1. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Locations in Chinese Retail Industry

2. David F. Miller Center For Retailing Education and Research International Retailing Education and Training (IRET ) Segment 2 Site Evaluation & Selections

3. page 3Location Module David F. Miller Center for Retailing Education and Research Segment 2: Site Evaluation & Selections  Learning Objectives:  Know different site characteristics and the definition of trade area  Learn how to evaluate a site for a specific retail store  Know the general idea of forecasting revenues and costs for a retail store on a selected site  Learning Contents:  Site evaluation  Trade area definition  How to define a trade area in China  Evaluate the trade area for different retail stores

4. page 4Location Module David F. Miller Center for Retailing Education and Research Selection of Store Location  Size and characteristics of the surrounding population  Level of competition  Access to transportation  Availability of parking  Attributes of nearby stores  Property costs  Length of property agreement  Population trends  Legal restrictions

5. page 5Location Module David F. Miller Center for Retailing Education and Research Choosing a Store Location  Step 1: Evaluate alternate geographic (trading) areas in terms of residents and existing retailers  Step 2: Determine whether to locate as an isolated store or in a planned shopping center  Step 3: Select the location type  Step 4: Analyze alternate sites contained in the specific retail location type

6. page 6Location Module David F. Miller Center for Retailing Education and Research Trade-Area Analysis  A trading area is a geographic area containing the customers of a particular firm or group of firms for specific goods or services

7. page 7Location Module David F. Miller Center for Retailing Education and Research Benefits of Trading Area Analysis Discovery of consumer demographics and socioeconomic characteristics Opportunity to determine focus of promotional activities Opportunity to view media coverage patterns Assessment of effects of trading area overlap Ascertain whether chain’s competitors will open nearby Discovery of ideal number of outlets, geographic weaknesses Review of other issues, such as transportation

8. page 8Location Module David F. Miller Center for Retailing Education and Research The Segments of a Trading Area

9. page 9Location Module David F. Miller Center for Retailing Education and Research The Size and Shape of Trading Areas  Primary trading area  50-80% of a store’s customers  Secondary trading area  15-25% of a store’s customers  Fringe trading area  All remaining customers

10. page 10Location Module David F. Miller Center for Retailing Education and Research Trading Areas and Store Type Largest TRADING AREAS Smallest Department stores Supermarkets Apparel stores Gift stores Convenience stores

11. page 11Location Module David F. Miller Center for Retailing Education and Research Trade Area of a New Store  Different tools must be used when an area must be evaluated in terms of opportunities rather than current patronage and traffic patterns  Trend analysis  Consumer analysis  Computerized trading area analysis

12. page 12Location Module David F. Miller Center for Retailing Education and Research Factors to Consider in Evaluating Retail Trading Areas  Population Size and Characteristics  Availability of Labor  Closeness to Source of Supply  Economic Base  Competitive Situation  Availability of Store Locations  Regulations

13. page 13Location Module David F. Miller Center for Retailing Education and Research Trade Area in China  Retailers use “marketing area” or “target area” in China  Retailers identifies a geographic area in which they plan on drawing their customers from  It is broken down in the following order: 1.Regions 2.Province Area 3.Metro Area

14. page 14Location Module David F. Miller Center for Retailing Education and Research Comparison of Trade Area in U.S. and China  U.S.  Wal-Mart may use an 8 minutes driving time to describe its trade area  China  Wal-Mart may use a 20 minutes bus ride time in China to describe its trade area  Public transportation is prevalent in China  Most retailers will choose to open stores near areas with public transportation

15. page 15Location Module David F. Miller Center for Retailing Education and Research Trade Area Classification in China Regions: 1.South China 2.North China 3.Middle China 4.West China 5.East China 6.Northeast China 7.Southwest China 8.Northwest China Large retail chains like Wal-Mart and Carrefour define the regions in China as their trade area.

16. page 16Location Module David F. Miller Center for Retailing Education and Research Trade Area Classification in China Province Area Metro Area Example: Guangdong area in the Guangzhou Province

17. page 17Location Module David F. Miller Center for Retailing Education and Research Trade Area Classification in China  Inner-city  Varies from cities to cities Beijing 5 rings to divide the districts Shanghai 3 rings to divide the districts

18. page 18Location Module David F. Miller Center for Retailing Education and Research Tier City System  In China, a tier city system is used to classify the cities into first tier, second tier, or third tier categories  The tier classification is based on the following factors:  Political status  Economic power  Size of city  Regional influence of the city

19. page 19Location Module David F. Miller Center for Retailing Education and Research Top Cities in Each Tier  Below is a list of the top cities in each tier where retailers choose to locate their stores: TierCities 1Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin 2Nanjing, Wuhan, Shenyang, Xian, Chengdu, Tianjin 3Yinchuan, Xining, Haikou, Luoyang, Nantong, Changzhou, Yingkou* *Yingkou is not a top tier 3 city. Yingkou was taken into account because it is a city that is rising rapidly as an economic development center.

