Guidelines for a Store-location Strategy Study

WILLIAM APPLEBAUM T^HE EARLIEST attempts to employ "research" in evaluating -- and choosing store sites go back about a half a century ago. Since then, thanks largely to the interest of retail chain-store firms and shopping-center developers, this subject has been receiving increasing attention in the United States and abroad. A significant literature dealing with store-location research has already emerged.i The retailing firms that employ store-location research in their expansion planning expect basically two things from the research: 1. An evaluation of specific sites as to their sales potential and the probability of a store's long-range success at the site. 2. A store-location strategy plan or model that undertakes to select, from among the location alternatives in a given geographic area, those locations that will produce for the firm an optimum share of market potential, a minimum hazard for future sales erosion, and a maximum return on total investment over the lease period. The 16 fundamental steps discussed in this article apply to situations where a firm (1) seeks to improve or expand its market coverage in an area where it is already represented; (2) proposes to open stores in a new territory; and (3) considers an acquisition. In any of these situations, the investigator will have to exercise judgment as to how much to cover under each suggested step.
See, for example: William Applebaum and Saul B. Cohen, "The Dynamics of Store Trading Areas and Market Equilibrium," Annals of the Association of American Geograpticrs. VoL 51 (March, 1961) pp. 73-101. Particularly useful for long-range strategy planning. Brian J. L. Berry and Allen Pred, Centra} Place Studies: A Bibliography of Theory and Applications (Philadelphia: Regional Science Research Institute, 1961). A Supplement Through 1964. was published in 1965. The most complete bibliography of its kind. Harold M. Mayer and Clyde F. Kohn, Readings in Urban Geography (Chicago: The University of Chicago Press, 1959). Some of the reading.s are useful for store-location research. Richard L. Nelson, The Selection of Retail Locations (New York: F. W. Dodge, 1958). A book by a practitioner with some interesting insights. Store Location and Development Studies (Worcester, Massachusetts: Clark University, 1961). A collection of seven basic papers by different authors. Store Location Research for the Food Industry (New York: National-American Wholesale Grocers' Association, around 1960). Proceedings of a seminar on supermarket site evaluation and location strategy, edited by Saul B. Cohen. Useful for techniques and source data. "Store Location Strategy" in New Directions in Marketing (Chicago: American Marketing Association, 1965 pp. 241-294). A collection of six instructive papers on concepts and techniques. William Applebaum, "Methods for Determining Store Trade Areas, Market Penetration, and Potential Sales," Joumal of Marketing Research, Vol. 3 (May, 1966), pp. 127-141. 42

The large Investments in modern store facilities and the long lease commitments make it necessary for retailing firms and for shoppingcenter developers to employ store-location research. In this article the author presents 16 fundamental steps or guidelines, distilled from 35 years of experience, for planning and executing comprehensive store - location studies. These guidelines are of interest not only to marketing research specialists, but also to business administrators who must make store-location expansion decisions.

Journal o] Marketing, 1966), pp. 42-46.

Vol. 30 (October,

Guidelines for a Store-location Strategy Study A store-location strategy study should be undertaken before an analysis is made of specific sites in the study area. The broader strategy study will indicate Where sites should be sought to fit into the company's plans for the future. Evaluating an Area in Which Firm Is Already Represented Following are the 16 steps or guidelines for the study of an area in which a firm is already represented. 1. Define the Objective. A store-location strategy study cannot be undertaken without a knowledge of a firm's business policies. These policies include type and size of store desired, merchandise mix, merchandising appeals, and customer services to be provided. Assuming that these policies are known to the Investigator, then he must be given a precisely defined study objective, such as: To determine possibilities for improvement of present store facilities and development of new stores in the Atlanta Division. To anticipate and plan a 5-year program for store expansion opportunities in Greater Chicago. To ascertain the prospects for establishing a successful branch in Nebraska. ' To evaluate the facilities and customer acceptance of an existing firm that is being considered for acquisition. When the precise objective has been stated, it !s necessary to spell out in sufficient detail the scope of the study so that a written plan can be formulated; and also so that estimates can be made of the skills, cost, and time required to make the study. 2. Analyze the Economic Base. The economy of the study area plays a major role in the long-range opportunities for the interested firm. Therefore, it is essenial to obtain pertinent available information about the economic base of the areasuch as its economic activities; employment characteristics and stability; past ti-ends and future prospects. 3. Study the Population and Its Characteristics. People are customerspresent or potential. Therefore, it is essential to find out how many people are in the study area, where they live, their socioeconomic and age characteristics, their levels of expenditures, their growth and mobility, and their shopping habits. Also, suitable maps should be secured or constructed of the area, to show the dis-

