CHAPTER 10: SITE SELECTION 1

©2013 Pearson Education 8-2 Chapter Objectives To thoroughly examine the types of locations available to a retailer: isolated stores, unplanned business districts, and planned shopping centers To note the decisions necessary in choosing a general retail location To describe the concept of one-hundred percent location

©2013 Pearson Education 8-3 Chapter Objectives (cont.) To discuss several criteria for evaluating general retail locations and the specific sites within them To contrast alternative terms of occupancy

©2013 Pearson Education 8-4 Overview Step 1: Investigate alternative trading areas (Chapter 9) Step 2: Determine what type of location is desirable Step 3: Select the general location Step 4: Evaluate alternative specific store sites Chapter 10 discusses steps 2-4.

©2013 Pearson Education 8-5 Isolated Store Planned Shopping Center Unplanned Business District Three Types of Locations

©2013 Pearson Education 8-6 Isolated Stores Advantages No direct competition Low rental costs Flexibility Good for convenience stores High visibility Adaptable facilities Easy parking Excellent for store that generates own traffic Disadvantages Difficulty attracting customers Travel distance Lack of cumulative attraction for customers High advertising expenses No cost sharing for promotions Possibly restrictive zoning laws

©2013 Pearson Education 8-7 Examples of Isolated Stores Large-store formats –Wal-Mart – Costco Convenience stores –7-Eleven

©2013 Pearson Education 8-8 Figure 10-1: Site Selection and Starbucks

©2013 Pearson Education 8-9 Unplanned Business Districts Central Business District Secondary Business District Neighborhood Business District String

©2013 Pearson Education 8-10 Figure 10-2: Times Square

©2013 Pearson Education 8-11 Figure 10-3: Unplanned Business Districts and Isolated Locations

©2013 Pearson Education 8-12 Planned Shopping Centers Advantages Well-rounded assortments Strong suburban population One-stop, family shopping Cost sharing of promotions Transportation access Pedestrian traffic Disadvantages Limited flexibility Higher rent Restricted product offerings in lease Competition Requirements for association memberships Domination by anchor stores Impact of store closings on affinities

©2013 Pearson Education 8-13 Figure 10-4: Macy’s and Shopping Centers

©2013 Pearson Education 8-14 Table 10-1a: Characteristics of Centers

©2013 Pearson Education 8-15 Table 10-1b: Characteristics of Centers

©2013 Pearson Education 8-16 Table 10-1c: Characteristics of Centers

©2013 Pearson Education 8-17 Figure 10-5: Galerya Afina

©2013 Pearson Education 8-18 Location and Site Evaluation One-Hundred Percent Location The optimum site for a particular store

©2013 Pearson Education 8-19 Figure 10-7: Location/Site Evaluation Checklist

©2013 Pearson Education 8-20 Pedestrian Traffic The most crucial measures of a location/site’s value are the number and type of people passing by. Proper pedestrian traffic count should include: age and gender (exclude very young children) count by time of day (may vary significantly) pedestrian interviews (what percent are actively shopping) spot analysis of shopping trips (verify stores visited)

©2013 Pearson Education 8-21 Vehicular Traffic Important for convenience stores outlets in regional shopping centers car washes, fast food franchises, donut shops suburban areas with limited pedestrian traffic non-destination stores

©2013 Pearson Education 8-22 Necessary Adjustments to Vehicular Traffic Counts Need to ascertain differences in traffic flow by time of day and day of week (Dunkin’ Donuts’ prime times are 7AM to 9:30 AM, Monday-Fridays) Omit or discount traffic that requires a “U turn” to enter retail establishment Omit or discount traffic going over 30 miles per hour Omit or discount cars with out-of-state plates

©2013 Pearson Education 8-23 Parking Considerations Number and quality of spots Distance of spots from stores Parking slot security at early morning and late evening hours Availability of employee parking Price to charge customers for parking

©2013 Pearson Education 8-24 How Many Parking Spaces? Shopping centers = 4-5 spaces per 1000 square feet of gross floor space Supermarkets = spaces per 1000 square feet of gross floor space Furniture stores = 3-4 spaces per 1000 square feet of gross floor space

©2013 Pearson Education 8-25 Figure 10-8 Pedestrian Traffic

©2013 Pearson Education 8-26 Figure 10-9: Corner Influence and Hershey’s

©2013 Pearson Education 8-27 Pros and Cons of Ownership Versus Leasing PROS: Freedom over concern with lease renewal or tough lease renewal negotiations with property owner Ability to write off depreciation (a non- cash expense) Possible capital appreciation from increased value of real estate Control over property maintenance

©2013 Pearson Education 8-28 Pros and Cons of Ownership Versus Leasing CONS: Difficulty in securing locations in neighborhood, community and regional shopping centers Assets tied up in real estate could be used for retail expansion, inventory, store renovation Real estate activity can divert attention away from retail activities Difficulty in renting adjacent space or current space (if location is no longer desirable)

©2013 Pearson Education 8-29 Terms of Occupancy Considerations Ownership versus leasing Type of lease Operations and maintenance costs Taxes Zoning restrictions Voluntary regulations

©2013 Pearson Education 8-30 Percentage Straight Maintenance- Increase Recoupment Graduated Net Types of Leases

©2013 Pearson Education 8-31 Examples of Lease Types Straight– $10,000 per month, 5 year term Graduated- $10,000 per month for years 1-5; then $12,000 per month for years Maintenance increase—Retailer tenant responsible for one-half increase in property taxes and insurance based on a base year of current lease Percentage- Retailer tenant pays $10,000 per month plus 5 percent of sales. (Chain tenants, long leases) Net lease- Retailer tenant pays all expenses with respect to property upkeep except mortgage and structural repairs

©2013 Pearson Education 8-32 Other Types of Lease Arrangements Five year lease with option to renew --at either set rental or rental determined by real estate appraisers Lease with option to buy—often X months rent can be applied to purchase price Sale-leaseback-- Retailer sells property to investor and then leases it back Good guy clause-- Provides that the property owner will not enforce the personal guaranty for retail tenant as long as the tenant has vacated the premises and has paid all rent up to the date of termination. Property owner gets location back quickly without legal costs, retailers gets “off the hook” for lease balance.

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