20. page 20Location Module David F. Miller Center for Retailing Education and Research Market Mapping  Market Mapping  A commercial tool that retailers use to evaluate their product assortment compared to their competitors.  Helps retailers consolidate competitive differences and identify opportunities in the marketplace.  Steps to Market Mapping  Identify retailers that are successful in the China market (domestic and foreign retailers). Look at:  Product assortment  Price architecture  Location  Use the location of direct and indirect competitors as reference for retail site location  Example: Retailers like Nike and Adidas has a good reputation for finding good retail locations

21. page 21Location Module David F. Miller Center for Retailing Education and Research Locations of Chinese Clothing Retailers PopulationEuromodaGoeliaSemir Teenie Weenie Westlink Tier 1Beijing31517366 Tier 1Shanghai5441371 Tier 1Guangzhou3433 Tier 1Shenzhen106187 Tier 1Tianjin11711 Tier 2Nanjing36110 Tier 2Wuhan1211218 Tier 2Shenyang1841912 Tier 2Xian105414 Tier 2Chengdu139224 Tier 2Hangzhou123198 Tier 3Yinchuan2152 Tier 3Xining21 Tier 3Haikou3511 Tier 3Luoyang1312 Tier 3Nantong22 Tier 3Changzhou215 Tier 3Yingkou12 Total Stores in China44037526349314

22. page 22Location Module David F. Miller Center for Retailing Education and Research Locations of Asian Clothing Retailers Population A02/AZ ONA BossiniBSXEspritG2000GiordanoGirdearOchirlyUniqlo Jeans West Tier 1Beijing 57331553143412316 92 Tier 1Shanghai 2341375322012818 121 Tier 1Guangzhou 618285325284 38 Tier 1Shenzhen 1333710195 70 Tier 1Tianjin 896911611 18 Tier 2Nanjing 515713 27 Tier 2Wuhan 6124415 46 Tier 2Shenyang 4317413 Tier 2Xian 82631 Tier 2Chengdu 9326925 50 Tier 2Hangzhou 4417614 37 Tier 3Yinchuan 841 4 Tier 3Xining 21 2 Tier 3Haikou 11561 5 Tier 3Luoyang 1142 12 Tier 3Nantong 6 7 Tier 3Changzhou 261 5 Tier 3Yingkou 11 2 Total Stores in China 3687331718962251017347372577

23. page 23Location Module David F. Miller Center for Retailing Education and Research Locations of European Clothing Retailers PopulationAdidasBershkaC&ACache DieselG-StarH&MMango Massimo Dutti MotiviPromod Pull & Bear WEZara Tier 1Beijing184543558262759 Tier 1Shanghai391710235111318653 Tier 1Guangzhou142123111 Tier 1Shenzhen1311321034 Tier 1Tianjin811911111 Tier 2Nanjing4122321 Tier 2Wuhan715111 Tier 2Shenyang111112 114 Tier 2Xian511111 Tier 2Chengdu8137112 Tier 2Hangzhou71224112 Tier 3Yinchuan Tier 3Xining Tier 3Haikou1 Tier 3Luoyang Tier 3Nantong23 Tier 3Changzhou1113 Tier 3Yingkou Total Stores in China 25411231923133501324342016371

24. page 24Location Module David F. Miller Center for Retailing Education and Research Locations of American Clothing Retailers PopulationGuessLeeNikeQuiksilverT. HilfigerThe GapTimberland Tier 1Beijing7364824322 Tier 1Shanghai1039811032 Tier 1Guangzhou13403 Tier 1Shenzhen11210214 Tier 1Tianjin26262 Tier 2Nanjing2341 Tier 2Wuhan74413 Tier 2Shenyang83013 Tier 2Xian82214 Tier 2Chengdu1134324 Tier 2Hangzhou1926216 Tier 3Yinchuan11 Tier 3Xining11 Tier 3Haikou35 Tier 3Luoyang21 Tier 3Nantong321 Tier 3Changzhou36 Tier 3Yingkou3 Total Stores in China2438440335195115

