Chapter Objectives ¢ Retail Locations-Planned and Unplanned 1) The Isolated store / Freestanding location (Unplanned) 2) City or Town business district (Unplanned) 3) Part of a Shopping Center (Planned) ¢ Location and Retail Strategy ¢ Steps involved in choosing a location (site Selection) * Trade Areas and their evaluation ¢ Evaluating a retail location e Trends in Retail Property Development in India « The spread of organized retail in IndiaRetail Locations-Planned and Unplanned + Location is one of the most influential considerations in a customer’s store- choice decision. Location decisions have strategic importance because they can be used to develop a sustainable competitive advantage. If a retailer has the best location i.e. the location that is most attractive to its customers, competitors cannot easily copy this advantage. Location decisions are risky. When retailers select a location, they either must make a substantial investment to buy and develop the real estate or must commit to a long-term lease with developers. Retailers often commit to leases for 5 to 15 years.Types of Retail Location There are several types of location choices available for retail stores, each type with its own strengths and weaknesses. The basic types of location are: 1) The Isolated store / Freestanding location (Unplanned) 2) City or Town business district (Unplanned) 3) Part of a Shopping Center (Planned) Choosing a particular location type requires evaluating a series of trade-offs, such as the size of trade area, cost of location, pedestrian and vehicle customer traffic, restrictions placed on store operations by the property managers, customer convenience etc.1). Isolated Store/ Free Standing Location (Unplanned) Retail locations for an individual, isolated store unconnected to other retailers; however, they might be near other freestanding retailers or a shopping center. For example These locations are popular for gas stations, hotels on highways, fast- food restaurants, such as McDonald’s etc. The advantages of freestanding locations are: ¥ Convenience for customers (easy access and parking) ¥ High vehicular traffic and visibility to attract customers ¥ Modest occupancy costs Fewer restrictions on number of hours, or merchandise, as are imposed in shopping centers. ¥ Low rents1). Isolated Store/ Free Standing Location (Unplanned) The disadvantages of freestanding locations are: v However, freestanding locations have a limited trade area. There are no other nearby retailers to attract customers interested in shopping at multiple outlets on one trip. v Freestanding locations may have higher occupancy costs because they do not have other retailers to share the cost of outside lighting, parking lot maintenance. v Freestanding locations may have little pedestrian traffic.2). City or Town Locations (Unplanned) Q Urban locations have lower occupancy costs than enclosed malls and often have high pedestrian traffic. Q However, vehicular traffic is limited due to congestion in urban areas, and parking problems reduce consumer convenience. Q Unlike freestanding locations, store signage can be restricted in these locations. Q Young professionals are moving into these areas to enjoy the convenience of shopping, restaurants, and entertainment near their residence.2). City or Town Locations (Unplanned) a. Central Business District (CBD) Main center of commerce and trade in the city. A hub for public transportation, high level of pedestrian traffic Good accessibility in terms of transport from all parts of the city. Large number of residents living in the area. Limited parking and longer driving times can discourage shoppers. Lack of planning (One block may contain upscale boutiques, next may have low-income housing. Consumers may not have access to enough retailers that they can visit in one shopping trip)2). City or Town Locations (Unplanned) b. Main Street Traditional shopping area in smaller towns within a larger city Main Streets share most of the characteristics of a CBD, but their occupancy costs are generally lower. Main Street locations do not draw as many people as CBD because fewer people work in the area and the fewer stores generally mean a smaller overall selection. Main Streets do not offer the range of entertainment and recreational activities available in CBDs.2). City or Town Locations (Unplanned) c. Inner City The term ‘inner city’ in the United States refers to a high density urban area that has higher unemployment and lower income than the surrounding metropolitan area. Generally retailers avoid opening stores here because it is riskier and achieves lower returns than other areas. Retailing can play an important role in inner-city redevelopment activities by providing needed services and jobs for inner-city residents, as well as property taxes to support the redevelopment. Because of the potential of this untapped market and incentives from local governments, developers are increasing their focus on opportunities in the inner city. /3). Shopping Centers (Planned) a Q A group of retail and other commercial establishments that are planned, developed, owned, and managed as a single property. By combining many stores at one location, the development attracts more consumers to the shopping center than would be the case if the stores were at separate locations. The developer and shopping center management carefully select a set of retailers that are complementary to provide consumers with a comprehensive shopping experience, including a _ well-thought-out assortment of retailers. The shopping center management maintains the common facilities such as the parking area - an arrangement referred to as common area maintenance (CAM) - and is responsible for providing security, parking lot, lighting, outdoor signage for the center, advertising etc.3). Shopping Centers (Planned) + Retailers in the center pay a portion of the CAM costs for the center according to the size of their store’s space. * Shopping center management generally place restrictions on the operating hours, signage, and even the type of merchandise sold in the stores. * Most shopping centers have at least one or two major retailers, referred to as anchors, that are specially called by the center's developer because they attract a significant number of consumers and make the center more appealing for other retailers. + To get these anchor retailers to locate in a center, developers give them special deals, such