Module 4: Trading Area Analysis and Site Selection

• When considering location, you will need TO EVALUATE:

  • Alternative geographic trading areas
  • Determine type of location (population, density)
  • Literacy level and educational level of populations
  • Languages spoken
• Criteria to consider in selecting location or area:

  • Population size and traits
  • Competition
  • Transportation access
  • Parking availability
  • Nature of nearby stores
  • Property costs
  • Length of agreement
  • Legal restrictions
• STEPS IN SELECTING TRADING AREAS:

  1. Evaluate alternate geographic (trading) areas in terms of residents and existing retailers
  2. Determine whether to locate as an isolated store or in a planned shopping center
  3. Select the location type
  4. Analyze alternate sites contained in the specific retail location type
• Trading Area - is a geographic area containing the customers of a particular firm or group of firms for specific goods or services.
• Geographic Information Systems- digitized mapping with key locational data to graphically depict trading-area characteristics such as population demographics, data on customer purchases, and listings of current, proposed, and competitor locations.
• Types of Trading Areas:

  • Primary
  • Secondary
  • Fringe
• Make sure that area surrounding location has:

  • Enough customers
  • Enough money to spend
  • Need for product or service you are bringing
  • Competition in trading area
• Primary Trading Area - 50-80% of a store’s customers.
• Secondary Trading Area - 15-25% of a store’s customers
• Fringe Trading Area - all remaining customers.
• Destination Stores

  • They have a better assortment, better promotion, and/or better image.
  • It generates a trading area much larger than that of its competitors.
• Parasite Stores

  • They do not create their own traffic and have no real trading area of their own.
  • These stores depend on people who are drawn to area for other reasons.
• Trading Areas and Store Types (LARGEST TO SMALLEST):

  1. Department Stores
  2. Supermarkets
  3. Apparel stores
  4. Gift stores
  5. Convenience stores
• Different tools must be used when an area must be evaluated in terms of opportunities rather than current patronage and traffic patterns:

  • Trend analysis
  • Consumer surveys
  • Computerized trading area analysis models
• Evaluating Site Characteristics:

  • Must match area
  • Demographics
  • Foot traffic
  • Accessibility and parking
• Reilly’s Law of Retail Gravitation - is 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.
• MAJOR FACTORS TO CONSIDER IN EVALUATING RETAIL TRADING AREAS:

  • Population Size and Characteristics
  • Availability of Labor
  • Closeness to Sources of Supply
  • Economic Base
  • Competitive Situation
  • Availability of Store Locations
  • Regulations
• Population Size and Characteristics consists of:

  • Total size and density
  • Age distribution
  • Average educational level
  • Percentage of residents owning homes
  • Total disposable income
  • Per capita disposable income
  • Occupation distribution
  • Trends
• Availability of Labor consists of:

  • Management
  • Management trainee
  • Clerical
• Closeness to Sources of Supply consists of:

  • Delivery costs
  • Timeliness
  • Number of manufacturers
  • Number of wholesalers
  • Availability of product lines
  • Reliability of product lines
• Economic Base consists of:

  • Dominant industry
  • Extent of diversification
  • Growth projections
  • Freedom from economic and seasonal fluctuations
  • Availability of credit and financial facilities
• Competitive Situation consists of:

  • Number and size of existing competition
  • Evaluation of competitor strengths and weaknesses
  • Short-run and long-run outlook
  • Level of saturation
• Availability of Store Locations consists of:

  • Number and type of store locations
  • Access to transportation
  • Owning versus leasing opportunities
  • Zoning restrictions
  • Costs
• Regulations consists of:

  • Taxes
  • Licensing
  • Operations
  • Minimum wages
  • Zoning
• What are these decisions made in retail site selection:

  • Openings
  • Expansions
  • Closings
• How is it done in retail site selection:

  1. Geographic market
  2. Site within the geographic market
  3. If an opening or expansion, the format/size of the store to be opened.
• Agglomeration - captures the countervailing effects of complementarity and competition among retailers.
• Intra-type

  • Stores of the same type locating near one another
  • Facilitates consumer search
• Inter-type

  • Stores of different types locating near one another.
  • Facilitates multi-purpose shopping, virtual one-stop-shopping, and offers a wider variety of goods to choose from.
• Trip chaining – make unrelated purchases on the same trip.
• Trip chains - reflect the routing problem faced by shoppers.

  Consumers minimize shopping costs by reducing travel, subject to fulfilling diverse product/service needs.
• Price Search

  • Search until you find an attractive price
  • Our research incorporates price uncertainty, allowing shoppers to terminate or continue a shopping trip (unplanned).
• Cherry Picking - visit multiple stores for their bargain prices
• Single Channel Retailing: refers to a producer or retailer’s effort to reach customers through only one distribution option, regardless of whether it’s online, face-to-face selling or traditional retail.
• Multi-channel Retailing: refers to a producers or retailer’s effort to combine and blend different distribution channels to accommodate where and how consumers shop, ensuring that the producers and retailers will be present when the purchase decision is made.
• Omni-channel Retailing: Marketing that is an expansion of the multi-channel concept by incorporating all the communication and interactions between customer, brand, and retailer, regardless of whether it’s at a point of purchase or not.
• Non-store Retailing - is the selling of goods and services outside the confines of a retail store, off the premises of fixed retail locations.
• Non Store Retailing may be divided into TWO CATEGORIES:

  • Direct Selling
  • Distance Selling
• Store - higher costs because of things like rent, utilities, inventory, and staffing.
• Catalog - when they are effective they are high-involvement marketing materials.