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Retailing MKTG 6211 Retailing Topics Professor Edward Fox Cox School of Business/SMU Retail Site Selection Openings Expansions Closings What are the effects of proposed changes in retail sites on the revenues of new and existing stores? Retail Site Selection Why Does It Matter?

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MKTG 6211

Retailing Topics

Professor Edward Fox

Cox School of Business/SMU

retail site selection
Retail Site Selection
  • Openings
  • Expansions
  • Closings

What are the effects of proposed changes in retail sites on the revenues of new and existing stores?

retail site selection why does it matter
Retail Site SelectionWhy Does It Matter?
  • Access to consumers
    • Number
    • Characteristics
    • Growth
  • Locations of other stores
    • Cannibalization – own stores
    • Agglomeration
      • Competition
      • Complementarity

According to Wal-Mart’s Real Estate group, the difference between good and bad locations exceed $25 million in gross profit

retail site selection how is it done
Retail Site SelectionHow Is It Done?


  • Geographic market
  • Site within the geographic market
  • If an opening or expansion, the format/size of the store to be opened
retail site selection agglomeration
Retail Site SelectionAgglomeration
  • 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
      • Examples: “motor miles” and “restaurant rows”
    • 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
      • Examples: shopping centers and shopping malls

Recognizes that consumers may use multiple stores to meet their needs - shopping strategically!!

retail site selection agglomeration6
Retail Site SelectionAgglomeration
  • “Trip chaining” – Make unrelated purchases on the same trip
  • Price search – Search until you find an attractive price
  • “Cherry picking” – Visit multiple stores for their bargain prices
retail site selection where do consumers work
Retail Site SelectionWhere Do Consumers Work?
  • Another consideration in retail site selection is where consumers work
    • Do shopping trips begin from home?
    • From work?
retail agglomeration trip chains
Retail AgglomerationTrip Chains
  • 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
    • Our research incorporates price uncertainty, allowing shoppers to terminate or continue a shopping trip (unplanned)
  • Data limitations require that we:
    • Consider visits only to selected store formats
    • Assume that shopping trips begin from the consumer’s home
retail site selection agglomeration9
Retail Site SelectionAgglomeration

How does retail location affect multi-store shopping?


Relative to customers

Relative to other stores

Retail Competition

Destination Effect

Specifically, how are retailer revenues affected by nearby supermarkets, drug stores, mass merchandisers and supercenters, dollar stores and warehouse clubs?

retail agglomeration preliminary model results travel times
Retail AgglomerationPreliminary Model Results – Travel Times
  • Travel times have the expected negative effect for own-store; cross-store travel time parameters have smaller positive effects
  • We observe symmetric competition among grocery stores in terms of location
  • Revenues at EDLP stores—Food Lion and Wal-Mart Supercenter—are least sensitive to distances that their customers have to travel
retail agglomeration preliminary model results agglomeration
Retail AgglomerationPreliminary Model Results - Agglomeration
  • Wal-Mart Discount stores are most affected by locating near other stores
  • Wal-Mart Supercenters are not affected by the concentration of other stores nearby
  • Locating near club stores does not affect retailers in our sample
multi channel retailing
Multi-Channel Retailing


multi channel retailing14
Multi-Channel Retailing
  • How “big” is the Internet -- milestones
    • Mid - 1996: online population of the United States was 35 million
    • Mid - 1998: online population became 72.6 million
    • April 1999: more than 83 million users online above age 16
    • 2000 Census: 42% of US households have internet access

>50% of US households have computers

Source: Levy & Weitz and Census Bureau

multi channel retailing15
Multi-Channel Retailing
  • How “big” is the Internet?
multi channel retailing16
Multi-Channel Retailing
  • How “big” is Internet retail?

Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales:4th Quarter 1999–2nd Quarter 2007

Percent of Total

multi channel retailing17
Multi-Channel Retailing
  • What do shoppers buy on the Internet?

Source: PCDataonline Jan 00-Jan 01

multi channel retailing18
Multi-Channel Retailing
  • What do shoppers buy on the Internet?