43 tribution and other characteristics of the population.2 4. Ascertain the Environmental Conditions. Information should be compiled, especially on maps, about the environmental conditions of the study areaincluding terrain features, road network, land uses, retail business centers, zoning regulations, projected highway changes, and significant climatic factors that affect customers and business operations. 5. Make an Inventory of Competition. Competition means all those retail establishments that compete for the same type of business. Since competition exists everywhereexcept temporarily in newly developing subdivisions, or where kept out by zoning or some other restrictionsand since competition is dynamic, the study of competition requires a field survey. For some studies it may be sufficient to survey only the more significant competing establishments, while for other studies all competition should be included. The survey should produce information about the physical characteristics and type of location of each surveyed retailing facility (store), the merchandise offered for sale, the customer services the store provides, and a reasonably good estimate of the store's sales. In so far as practical, maps should be constructed that portray the information about the characteristics of the retailing facilities of competition. 6. Appraise Competition. Information is needed about each important competitor in the area. This should include: historic data about each firm; its financial strength; an appraisal of its executive management and store personnel; and a survey (check) of its pricing
-See William Applebaum and Eiloon Schell, Marketing Maps for Store Location Stiidirs (Chicago: Super Market Institute, 196.5).

ABOUT THE AUTHOR. William Applebaum is a part-time Lecturer on Food Distribution and Comparative Marketing at the Harvard Business School. He is also a marketing consultant at home and abroad. He did his undergraduate work at the University of Minnesota and graduate work at the University of Cincinnati and the University of Minnesota. He served in various capacities during a long business career with The Kroger Company and with Stop & Shop, Inc. Mr. Applebaum has published extensively in the fields of marketing research, economic geography, food distribution, and business management. His work has earned for him citations from the American Marketing Association, the Boston Conference on Distribution, the Super Market Institute, and the Association of American Geographers.

44 structure. The appraisal should give due consideration to the inventory of store-facilities data, and should estimate each important; competitor's share of market. 7. Study Consumer Attitudes. A consumer survey should be conducted in the area, to ascertain consumer attitudes concerning important competing retailers. Such a survey should seek to discover the relative consumer acceptance i,"image") of your own company and each important competitor, and any recent shifts in consumer attitudes. The survey should be designed to bring out differences, if any, in consumer attitudes among different socioeconomic groups within the study area. 8. Study Your Own Company's Market Coverage attd Penetration. If a company already has its own stores in the area, then the trade areas, market penetration, and customer-sliopping habits of these stores should be determined hy the customer-spotting technique. This requires that store customers be interviewed, and then the data obtained processed and "spotted" or located on maps to delineate trade areas and market penetration. The results of this study will provide basic data for: Evaluating present sales performance of each store in relation to market potential. Delineating areas of underpenetration. Estimating the effects of new location moves on existing company stores. 9. Analyze Your Own Stores' Performance The sales and profits record of each company store in the area need analysis, including a detailed examination of recent store-operating statements. Also to be considered are such factors as present investment in each store, rent and lease terms, store-manager changes, and special efforts that have been made to promote the store. These findings should be evaluated in relation to all the other pertinent information secured under the preceding steps in this outline. This leads, then, to an appraisal of the present performance of each store in relation to market potentials. 10. Appraise Your Own Store Facilities and Locations. When the work on steps 1 through 9 has been completed, the store-location strategy study should be directed toward appraising the adequacy of each of the company's store facilities as well as possible locations for the short run and the long run. Concepts should be formulated for possible storelocation moves (such as enlarging, relocating, closing) for those stores that are obsolete or unsatis-