25. page 25Location Module David F. Miller Center for Retailing Education and Research Chinese Government Role in Site Selection  Environmental regulations  Future site plan  Impact on lifestyle  Permission notes for store openings * More details will be discussed in Segment 3

26. page 26Location Module David F. Miller Center for Retailing Education and Research Site Selection Considerations  Parking  Size  Traffic Volume  Accessibility  Visibility

27. page 27Location Module David F. Miller Center for Retailing Education and Research Parking  U.S.  Standard parking for retail space is around 1 parking spot per 250 square feet  Structure parking and a few garages  China  Standard parking varies among cities  Average ratio is 1 parking spot per 1000 square feet  Mostly underground parking garages  Limited structure parking

28. page 28Location Module David F. Miller Center for Retailing Education and Research Size  Floor Area Ratio  A ratio of the total floor area of buildings at a specific location to the size of the land in that location  In some central districts in China, the floor area ratio can be 5 or higher as there are multi-story shopping centers

29. page 29Location Module David F. Miller Center for Retailing Education and Research Traffic Volume  Also known as traffic count  * Very important consideration for retail space in China!  U.S.  Traffic volume refers to the number of cars passing by an area  China  Traffic volume refers to the number of people and cars (since driving is not the major mode of transportation in China) passing by an area  For example, a supermarket store requires a traffic volume of 4,000 to 8,000 (people and cars) / day

30. page 30Location Module David F. Miller Center for Retailing Education and Research Accessibility  Entrance  Nearby bus stops  Easy access to subways  On the way to work or on the way home  Nearby major roads  Exit  Similar to the criteria for entrance  Easy to get back on the street where consumers initially came from

31. page 31Location Module David F. Miller Center for Retailing Education and Research Accessibility Example Entrances and exits are conveniently connected to major roads The dotted line represents the subway Friendly pedestrian sidewalks are necessary for shopping centers

32. page 32Location Module David F. Miller Center for Retailing Education and Research Visibility  Easy for consumers to find the location  The retail environment should also give consumers a pleasant shopping experience

33. page 33Location Module David F. Miller Center for Retailing Education and Research Visibility (in China)  Free standings are not very common in China. Therefore it is very difficult for retail stores to get visibility directly from consumers.  Most retail store shows good visibility by putting their logos on banners to attract the attention of the consumers.

34. page 34Location Module David F. Miller Center for Retailing Education and Research Site Selection Comparison- Wal-Mart vs. Carrefour  Wal-Mart v. Carrefour- Who wins in site selection?  Wal-Mart:  Started in southern China  Second-tier suburban area  Carrefour:  Started in Shanghai and eastern China  First-tier cities, CBD and SBD  More aggressive than Wal-Mart  One of the major reason why Carrefour became so successful in China is because of their site selection strategies

35. page 35Location Module David F. Miller Center for Retailing Education and Research Wal-Mart v. Carrefour Comparison ParkingSizeTraffic Volume VisibilityAccessibility Wal-MartFree parking VariesSuburban area, traffic volume fair Varies but always good visibility Good design CarrefourFree parking VariesUrban area, crossroads, good traffic volume First element: crossroads Good design

36. page 36Location Module David F. Miller Center for Retailing Education and Research Wal-Mart v. Carrefour Locations

37. page 37Location Module David F. Miller Center for Retailing Education and Research Wal-Mart v. Carrefour Year: 2007

38. page 38Location Module David F. Miller Center for Retailing Education and Research Differences Between U.S. and China US China Households within 15 minutes drive time Percentage of households with kids Percentage of household in specific demographic segment Size of the shopping center Visibility from the street Any anchor tenant in shopping center such as Wal-Mart, Target Households within 20 minutes bus driving time Distance from subways stations Distance from CBD or SBD Size of the shopping center Visibility from street Any anchor tenant in shopping center such as Carrefour

39. page 39Location Module David F. Miller Center for Retailing Education and Research Differences Between U.S. and China  Example: Shopping centers in the U.S.  Within 15 minutes of driving time  Good visibility  Percentage of households with children in the area is 40%  Neither CBD area or close to a CBD area  Several anchor tenants in this shopping center  Why would this type of shopping center not be successful in China?  15 minutes driving time is more than 20 minutes bus riding time of other public transportations  Limited parking spaces  Far from CBD or SBD