the site: Zoning, rent, tenancy laws, taxation, sales tax rate across states, Value-Added Taxation (VAT).

WHAT IS MEANT BY A PARASITE STORE?

Does not create its own traffic nor does it have a trading area of its own Magazine stand in a hotel lobby Snack bar in a shopping centre In India such stores are many in temples, bus stations,, and railway stations. Airport retailing??

THE PROCESS OF DECIDING LOCATION

3. Select the general locations for the store based on:
Formats Neighborhood Frontage Infrastructure Basement vs. other floors Bundling of purchases by customers Rent Legal requirements Future expansions

THE PROCESS OF DECIDING LOCATION

4. Methods Of Estimating Demand : These take into account environment parameters like opportunity, size, competition in estimating demand and shopper behaviour.
Space sales ratio method This method is based on the assumption that a store's sales are dependent on its size in comparison to the competition (core, secondary or primary) Proximal area method This method attaches a great importance to the proximity of location of the store. It assumes that convenience is the primary driver of store choice

PROXIMAL AREA METHOD

A L B O P

Q C STORE TERRITORIES A= LP + OP B= LQ + QM C= OP +PN D= QM + QN N D

THE PROCESS OF DECIDING LOCATION

4. Methods Of Estimating Demand Analogue Model
In order to estimate the size and sales potential of a new location, match the customer demographics, the competition, and the sales of currently operating stores with similar parameters at a prospective location. This model helps in market expansion without bringing about changes in the retailer's strategy due to similarity of the target market. There are 3 steps:
a) b)
c)

Determine current trade area Define primary, secondary and tertiary zone based on density of customers Match current store location with potential new store location

ANALOGUE MODEL
AI Est. HH (000) A1 A2 B1 B2 C D 180 , 000 1.0 1.7 2.5 2.4 6.3 7.0 Ahm. 833 4.1 8.5 10.8 9.8 20.9 24.8 Bang. 1173 6.5 7.0 7.2 7.9 26.0 22.5 Chen. 1369 7.3 6.0 8.7 7.7 24.7 22.9 Kolkata Delhi 2625 4.4 4.7 10.0 7.6 17.7 26.2 2666 8.4 8.6 12.0 8.8 21.9 19.5 Mum. 3522 4.4 5.4 9.1 7.5 28.3 24.5 Hyd. 1021 5.1 10.2 8.8 7.0 20.7 18.6 Pune 802 6.1 6.0 9.0 5,8 25.3 23.5

E1 E2
Up to Rs.3k 3k 6k 6k 10k

3.4 5.5
77.7 16.2 4.0

8.9 12.2
47.4 30.3 12.4

8.8 14.2
50.9 33.3 9.9

13.2 9.6
53.7 26.4 11.6

13.4 16.0
54.5 29.7 9.9

7.9 12.8
33.2 35.0 19.4

10.8 9.9
38.6 41.7 13.2

8.2 21.3
46.4 29.0 12.8

9.8 14.5
46.8 32.6 10.1

Monthly Household Income

Household Demographic Data (Top & 8 Metros)

R K SWAMY GUIDE TO URBAN MARKETS.

In order to understand the market potential of a town/ state, R K Swamy Guide to Urban Markets is made use of. The data covers and presents 784 towns with a population of over 50,000 in 21 states and three union territories. Three indices are computed for each town. Four factors are used for computing these indices. Each of these factors is represented by a few well-chosen indicators. The three indices computed are: 1. Market Intensity Index. 2. Market Potential Value. 3. Media Exposure Index. The four factors used for computing these indices are: 1. Means 2. Consumption 3. Awareness 4. Market Support

R K SWAMY GUIDE COMPUTING THE INDEX

Means, the first factor reflects the prosperity of the town. It is represented by three indicators, namely, per capita income, per capita bank deposit, proportion of households with the monthly income above Rs 10,000/-. Consumption, the second factor reflects the consumption pattern and has six indicators, namely, ownership of low priced consumer durables, medium priced consumer durables, high priced consumer durables, car, telephone and per capita consumption of fast moving consumer goods. Consumer awareness, the third factor is represented by five indicators namely, readership of print medium, cinema hall capacity, viewer ship of television, listenership of radio and female literacy. Market Support to facilitate marketing activity forms the fourth factor with four indicators comprising employment in trade, employment in transport, bank credit to trade and bank credit to transport.

