Chapter 8

Site Location

McGraw-Hill/Irwin PPT 8-1 Levy/Weitz: Retailing Management, 5/e

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

Three Levels of Analysis

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Factors Affecting the Attractiveness of a Site

How Attractive Is the Site to the Retailers Target Market?
Match Between Trade Area Demographics and Retailers Target Market Likelihood of Customers Coming to Location Convenience Other Attractive Retailers At Location Principle of cumulative attraction - a cluster of similar and complementary retailing activities will have greater drawing power.
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Convenience of Going to Site Accessibility

Road pattern and condition

Natural and artificial barriers Visibility Traffic flow Parking Congestion Ingress/egress
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Location Within a Center

In High Traffic Areas Near Anchor Center of Shopping Area Near Stores Selling Complementary Merchandise Clustering Specialty Stores Appealing to Teenagers Better locations cost more
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Estimating Demand for a New Location

Definition of the Trade Area
Primary, Secondary, Tertiary Zones

Approaches for Estimating Demand

Analog Approach Regression Approach Huff Gravity Model

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Trade Area

Primary zone - 60 to 65 percent of its customers Secondary zone - 20 percent of a stores sales Tertiary zone - customers who occasionally shop at the store or shopping center

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Factors Defining Trade Areas

Accessibility Natural & Physical Barriers Type of Shopping Area Type of Store Competition Parasite Stores
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Sources of Information
Customer Spotting Census Data Geodemographic Information Systems ACORN Information on Competition Yellow Pages
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Geodemographic Information Systems

Demographic data vendors specialize in repackaging and updating census-type data. Geographic Information System (GIS) is a computer system that enables analysts to visualize information about their customers demographics, buying behavior, and other data in a map format.
GIS is a spatial database that stores the location and shape of information. Analysts can identify the boundaries of a trade area and isolate target customer groups
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Indices for Assessing Sales Potential

Market Potential Index (MPI)
Number of Households Purchasing a Product or Service in a Trade Area

Spending Potential Index (SPI)

Average Amount Spent on a Product or Service by a Household in a Trade Area

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Sources for Measuring Competition

The Internet - lists current locations and future sites. Yellow Pages Other Sources: Directories published by trade associations, chambers of commerce, Chain Store Guide, International Council of Shopping Centers, Urban Land Institute, local newspaper advertising departments, municipal and county governments, specialized trade magazines, list brokers
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Measuring Competition

Calculate total square footage of retail space devoted to a type of store per household Higher ratios will indicate higher levels of competition

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Methods for Estimating Demand

Analog Approach Multiple Regression Analysis Huffs Model

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The Analog Approach

3 Steps:
1. Current trade area is determined by using the customer spotting technique. 2. Based on the density of customers from the store, the primary, secondary and tertiary trade area zones are defined. 3. Match the characteristics of our current store with the potential new stores locations to determine the best site.
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Multiple Regression Analysis

Need to define the retail trade area potential

for retail chains with greater than 20 stores. Similar to the analog approach, it uses statistics rather than judgement to predict sales for a new store.

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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.
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Huffs Gravity Model

Based on the premise that the probability that a given customer will shop in a particular store or shopping center becomes larger as the size of store or center grows and distance or travel time from customer shrinks

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