Retail Locations

The Importance of Store Location Store location is most often the first consideration in a store choice Having a good location increases chances of developing a strong sustainable competitive advantage Location decisions can be risky and should be well-thought out

Process of Choosing Particular Locations Trade area: the geographic area that encompasses most of the customers who would patronize a specific retail site Size of the trade area Occupancy cost of the location Pedestrian and vehicle customer traffic location Restrictions on operations by property managers Convenience of location for customers - Level of competition - Access to transportation - Availability of parking Attributes of nearby stores Legal restrictions

Types of Retail Locations Freestanding Sites such as outparcels and merchandise kiosks City or Town Locations such as central business districts, main streets, and inner city locations

Advantages and Disadvantages of Freestanding Locations Convenience for customers High vehicular traffic and visibility Modest occupancy costs Separation from competition Limited trade area when not around nearby retailers Higher Occupancy costs that strip centers Usually located where there is little pedestrian traffic

Freestanding Sites Outparcels Merchandise Kiosks Retail locations for an individual, isolated store unconnected to other retailers Outparcels Merchandise Kiosks

Merchandise kiosks Small selling spaces, typically located in the walkways of enclosed malls, airports, train stations, or office building lobbies.

City or Town Locations Advantages Disadvantages Lower occupancy costs Higher pedestrian traffic Traffic is limited due to congestion Parking problems reduce consumer convenience

Central Business Districts (CBD) Advantages Disadvantages - Draws people during business hours - Heavy public transportation - Pedestrian traffic - Residential area as well - High security required - Shoplifting - Parking is poor - Evenings and weekends are slow

Main Streets vs. CBD’s Occupancy costs are generally lower than CBD’s Fewer people are employed Smaller selection due to fewer stores Range of entertainment is usually smaller City planning sometimes restrict store operations

incomes than surrounding areas Inner City High density urban areas with higher unemployment and lower median incomes than surrounding areas Retailers here achieve higher sales volume and higher margins, thus producing higher profits Redevelopments in inner cities can cause increased traffic and parking difficulties, causing them to be controversial

Advantages Disadvantages Convenient locations Easy parking Low occupancy costs Limited trade area Lack of entertainment No protection from weather

Power Centers Examples Consist primarily of collections of big box retail stores Examples Target Costco Lowe’s Sports Authority Toys “R” Us

Shopping Malls Regional Malls Super Regional Malls Less than 1 million square feet More than 1 million square feet

Shopping Malls Advantages Disadvantages Wide variety of stores Wide assortment of merchandise Shopping and entertainment No inclement weather Uniform hours of operation Attracts many shoppers Occupancy costs are generally higher Mall control over business operations Competition can be intense

Enhancing the Mall Experience Mall managers try to make malls more of an enjoyable experience in an effort to keep people shopping as long as possible Common areas Family lounges Great food Playgrounds Entertainment

Mall renovations and redevelopment CORPUS CHRISTI, TX – La Palmera Mall Redevelopment

with design ambience and amenities Lifestyle Centers Shopping centers with an open-air configuration of specialty stores, entertainment, and restaurants with design ambience and amenities Advantages Disadvantages Ease of parking Relaxed open-air environment Pedestrian traffic tends to be higher Occupancy costs and operating restrictions are less Less retail space Smaller trade areas Attract fewer customers

Fashion/Specialty Centers Composed mainly of upscale apparel shops, boutiques, and gift shops carrying selected fashions or unique merchandise of high quality and price Stores in Phipps Plaza Tiffany Gucci Max Mara Giorgio Armani Tommy Bahama’s

Outlet Centers Las Vegas Outlet Center Strong entertainment component Shopping centers that contain mostly manufacturers’ outlets Strong entertainment component Becoming more popular outside the United States Tourism is important for outlet centers Las Vegas Outlet Center

Theme/Festival centers Shopping centers that typically employ a unifying theme reflected in the individual shops, design, and to some extent their merchandise Located in places of historic interests or for tourists Anchored by restaurants and entertainment facilities Generally targeted at tourists, they may also attract local customers A common element of these centers is entertainment, although some rely solely on the shopping experience

Omnicenters St. John’s Town Center, Jacksonville, FL Combines enclosed malls, lifestyle centers, and power centers St. John’s Town Center, Jacksonville, FL Omnicenters are becoming more popular in the U.S. partly from the desire of tenants for lower common- area maintenance charges and the growing tendency of consumers to cross- shop.

Mixed Use Developments Offer an all-inclusive environment so that consumers can work, live, and play in a proximal area Combine several different uses into one complex, including shopping centers, office towers, hotels, residential complexes, civic centers, and convention centers Mizner Park, Boca Raton, FL

Airports Airport Apple store High pedestrian traffic Sales per square foot are higher than mall stores Rent is higher Hours are longer Inconvenient location for workers means higher wages Airport Apple store

Temporary Locations (pop-up stores) Good for businesses trying to create a little hype Good introduction for new stores or products Provide visibility for a business Provide additional sales during holidays and special events Target pop-up store

St. Regis Aspen Resort, CD Resorts St. Regis Aspen Resort, CD Captive audiences Wealthy customers People with time on their hands

Store within a store Occurs when a manufacturer has its own store and salespeople inside a retailer store This concept benefits both companies to attract more customers Helps fill holes in product offerings

Social Networking Game Farmville Businesses take advantage of locations where customers are, like the internet and online games, and provide them with alternative ways to spend money Social Networking Game

Location and Retail Strategy Factors that affect location choice Shopping behavior of consumers Size of Target Market Uniqueness of Retail Offering

Shopping Situations 3 Shopping Behaviors Convenience shopping Comparison shopping Specialty shopping

Convenience Shopping Shopper Mentality Wants to exert little effort to acquire product or service Wants convenient location Less concerned with price No hassles