TOWNS IN DESCENDING ORDER OF MPV

AI RANK MPV 1. 2. TOWN STATE MPV POPULATION 000 SHARE IN STATE % MPV POPULATION

Greater Mumbai Maharashtra Delhi Delhi

1000 789

16368
12791

55.7
100

46.2%
100%

3.
4. 5. 6. 7. 8. 9. 10.

Kolkata
Chennai Hyderabad Bangalore Ahmedabad Pune Surat Nagpur

West Bengal
Tamil Nadu A.P Karnataka Gujarat Maharashtra Gujarat Maharashtra

613
363 258 254 220 206 124 104

13216
6424 5533 5586 4519 3755 2811 2123

74.5
43.9 37.6 48.2 30.9 11.5 17.5 5.8

66.9%
34.7% 30.2% 41.3% 27.7% 10.6% 17.2% 5.9%

THE PROCESS OF DECIDING LOCATION

(The degree of attraction between 2 objects is based on the size of the object and the distance between them)
The Law of Retail Gravitation, allows us to draw trade area boundaries around cities using the distance between the cities and the population of each city. Two cities of equal size have a trade area boundary midway between the two cities. When cities are of unequal size, the boundary lies closer to the smaller city, giving the larger city a larger trade area. Reilly called the boundary between two trade areas the breaking point (BP). On that line, exactly half the population shops at either of the two cities. One can determine the complete trade area of a city by determining the BP http://geography.about.com/cs/citiesurbangeo/a/aa between multiple cities or centers 041403a.htm

REILLYS LAW
(The degree of attraction between 2 objects is based on the size of the object and the distance between them)
LOCALITY - A POPULATION 90,000 d D ab =

15 KM

STORE

5 KM LOCALITY - B POPULATION 10,000

1 + Pb/ Pa
20

D ab= Limit of location As trading area along the road to location B d= Distance along a major roadway between A & B P a = Population of location A P b = Population of location B

D ab =

= 15 km Limitations: 1 + (10,000/ 90,000) 1. Distance is measured by major thoroughfares and does not involve cross streets 2. Travel time does not necessarily reflect just distance travelled 3. Actual distance may not correspond with peoples actual perception of distance

HUFFS GRAVITY MODEL

Huff's Probability Model is a model formulation that can be used to determine the split of external-internal and external-external traffic. The model is formulated as a ratio of one cities attractiveness versus the summation of the attractiveness of all the other cities combined. This model is useful in identifying the percent of travelers from other cities that would be interested in patronizing the study area, and similarly, the percent of individuals who would be traveling through the study area to patronize businesses in other towns. These percentages are used to determine the amount of externalexternal traffic in the area. The percentage of individuals that would pass through the study area towards a different destination will be determined and the percentage will be factored into the current traffic volumes on the highways outside the area.

HUFFS GRAVITY MODEL

The equation calculates the likelihood that a person living in one city shops in another as well as the ability of one city to attract users from surrounding cities

THE PROCESS OF DECIDING LOCATION 4. Methods Of Estimating Demand

Huffs Gravity Model Huffs Gravity model is based on the premise that the probability that a given customer will shop in a particular store or shopping centre increases with the size of the store or centre and reduces with the distance or travel time To forecast sales, the probability of the customer shopping at a particular place is multiplied by an estimate of the customers expenditure. Then all the estimated expenditure in an area are aggregated to estimate sales from the area.

HUFFS GRAVITY MODEL

S j T ij
P ij = Probability of a customer at a given point of
origin i travelling to a particular shopping centre j S j = Size of shopping centre j T ij = Travel time or distance from the customers starting point to the shopping centre; and n an exponent of T ij that reflects the effect of travel time on different kind of shopping trips

P ij =

S j T ij

Shopping Centre University Plaza Barnes & Noble Bookshelf

Size (sq. ft.) 5,000 1,000 500

Distance from University 3 5 1

Step 1:
Determine the probability that a student in this university will shop at University Plaza. Using the formula for the Huffs model and data for the centres,

P ij = Step 2:

5000 3

= 0.51

(5000 3) + (1000 3) + (500 3)