Journal of Marketing, October, 1966 factorily located (or which will become so in the nearer future) and for stores whose leases will expire soon. At this point these concepts are tentative, subject to reappraisal after the completion of step 13. 11. Study Areas of Under-penetration. The customer "spotting" on the maps should now be examined, in order to ascertain areas not presently served or served inadequately, that is, underpenetration. Then, sales potentials should be determined in all areas of underpenetration; and areas should be so designated when they offer sufficient sales potential to meet at least the company's minimum standard requirements for its stores. The effect of each new store-location move into areas of underpenetration on the sales of existing nearby company stores should be calculated or estimated. These areas designated for new stores should be thought of as tentative, subject to reexamination under step 13. 12. Consider Competitors' Likely Location Moves. Every important competitor has his plans or at least some ideas for growth, through store expansion. Considering the store facilities and locations that each important competitor has, and his financial and managerial strength, what location moves is he likely to make? Here the need is to "step into the other fellow's shoes" and to try to guess what he might do. This effort will sharpen the analysis required to develop a store-location strategy program for the company making the study. 13. Develop a Store-location Strategy Plan. At this point a re-examination should be made of (a) all formulated concepts of possible storelocation moves involving existing company stores; (b) tentatively formulated new store-location moves into areas of underpenetration; and (c) the anticipated effect of each possible new store-location move on existing company nearby stores. Certain concepts will now have to be modified, and a total store-location strategy plan made for the area. This plan must be designed to harmonize with the policies of the company and with its financial and managerial capabilities. Some preliminary field checks are now needed to determine the feasibility of finding sites for the conceptualized store-location moves. Whenever possible, suggestions should be included as to alternate sites, or at least general locations. 14. Calculate Your Own Company's Future Position in the Area. Assuming that the proposed store-location strategy plan will be accepted by the company and will

Guidelines for a Store-location Strategy Study

45

be carried out, the market share the company might expect to achieve should be calculated. 15. Project Investment Requirements, Profits, and Return on Investment. At this point it is essential to review with the company's operators and merchandisers the sales projections for the proposed store-location moves. The departments concerned need to develop (a) projections of the investment required for the proposed stores and supporting service facilities, and (b) store operating budgets (pro-formas). Then the company can project anticipated return on the investment required to carry out the plan. Where a company has related enterprises that will benefit from the additional sales in the new stores, the total corporate return on investment can and should also be estimated. 16. Prepare a Written Report.

Evaluating a New Market Area A store-location strategy study of a new market area should cover steps 1 through 7, and 12. The study requires the development of a "model" of how to get maximum market coverage with a minimum number of stores. The model plan developed must be realistic and feasible, and should be tailored to the company's merchandising and operating policies. After such a model plan is developed, it is necessary to calculate the company's position in the new market, and to make the projections covered under step 15. Consideration should also be given to possible acquisitions. Evaluating a Possible Acquisition A company may wish to make a thorough study of the store facilities of a firm being considered for acquisition, and of the competitive conditions and market potentials within the area involved. In that case, the study should attempt to cover as much as possible of each of the preceding 15 steps. From the firm under consideration for acquisition, permission should be sought to customer "spot" each of its stores (see step 8). Special attention to store facilities and personnel may also be required as part of this study. The financial arrangements and managerial agreements involved in the acquisition of a firm are essential, but outside the scope of a store-location strategy study.

A store-location strategy study should result in a report, clearly and concisely written. This report should contain only the conclusions and the most important data developed in the study. Details can be compiled in a separate appendix, or kept in an orderly reference file. The report should give sources of data and should state what is fact, what is assumption, and what is opinion. All recommendations should be as precise and specific as possible.

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