Comparison Shopping Shopper Mentality General idea about product or service No strong brand preference No strong retailer preference

Specialty Shopping Shopper Mentality Knows what they want Accepts no substitute Strong loyalty to product or brand

Estimates to determine size of target market For most retailers, the size of the target market and the location of the highest density of their target market will help determine where their business should be located. Estimates to determine size of target market Estimate max # of customers eligible to purchase product or service Estimate percentage of potential customers Estimate # times customers could purchase the product or service in a year Estimate highest density of target market

Uniqueness of Retail Offering Consumer mentality Location doesn’t matter as much because the product is that important or unique

Zoning and Building Codes Legal Considerations Environmental Issues Zoning and Building Codes Above ground risks Hazardous materials Sign restrictions Licensing requirements

Environmental Issues Above-Ground Waste Hazardous Materials

Environmental Issues “Above-ground” risks - such as asbestos-containing materials or lead pipes used in construction. Hazardous materials - e.g. dry cleaning chemicals, motor oil, that have been stored in the ground. Retailers’ Protection Stipulate in the lease that the lessor is responsible for removal and disposal of this material if it’s found. Retailer can buy insurance that specifically protects it from these risks.

Zoning and Building Codes Signs Licensing

Other Legal Issues Zoning and Building Codes Signs Zoning determines how a particular site can be used. Building codes determine the type of building, signs, size, type of parking lot, etc. that can be used Signs Restrictions on the use of signs can also impact a particular site’s desirability Licensing Requirements Some areas may restrict or require a license for alcoholic beverages

Types of Leases Percentage Fixed - Rate Percentage leases - rent is based on a percentage of sales. Retailers also typically pay a maintenance fee based on a percentage of their square footage of leased space. Most malls use some form of percentage lease.

Variations of Percentage Leases 1.Percentage lease with specified maximum - percentage of sales up to a maximum amount. Rewards retailer performance by allowing retailer to hold rent constant above a certain level of sales 2. Percentage lease with specified minimum - retailer must pay a minimum rent no matter how low sales are. 3.Sliding scale - percentage of sales; as rent decreases as sales go up.

Fixed Rate Leases Fixed rate leases - used by community and neighborhood centers. Retailer pays a fixed amount per month over the life of the lease. Not as popular as percentage leases Graduated lease - a variation of the fixed rate lease Rent increases by a fixed amount over a specified period of time.

Percentage or Fixed Rate Leases Maintenance-increase-recoupment lease - used with either a percentage or fixed rate lease. Rent increases if insurance, property taxes, or utility bills increase beyond a certain point. Net lease - retailer is responsible for all maintenance and utilities.

CLAUSES UNDER A LEASE CONTRACT Prohibited Use Clause Limits the landlord from leasing to certain tenants Some tenants take up parking spaces and don’t bring in shoppers: bowling alley, skating rink, meeting hall, dentist, or real estate office. Some tenants could harm the shopping center’s wholesome image: bars, pool halls, game parlors, off-track betting establishments, massage parlors and pornography retailers.

Exclusive Use Clause Escape clause selling competing merchandise Prohibits the landlord from leasing to retailers selling competing merchandise Specify no outparcels Specify if certain retailer leaves center, they can terminate lease. Escape clause Allows the retailer to terminate its lease if sales don’t reach a certain level after a specified number of years, or if a specific co-tenant in the center terminates its lease.

Retail Location Theories 1. Retail Gravity Theory 2. Saturation Theory 3. Buying Power Index

Retail Location Theories Retail gravity theory suggests that there are underlying consistencies in shopping behavior that yield to mathematical analysis and prediction based on the notion or concept of gravity.

Huff’s 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

Assumptions: 1. The proportion of consumers patronizing a given shopping area varies with the distance from the shopping area. 2. The proportion of consumers patronizing various shopping areas varies with the breadth and depth of merchandise offered by each shopping area 3. The distance that consumers travel to various shopping areas varies for different types of products purchased 3. The “pull” of any given shopping area is influenced by the proximity of competing shopping areas

Huff’s Model Formula Exponent distinctions: b= 2; if travel time has greater effect b= .5; if store size has greater effect b= 1; if store size and travel time have same effect

University and Shopping Centers: Gravity Model Illustration

Huff’s Model: The Solution Pij = 1000  32 (1000  32) + (500  52) + (100  12) Probability = .43 .43 x 12,000 students = 5,160 customers 5,160 customers x $150 = $774,000 Repeat steps 1 to 3 for the remaining areas and then sum them.

Saturation theory examines how the demand for goods and services of a potential trading area is being served by current retail establishments in comparison with other potential markets.

Index of retail saturation (IRS) is the ratio of demand for a product (households in the geographic area multiplied by annual retail expenditures for a particular line of trade per household) divided by available supply (the square footage of retail facilities of a particular line of trade in a geographic area).

Index of Retail Saturation (IRS) where IRS is the index of retail saturation H is the number of households in the area RE is the annual retail expenditures for a particular line of trade per household in the area RF is the square footage of retail facilities of a particular line of trade in the area (including square footage of the proposed store) IRS = (H X RE)/RF

Buying power index (BPI) is an indicator of a market’s overall retail potential and is composed of the weighted measures of effective buying income (personal income, including all nontax payments such as social security, minus all taxes), retail sales, and population size.

Buying Power Index (BPI) Published annually in Demographics USA Measures a given market’s ability to buy Is expressed as a percentage of the total U.S. potential Source: The Census and You, U.S. Department of Commerce, Bureau of the Census.

Buying Power Index BPI = 0.5(the area’s percentage of U.S. effective buying income) + 0.3(the area’s percentage of area retail sales) + 0.2(the area’s percentage of area population)