Forecast the no. of students who will buy their books at University Plaza. For this the probability is multiplied by the no. of students. Therefore, the no. of students who are likely to buy their books is:

0.51 x 12,000 students = 6,200 customers Step 3:

Determine the sales forecast. Assuming that each customer will spend an average of Rs.150/- on books, the forecasted sales will be:

6,200 customers x 150 = Rs. 9,30,000/Similarly the forecasted sales for Bookshelf is Rs. 65,720/- and that for Kitab Kendra is Rs. 8,21,5000/-. Therefore the total forecasted book sales for the entire trade is Rs. 18,17,220/-

THE PROCESS OF DECIDING LOCATION 4. Methods Of Estimating Demand

Multiple Regression Model The multiple regression model uses logic similar to the Analogue approach, but uses statistics rather than judgment to predict sales for the new store. This approach is divided into 3 steps: a) Identify an appropriate measure of performance such as per capita sales or market share b) Create a set of variables useful in predicting performance c) Use regression equation to project future sales

MONTHLY SALES AND POPULATION OF APPAREL STORES

Store No. 1 2 3 4 5 6 7 8 9 10 Monthly Sales (Rs.000) 600 700 800 300 400 325 1000 1200 400 600 Population (within 4 km radius) 75,000 60,000 60,000 20,000 25,000 25,000 80,000 70,000 25,000 75,000

MULTIPLE REGRESSION MODEL

Assume that a proposed site had a population of 40,000 potential customers within 3 km. radius. The regression line is derived from

Sales = a + (b1) x (x1)

where, a = constant b1 = co-efficient that defines the relationship between sales and the predictor variable(s); and, x1= the predictor variable (0 3 km ) population Therefore, the projected performance for the proposed site is: Sales = 103 + (0.01 x 40,000) = Rs.5,39,000 In this case, as the population in that area is 40,000 people, and a is derived as Rs,1,03,000, the sales is forecasted as Rs.5,39,000/The simplified illustration uses only one predictor variable. In case the retailer finds that the average family income also has a strong and statistically significant relationship to sales, the new regression equation would be: Sales = a + (b1) x (x1) + (b2) x (x2)

SCATTER PLOT OF REGRESSION ANALYSIS (Past is a good reflection of the future)

10000

8000
POPULATION

6000

4000

2000

0 500 1000 MONTHLY SALES (IN RS. 000) Population

CHOOSING THE BEST METHOD

Analogue and Huff approaches
Huffs explicitly considers the attractiveness of competition and customers distance time Best when no. of stores with obtainable data are small (< 30) Used by small retailers Huffs model is particularly important to use in conjunction with analogue or regression methods

Regression approach
Best when multiple variables are expected to explain sales

Methods may be applied to on-line stores as well, though accessibility to such stores is unlimited and shoppers from across the world can buy.

THE PROCESS OF DECIDING LOCATION

Determining Locations for Networks
Developing such a network requires systematic evaluation of the impact of each store on the entire network of outlets Proximal-area-based models Competition-ignoring model (CIM)

Market-share model (MSM)

Objective function: Minimize total travel distance Allocation rule: Travel to nearest centre. Comments: Assumes negative linear relationship between distance and utilization. Ignores competitive locations.
Objective function: Maximize demand within proximal areas of outlets belonging to the firm. Allocation rule: Travel to nearest outlet. Comments: Consider location of competitive outlets. Locates in interstitial sites between proximal areas of existing outlets. Objective function: Maximize expected market share or profit. Allocation rule: Based on spatial-interaction- model. Comments: Considers trade-off between distance and non-distance factors. Allocates fixed demand among outlets based on spatialinteraction- model.

Spatial-interaction-based models

THE PROCESS OF DECIDING LOCATION (FOR NETWORKS)

Covering Models
Set-covering model Objective function: Locates minimum number of outlets to serve all demand within specified accessibility criterion. Allocation rule: Consumers patronize nearest outlet. Comments: Optimal location pattern assures universal accessibility. Maximal-covering model Objective function: Minimize proportion of demand within accessibility criterion. Allocation rule: Consumers patronize nearest outlet. Comments: Determine trade-off between service level and investment in outlets. Weighted-covering model Objective function: Maximize utilization. Allocation rule: Travel to nearest outlet. Comments: Assumes stepwise relationship between accessibility and utilization.