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Importance of Store Location and Trading Area Analysis

This chapter highlights the significance of store location for retailers and outlines the process of choosing a store location. It discusses the concept of a trading area and its components, and explains how trading areas can be delineated for existing and new stores. The chapter also examines factors such as population characteristics, economic base characteristics, competition, and level of saturation.

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Importance of Store Location and Trading Area Analysis

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  1. Chapter 9 RETAIL MANAGEMENT: A STRATEGIC APPROACH, 10th Edition Trading-Area Analysis BERMAN EVANS

  2. To demonstrate the importance of store location for a retailer and outline the process for choosing a store location To discuss the concept of a trading area and its related components To show how trading areas may be delineated for existing and new stores To examine three major factors: population characteristics, economic base characteristics, and competition and level of saturation Chapter Objectives

  3. Criteria to consider include population size and traits competition transportation access parking availability nature of nearby stores property costs length of agreement legal restrictions Location, Location, Location

  4. Figure 9-1: The Importance of Location to Trader Joe’s

  5. 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

  6. A trading area is a geographic area containing the customers of a particular firm or group of firms for specific goods or services Trading-Area Analysis

  7. Discovery of consumer demographics and socioeconomic characteristics Opportunity to determine focus of promotional activities Opportunity to view media coverage patterns, impact of internet if it used for shopping Assessment of effects of trading area overlap Fig 9.2 Ascertain whether chain’s competitors will open nearby Discovery of ideal number of outlets, geographic weaknesses Review of other issues, such as transportation, legal restrictions. Benefits of Trading Area Analysis

  8. Figure 9-2: The Trading Areas of Current and Proposed Outlets

  9. 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 GIS Software

  10. Figure 9-5: The Segments of a Trading Area

  11. 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 The Size and Shape of Trading Areas

  12. Destination storeshave a better assortment, better promotion, and/or better image They generate trading areas much larger than competitors Dunkin’ Donuts: “It’s worth the trip!” Parasite storesdo not create their own traffic and have no real trading area of their own These stores depend on people who are drawn to the area for other reasons Magazine stand in hotel Destinations Versus Parasites

  13. Trading Areas and Store Types Largest TRADING AREAS Smallest Department stores Supermarkets Apparel stores Gift stores Convenience stores

  14. Different tools must be used when an area is evaluated in terms of opportunities rather than current patronage and traffic patterns Trend analysis data past to future about population location Consumer surveys Computerized trading area analysis models The Trading Area of a New Store

  15. Computerized Trading-Area Analysis Models Analog Model Sales of new store estimated on base the same competitors store Regression Model Use Mathematical equation (dependent and independent factors Gravity Model Closer store more attractive

  16. Reilly’s 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 Reilly’s Law

  17. Huff’s 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 shopper’s home to alternative locations, and the sensitivity of the kind of shopping to travel time Huff’s Law

  18. Elements in Trading-Area Selection Economic Base Characteristics Population Characteristics Nature and Saturation of Competition

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