as reduced lease amount.3). Shopping Centers (Planned) a. Neighborhood and Community Shopping Centers *Also called strip shopping centers, are attached rows of non-enclosed stores, with on-site parking usually located in front of the stores. +Smaller centers (neighborhood centers) are anchored by a supermarket or a drugstore and designed for day-to-day convenience shopping.3). Shopping Centers (Planned) * The larger centers (community centers) are anchored by at least one big- box store such as a discount department store or an off-price retailer. *The main advantages are that they offer the customers, convenient locations and easy parking and have relatively low occupancy costs. * Disadvantage is that smaller centers have a limited trade area due to their size, and they lack entertainment and restaurants. * There is no protection from the weather. As a result, neighborhood and community centers do not attract as many customers as larger, enclosed malls do.3). Shopping Centers (Planned) b. Shopping Malls Enclosed, climate-controlled, lighted shopping centers with retail stores on one or both sides of an enclosed walkway. Parking is usually provided around the perimeter of the mall. Shopping malls are classified as either regional malls (less than 800,000 square feet) or super regional malls (more than 800,000 square feet). Super-regional centers are similar to regional centers, but because of their larger size, they have more anchors, specialty stores, and recreational opportunities and draw from a larger geographic area, and are considered tourist attractions.3). Shopping Centers (Planned) Advantages of Shopping Malls Attract many shoppers and have a large trade area because of large number of stores and the opportunity to combine shopping with entertainment. Provide an inexpensive form of entertainment. + People can socialize Since they are enclosed, customers can conveniently shop during all seasons. Mall management ensures a level of consistency that benefits all the tenants. For instance, most major malls enforce uniform hours of operation3). Shopping Centers (Planned) Disadvantages of Shopping Malls Shopping mall occupancy costs are higher than those of strip centers, freestanding sites, and most central business districts. Some retailers may not like mall management's control of their operations, such as strict rules governing hours of operations, window displays and signage. Competition within shopping centers can be intense. Several specialty and department stores might sell similar merchandise and be located in close proximity. Freestanding locations have convenient parking facilities.3). Shopping Centers (Planned) c. Outlet Centers * Shopping centers that contain mostly manufacturers’ and retailers’ outlet stores. * Outlet center rent rates are lower than those at shopping malls. + Some outlet centers have a strong entertainment component, including movie theaters and restaurants to keep customers on the premises for a longer period of time. * Tourism represents 50 percent of the traffic generated for many outlet centers. Thus, many are located with convenient interstate access and close to popular tourist attractions.Location and Retail Strategy + The selection of retail type must reinforce retailer's strategy. The location decision needs to be consistent with the shopping behavior and size of the target market and the retailers positioning in the target market. 1. Shopping Behavior of Consumers in the Target Market + One of the critical factors affecting the type of location that consumers select to visit is the ‘Shopping Situation’ in which they are involved. + The types of shopping situations are: 1. Convenience Shopping: Here the consumers are primarily concerned with minimizing their effort to get the product/ service they want. They are relatively insensitive to price and indifferent about which brands to buy. Thus they want to make quick purchases. Example: buying bread, milk etc. Such stores are located at customers convenience and are easily accessible.Location and Retail Strategy 2. Comparison Shopping: Here the customers may have an idea about the type of product/ service they want but not a well developed preference for a brand or a model. The purchase decisions are more important to them, so they seek information and compare alternatives, especially for purchase of furniture, appliances, apparels, cameras etc. The competing retailers are located next to each other in order to facilitate comparison shopping and attract customers. Enclosed malls offer the same benefits to consumers interested in comparison shopping for fashion apparels.Location and Retail Strategy 3. Specialty Shopping: — When customers go specialty shopping, they know what they want and will not accept a substitute. They are loyal to the brand as well as retailer and don’t mind spending more, for example, while buying organic food items, buying a high quality oven etc. The retailers they patronize when specialty shopping also are destination stores, which may be inconvenient locations. ll.Density of Target Market: A good location has many people in the target market who are drawn to it. IllUniqueness of Retail Offering: The convenience of location may not be a relevant factor _ for retailers with unique, undifferentiated offerings.Steps involved in choosing a retail location Step 1: Identifying the Market Step 2: Determining the Market Potential Step 3: Identifying alternate sites Step 4: Selecting the siteFactors affecting the choice of market(in step 2) Demographics of Competition Population & area Trade area analysis Laws & RegulationTrading Area * A trade area is the adjacent geographic area that accounts for the majority of a store’s sales and customers. * Knowing the boundaries of trading —_ area helps a retailer to estimate the potential customers who may patronize the retail store. * Accordingly the retailer can gather information about the demographics and lifestyle of people and estimate sales. * Understanding the trade area also helps retailers formulate suitable promotional and communication strategies. * Thus defi ing the trade area is one of the most important steps in market analysis.Types of Trade Areas(in Step 2) Tertiary Trading Area Secondary Trading AreaTrading Area 1. Primary Trading Area: It is the geographic area from which the shopping center or store site derives 50 to 70 percent of its customers. 