Site Selection and Location Issues
Paradox of Overstoring and Overexpansion
Location, Location, Location!
There are many factors to take into account
Factors may work in different ways for different businesses.
 

Models and Approaches
The text presents a number of approaches which are simplified
They form the foundation of many complex models used in retail analysis today
What is underneath realistic retail site projections?
 

Do You Know of a Location Where Stores are In and Out?
What factors have made this location an unsuccessful site?
Would it be unsuccessful for businesses of each type?
Is there anything that could be changed?
How about a successful location that is changed in some way and now is unsuccesful?
Former Ellisburg Circle area - stores in the middle are inaccessible

Location is the least flexible
Large investment
Less control over compatible stores
Often long-term commitment
Depends on numerous external factors
 

Constraints in Location Decisions
Leasing factors, length of lease, requirements
If in a center, forecasting future if other stores vacate
If in a center, forecasting future if other new stores enter
Support from center management
Image of Center vs. image of your store and other stores - past image vs. new image
 

Models of Trading Areas
Simple models resemble a target, with concentric circles spreading
       out from around the store site.
Most of the customers (50-80%) are thought to come from the primary
      trading area, which is generally thought to be the closest circle
Secondary area (15-25%) and fringe (remaining customers)
Demographic and socioeconomic characteristics are used
Mapping systems can combine these factors
 

Counterexample of Commuter Trade
For a counter example, think about Rutgers Camden in relation to
    where you live
While you may comprise the street vendor’s primary trading area,
    you do not live close by
However, because of where you go to school, you fall into that area
    on the days when you are in class.
What is the trade area for the E-Center?
 

Other Issues
The shapes of trading areas are affected by geography, highways,
        rivers, housing developments, and so forth
Consider traffic circles and those that were eliminated.  The elimination
        of the circles changed the traffic patterns, but also changed the
        ways that people thought about their shopping commute
What are Web site Trading Areas? Can they be based on geography?
 

Destination and Parasite Stores
Destination:  Generally draws from outside its traditional trading area.
        Customers travel to it because it is their destination. The draw is strong.
Parasite Store:  One that depends on the existence of other stores or businesses
        - e.g. Campus Store behind the BSB.  What does it depend on in order to
        generate business?
 

A Real Example
Suppose you decided to open a small chain of convenience stores in
        the lobbies of the PATCO high speed line; your customers depend
        on the existence of the speedline.
Suppose in the worse case scenario, that the speedline closes off some
        of the stops, leaving your convenience stores without customers.
This is the type of risk that parasite stores face.
 

Another example:
A chain of small coffee shops in office buildings was developed in
    Camden County.
They were successful for several years.
However, when firms downsized, many of their branch offices were
    closed in the office buildings.  The coffee shops had no one to serve.
 

Trade Area Overlap
Why is there a McDonald’s on every corner?
When will it be profitable?
We can extend this idea to the notion of trading area overlap,
        such as in the practical case of downtown Haddonfield to be
        discussed in class.
If a major store threatens to leave, it reduces the shopping opportunities
        for that downtown area, and stands to attract a smaller number of customers.
 

Web Site Illustrations on Mapping
Use Project 1 sites listed on your assignment
 

Other Theoretical and Predictive Approaches
Analog Models:  based on existing store’s revenues at similar location,
        competition at a prospective location, new store/s expected market share,
        and size and density of the primary trading area
Regression Models: Sales is a linear function of variables such as population size,
        income, number of households, etc.
Gravity theory: importance of population and distance, where population is a
        surrogate for retail development.
 

What about the Formulas?
The formulas given in the text are the basic set of relationships. - Reilly’s law
 The idea is that if people live along a road between two places to shop,
        and one larger site promises more, the customers are likely to travel farther
        to go to the site where they perceive a greater benefit.
Moreover, customers are likely not to want to travel as far if there are not
        sufficient benefits to justify the travel time.
 

Look at the Logic in the Formulas

• Reilly’s law is based on the impact of distance and population, as a surrogate for retail opportunities
• Premise that people will travel farther when they perceive that their opportunities are greater
• Assumptions that retailers are equally effective and roads are equivalent
• These assumptions are based on the notion that the travel distance is equal in
•         terms of road quality, and in addition, that the stores are equivalent at each site.

Other Tradeoffs
Huff's law instead investigates the tradeoffs between travel time and assortment,
Square footage of selling space is a surrogate for assortment.
The bigger the store, the more choices for shoppers, and the more likelihood
        that they will travel farther.
 

The Use of Census Data
Census characteristics are helpful, but can be limited
Computation of the Buying Power Index (BPI)
What are the limitations of the BPI?  What does it assume?
How would you change it if you were in an area where a factory had just closed down?
 

Trading off too many stores for needed coverage
Obviously, the chain's planners want to maximize the profitability
        per square foot (among other measures)
If adding another store spreads the same profits over double the
        store's GLA (Gross Leasable Area), then obviously the area is
        considered to be overstored
If, however, a new customer base is gained, then the area may
        have been previously understored.
 

More Issues
Areas can be described as overstored if there are simply too many
        stores to go around for the number of customers.
Indicators will range so that sales will be low per store or sales
        will be low per square foot.
A certain amount of sales is spread over a larger number of stores than is necessary.

Sources of Shopping Potential Information
Survey of Buying Power
Buying Power Index:  a weighted score of an area’s percentage of US effective buying income, US retail sales, and US population
Editor and Publisher information

Overstoring and Understoring
The notion of retail saturation:  what is the amount of retail shopping dollars to be spread out over the amount of square footage?
Measures of productivity:  sales per square foot, per employee, per store category, etc.

What about Understoring?
The converse is when an area is understored
Large quantities of sales have to be covered by only a few stores.
As a result, stores' benchmarks will be higher in terms of sales per
        square foot, sales per salesperson, etc.
 

Index of Retail Saturation
Retailers wanting to know if they can survive in a given area can
        compute the Index of Retail Saturation
This is a simple measure of dollars per sq foot.
If the dollars per sq foot needed to stay in business is less than what
        stores make in the area, there is likely to be room for your
        business, and vice versa.
 

Selecting the Best Site
Now we consider site selection in terms of planning and coordination.
The example of airports - what types of stores are now
        open at the Philadelphia Airport?
Staples is opening at airports - what types of stores do you think will be next?
 

Categories - Ways to Think about Sites
Isolated store
Unplanned business district:  CBD, NBD, String
Planned Shopping Center:  balanced tenancy - Regional ,
        Community, Neighborhood - based on specific definitions
Is this all there is?
 

The return of the downtown?
Shoppers are looking for quality and value
Shoppers are looking for a specific combination of stores
Downtown areas are increasing their coordinating planning
 

A Dilemma in Changing Times
Downtown (CBDs) and strings can be planned, and are doing so
        in increasing numbers
There are numerous merchant associations in the local area which
        coordinate activities, retail mix, etc within such areas.
Yet at the community and neighborhood center level, there is
        often much less planning than needed.
Consequently, retailers are often mismatched to the center,
        and have poor profitability.
This can hurt the center plan if leases are calibrated on sales
 

Variables to Consider in Site Selection (Fig. 10-8)
Pedestrian traffic - can people walk to your store?
Vehicular traffic - should people drive to your store?
Parking - now that they drove, what can they do with their cars?
Transportation - is there mass transit? When? Is it reliable?
Store composition - what is the mix of stores that your customers want
Specific site - can you see it?
Terms of Occupancy
Let’s consider the Haddonfield case