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 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 SelectionHow Is It Done? Select: • Geographic market • Site within the geographic market • If an opening or expansion, the format/size of the store to be opened
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 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 SelectionWhere Do Consumers Work? • Another consideration in retail site selection is where consumers work • Do shopping trips begin from home? • From work?
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 SelectionAgglomeration How does retail location affect multi-store shopping? RETAIL LOCATION 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 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 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
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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 Retailing • How “big” is the Internet?
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 Retailing • What do shoppers buy on the Internet? Source: PCDataonline Jan 00-Jan 01
Multi-Channel Retailing • What do shoppers buy on the Internet?