Why is Location so Important?

Hard to overcome a bad location

Trading Area Analysis
z

z Determines who you will attract

z Long term commitment and not easily changed

z Financial investment

What Factors are Important in

Selecting a Location Choosing a Location?

z Regional Analysis
z Select a geographic market Consider:
z Area Analysis z Yankee Candle
Evaluate the trading area
z
z Home Depot
z Site Evaluation z Big Y
z Actual physical site
z Domino’s
z Chili’s

Attractiveness of a Region or
Market Depends on: Attractiveness of a Region (cont.)
z Population size and characteristics
z Local gov’t support of business
z Demographics and lifestyles of people in a
region z Warehouse accessibility
http://www.caliper.com z Demand for goods vs. supply
http://www.demographicsnow.com
z Competition
http://www.claritas.com
z Number and size of competitors
z Economic base of region z Competitors’ strengths and weaknesses
z Saturation
z Cost and availability of labor

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Index of Retail Saturation Index of Retail Saturation
z Considers consumer demand and competitive
supply # customers for given Avg. retail expenditures
product line X for given product line
per customer
z Allows you to evaluate markets as understored, _____________________________________________
saturated, or overstored Square footage of selling space allocated to a given product
line within competing retail facilities
in a market
z Measure of your potential sales per square foot
for a product line in a market area

Index of Retail Saturation Example Attractiveness also depends on:

MARKETS
z Purchasing power of the region
70,000 X $10
A B C 15,000 = $46.67
z Measure of the market’s ability to buy
No. of
Customers 40,000 50,000 70,000
z BPI measures purchasing strength
Retail
z Disposable Income (EBI) – weighted at 5
Expenditures $10 $12 $10
z Retail Sales – weighted at 3
Retail Facilities 10,000 12,000 15,000
z Population – weighted at 2
Index of Retail
Saturation $40.00 $50.00 $46.67

Buying Power Index

(Survey of Buying Power) Trading Area

A trading area is a geographic

EBI Retail Sales Population area containing the customers
of a retailer for specific goods
BPI (Area A)= (.5 X .027) + (0.3 X .025) +(0.2 X .02) = or services

z Geographical map from which

the retailer draws customers
0.025 or 2.5% of U.S. Sales Potential
z GIS (Geographic Information
System)
z population demographics
z data on customer
purchases
z listings of current,
proposed, and competitor
locations

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GIS Software

Trading Area Trading Areas

z Size and Shape are dependent on:
z Size of Store
z Neighboring stores
z Primary
z Transportation network z 50-80% of customers (less than 10 min.)
z Population density
z Physical, social, and political barriers z Secondary
z Location of Competition z 15-25% of customers (less than 20 min.)
Merchandise uniqueness, low prices, superior service
z
(Marketing Strategies)
z Fringe/Tertiary
z Remainder of customers (15-50 mi. away)

Primary, Secondary, and Fringe Areas

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Techniques for Identifying
Trading Areas Identifying the Trading Areas

z Customer Spotting z Gravity Models

z Huff’s Law of Shopper Attraction
z Attraction of a store in a metropolitan area depends
z License plates on the size of the store (product assortment),
z Customer records (credit cards, delivery records, distance, and sensitivity to time
service)
z Promotions (sweepstakes, contests, coupons) z Bigger and closer are more attractive
z Customer surveys
z Reilly’s Law of Retail Gravitation

Huff’s Law Huff Ex.

What % of customers will shop in city A for gift items?
A B C
Sq. ft. of selling space for gifts 5,000 10,000 12,500
Travel time 10 min. 15 min. 20 min.
Sensitivity to travel time = 1

So: 5,000
______10’_______ = 500 = 27.9%
5,000 + 10,000 + 12,500 1791.67
10’ 15’ 20’
28% of customers will shop in City A for gift items

Reilly’s Law of Retail

Gravitation Reilly’s Law of Retail Gravitation

z Defines trade area boundaries between two

cities (assumes you will choose to go one
way or the other)

z Shows point of indifference between two
cities (the breaking point whereby you would
be indifferent to shopping in either city)
Dab = distance from breaking point to town A
d = distance in miles between towns A and B
Pa = population of city A
Pb = population of city B

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Example of Reilly’s Law What Makes a Site Attractive?
Distance in miles between cities A and B = 10 miles z Ability to Intercept people
Population of City A = 60,000 z Cumulative Attraction
Population of City B = 15,000
z Less Congestion
z Pedestrian Traffic
z Vehicular Traffic
z Parking Availability
z Accessibility

Types of Locations Available

z Accessibility z Isolated Store

z Physical barriers z Power Center
z Psychological barriers z Planned Shopping Center
z No. of traffic arteries and lanes z Neighborhood
z Flow of traffic z Regional mall
z No. of intersections z Unplanned Business District
z Traffic control devices z Shopping area with 2 or more stores nearby