2. Secondary Trading Area: It is the geographic area of secondary importance in terms of customer sales, generating about 20 to 30 percent of the site’s customers. 3. Tertiary/ Fringe Trading Area: It includes the remaining customers who shop at the site but come from widely dispersed areas. These customers might travel an unusually long distance because they do not have comparable retail facilities closer to home, or they may drive near the store or center on their way to or from work.Trading Area (an example) * In USA, most retailers define the three zones based on driving time rather than distance. * In smaller cities (bigger cities), the primary trading area might be defined as customers within 5 minutes (15 minutes)’ driving time of the site; the secondary trading area, as customers with a 10-minute (40 minutes) drive; and the tertiary zone, as customers more than 15 minutes (more than 1 hour.) away from the site by car. * However, it is much easier to collect information about the number of people and their characteristics in the different zones by geographic distance than by driving time. * Some other retailers may also define the zones by distance such as 3, 5, and 10 miles from the site rather than driving time.Three factors to consider * Characteristics of the site * Characteristics of the trading area for a store at the site * The costs associated with locating at the siteSite Characteristics Eee sstuis a Geeced * vehicular traffic * parking spaces * Rental fee + Ease of vehicular * access to store * common area access entrance and exit maintenance costs * access to major * visibility of store from * local taxes highways street + Advertising and * street congestion * access for deliveries promotion fees * pedestrian traffic * size and shape of * length of lease * availability of transport stores condition of building adjacent retailersTraffic flow and accessibility * High traffic- more customers likely to stop and shop * Traffic counts important for retailers offering merchandise bought on impulse * Accessibility is important as traffic flow. Greater for sites located near major highways, on uncongested highways and with traffic lights and turns which enable to turn into the site * Natural barriers and artificial barriers also affect + pedestrian traffic, access by public transportation — imp min countries where consumers don't drive to shopping centersLocation characteristics Parking: Amount of parking and quality determines location Less: customers are discouraged, more: store may be perceived as unpopular Need to consider the availability of employee parking, proportion of shoppers using cars, parking by non shoppers, typical length of shopping trip. Congestion: refers to amount of crowding by cars or people. Optimal level essential. Too much: discourage sale, make shopping slow, irritate customers. High level: generate excitement and stimulate sale Visibility: Refers to the customer ability to see the store from the street. Good visibility is less imp for a well established store and loyal customer baseLocation characteristics Adjacent tenants: locations with complementary, competing adjacent retailers can boost customer traffic Convenience/comparison shoppers- shop around make choice easily Within a shopping centre: Affects both sales and occupancy costs Stores which cater to impulse purchases- eg. drug store/florist should be closer to supermarket, whereas shoe repair store- farther away Consumers- comparison shopping, fashionable apparel, benefit from located near departmental store anchor. When consumers enter and leave- attracted to neighboring specialty retailers Locate stores close by — to attract similar target market- good assortment of merchandiseTrade area characteristics * After site identification: have acceptable traffic flow, accessibility and location characteristics, next step * Collect info about the trade area- used to forecast sales for a store located at that site * Retailer needs to define trade area for the site, retailer develops understanding of nature of consumers in the sites trade areaFactors affecting the size of trading area * Stores accessibility * Natural and physical barriers * level of competition * Type of shopping area * Type of storeTrading Areas and Store Type Largest Department stores Supermarkets TRADING “_—~ Apparel stores Gift stores Smallest Convenience storesMethods of Evaluating a Trading Area * The Herfindahl-Herschman Index Adding the squares of the market shares of each competitor * The Index of Retail Saturation IRS= H x RE/RF H= No. of household, RE= annual retail expenditure, RF= No. of store, and proposed store * Reilly's Law of Retail Gravitation two cities attract trade from an intermediate place, direct proportion to the population and inverse proportion to the square of the distance * Central Place Theory Range-lIt is the maximum that a consumer is willing to travel for a particular product or service Threshold- Is the maximum amount of consumer demand that must exist to survive a store.Factors affecting the choice of a store site(in step 3 & 4) e The traffic — pedestrian and vehicular e The accessibility of the market * The total number of stores in the area e The type of stores in the area * The amenities available e The cost of buying / leasing the property e The product mix to be offered by the retailerChecklist for A Store Location Preliminary Assessment Check list for a Store Location City/Town: Street Address: ‘Type of Location: Freestanding/Mall/Shopping Complex Details of the facade: Size of the store (Area): Details of other retail stores in the vicinity No. of stores: ‘Types of stores: Size/ Area: Details of residential areas surrounding the location: Demographics: Socio-economic profile: Pre-existence of a retail stores at site, if yes note details: Name & address of property owner: Lease rent/rate Photograph of store/surrounding areate Visit Report wigs /Mall/St Details of other retailers + Comper + Other stores, © Size of the stores + Pac ided + App: sales /clay jal areas surrounding the loca! Details of Ownership of the property rs/Promoter’s Name: © Any legal issues Company Executive's views on the locationTrends in Retail Property Development in India Indian cities and towns can be grouped together on the basis of the population; basis of this classification (indicated in the figure), the retail opportunity is available to retailers in various towns and cities. Tee 3: Cinders, 33 ees populaon > 500,000) Ter. towne Seat towns: