5th Edition

PPT 8-1

Chapter 8
Site Location

McGraw-Hill/Irwin
PPT
8-2
Levy/Weitz:
Retailing Management, 5/e

Copyright 2004 by The McGraw-Hill Companies, Inc. All rights

Retailing Strategy
Human Resource
Management
Chapter 9

Retail Market and

Financial Strategy
Chapter 5, 6
Retail Locations
Chapter 7
Site Locations
Chapter 8
Information and
Distribution
Systems
Chapter 10
PPT 8-3

Customer
Relationship
Management
Chapter 11

Location Chapters
Chapter 7
General Description of the Location Types
Advantages and Disadvantages of Different Location
Appendix Terms and Condition Involved in Leasing
Sites

Chapter 8
Considerations in Selecting Area for Locating Store
Issues in Evaluating Specific Sites
PPT 8-4

Three Levels of Analysis

PPT 8-5

Trade Area Issues

Which Trade Areas Are Most Attractive for
Locating Retail Outlets?
How Many Outlets to Locate in a Trade Area?
More Stores Increases Economies of Scale and
Reduces Costs
More Stores also Results in More Cannibalization
and Less Sales per Store

PPT 8-6

Factors Affecting Demand

for a Region or Trade Area

PPT 8-7

Factors Affecting the

Attractiveness of a Site
How Attractive Is the Site to the Retailers Target
Market?
Match Between Trade Area Demographics and
Retailers Target Market
Likelihood of Customers Coming to Location
Convenience
Other Attractive Retailers At Location

Principle of cumulative attraction - a cluster of similar

and complementary retailing activities will have greater
drawing power.
PPT 8-8

Convenience of Going to Site

Accessibility
Road pattern and condition

Natural and artificial barriers

Visibility
Traffic flow
Parking
Congestion
Ingress/egress
PPT 8-9

Location Within a Center

In High Traffic Areas
Near Anchor
Center of Shopping Area
Near Stores Selling Complementary
Merchandise
Clustering Specialty Stores Appealing to
Teenagers
Better locations cost more
PPT 8-10

Map of Dallas North Park Center

PPT 8-11

Estimating Demand for a New Location

Definition of the Trade Area
Primary, Secondary, Tertiary Zones

Approaches for Estimating Demand

Analog Approach
Regression Approach
Huff Gravity Model

PPT 8-12

Trade Area

Primary zone - 60 to 65 percent of its customers

Secondary zone - 20 percent of a stores sales
Tertiary zone - customers who occasionally shop
at the store or shopping center

PPT 8-13

Factors Defining Trade Areas

Accessibility
Natural & Physical Barriers
Type of Shopping Area
Type of Store
Competition
Parasite Stores
PPT 8-14

Oblong Trade Area Caused by

Major Highways and Natural Boundaries

PPT 8-15

Sources of Information
Customer Spotting
Census Data
Geodemographic Information
Systems
ACORN
Information on Competition
Yellow Pages
PPT 8-16

Customer Spotting
Purpose: to spot, or locate, the residences of
customers for a store or shopping center.
How to obtain data:
credit card or checks
customer loyalty programs
manually as part of the checkout process
automobile license plates
PPT 8-17

Census Data of the U.S.

Only once in 10 years.

Each household in the country is
counted to determine the number
of persons per household,
household relationships, sex, race
age and marital status.

PPT 8-18

Geodemographic Information Systems

Demographic data vendors specialize in
repackaging and updating census-type data.
Geographic Information System (GIS) is a
computer system that enables analysts to
visualize information about their customers
demographics, buying behavior, and other data in
a map format.
GIS is a spatial database that stores the location and
shape of information.
Analysts can identify the boundaries of a trade area
and isolate target customer groups
PPT 8-19

Indices for Assessing Sales Potential

Market Potential Index (MPI)
Number of Households Purchasing a Product or
Service in a Trade Area

Spending Potential Index (SPI)

Average Amount Spent on a Product or Service by a
Household in a Trade Area

PPT 8-20

Sources for Measuring Competition

The Internet - lists current locations and future
sites.
Yellow Pages
Other Sources: Directories published by trade
associations, chambers of commerce, Chain
Store Guide, International Council of Shopping
Centers, Urban Land Institute, local newspaper
advertising departments, municipal and county
governments, specialized trade magazines, list
brokers
PPT 8-21

Measuring Competition
Calculate total square footage of retail space
devoted to a type of store per household
Higher ratios will indicate higher levels of
competition

PPT 8-22

Competitive Analysis for

Edward Breiner

PPT 8-23

Methods for Estimating Demand

Analog Approach
Multiple Regression Analysis
Huffs Model

PPT 8-24

The Analog Approach

3 Steps:
1. Current trade area is determined by using the
customer spotting technique.
2. Based on the density of customers from the store, the
primary, secondary and tertiary trade area zones are
defined.
3. Match the characteristics of our current store with the
potential new stores locations to determine the best
site.
PPT 8-25

Income Distribution of Three-Mile

Ring Surrounding Edward Breiner Optical

PPT 8-26

Demographic Trends for Three-Mile

Ring Surrounding Edward Breiner Optical

PPT 8-27

Breiner Optical
ACORN Neighborhood Lifestyle Clusters
for Three-Mile Ring

PPT 8-28

Descriptions of Largest PRIZM

Clusters Surrounding Edward Breiner Optical

PPT 8-29

Description of Largest PRIZM

Clusters Surrounding Edward Breiner Optical

PPT 8-30

Description of Largest PRIZM

Clusters Surrounding Edward Breiner Optical

PPT 8-31

Description of Largest PRIZM

Clusters Surrounding Edward Breiner Optical

PPT 8-32

Descriptions of Edward Breiner Optical

and Four Potential Locations Trade Areas

PPT 8-33

Multiple Regression Analysis

Need to define the retail trade area potential

for retail chains with greater than 20 stores.

Similar to the analog approach, it uses
statistics rather than judgement to predict
sales for a new store.

PPT 8-34

Multiple Regression Steps

Current trade areas are determined by using
the customer spotting technique
Primary, secondary, and tertiary zones are
determined by plotting customers on a map
Select appropriate measures of
performance, such as per capita sales or
market share.
Select a set of variables that may be useful
in predicting performance.
Solve the regression equation and use it to
project performance for future sites.
PPT 8-35

Yearly Sales, Population, and

Income for 10 Home Improvement Centers

PPT 8-36

Regression of Population on Sales

PPT 8-37

Illustration of Regression Approach

1. Specify Regression Model Identify Critical Predictors
of Store Sales
Sales = B0 + B1 x X1 + B2 x X2
X1 = population in trade area
X2 = average household income in trade

area

2. Estimate Weights - B0,B1, B2

3. Use Estimated Weights to Forecast sales
Sales = -144,146 + 6,937 x X1 + 10,132 x X2
Sales = -144,146 + 6,937 x 55,000 + 10,132 x 28,000 = $521,085

PPT 8-38

Huffs Gravity Model

Based on the premise that the probability that a
given customer will shop in a particular store
or shopping center becomes larger as the size
of store or center grows and distance or
travel time from customer shrinks

PPT 8-39

Huffs Model Formula

S j Tij b
Pij n
S j Tij b
j 1
Where
Pij Probability of a customer at a given point of origin i traveling to a
particular shopping center j
S j Size of shopping center j
Tij Travel time or distance from customer's starting point to shopping
center
b An exponent to Tij that reflects the effect of travel time on different
kinds of shopping trips
PPT 8-40

University and Shopping Centers:

Gravity Model Illustration

PPT 8-41

Huffs Model: The Solution

Pij =

1000 32
(1000 32) + (500 52) + (100 12)

Probability = .48
.48 x 12,000 students = 5,760 customers
5,760 customers x $150 = $864,000

Repeat steps 1 to 3 for the remaining areas

and then sum them.
PPT 8-42