Trading-Area Analysis and Site Selection Chapters 9 and 10 Trading-Area Analysis and Site Selection RETAIL MANAGEMENT: A STRATEGIC APPROACH

Administrative Items Midterm – Feb. 16th in class Next Class: Midterm format details Retail Institutions assignment questions Dr. Morgan’s presentation, “Toward Creative Practice in Social Enterprise” Schwartz AUDITORIUM, 3:30-4:30 pm, Feb. 8th Syncrude Recruitment February 9, 11:15 am – 1:00 pm SCHW190

Agenda Introduce Trade Area Analysis and Site Selection concepts for application to your Retail Institutions Assignments Appreciate the importance of location decisions Understand trade areas and how they are delineated Overview three different types of site locations Consider Canada’s newest type of retail site location – the lifestyle centre

The Importance of Location Location is one of the most important decisions a retailer can make “A retailer with a mediocre strategy mix can succeed with a great location whereas a good retailer may struggle in a poor location.” Parasite v. Destination Location can be changed, BUT Location is the least flexible part of the strategy mix Major financial commitment Long term decision Considerations of lease agreements Considerations of location ownership Impact of location change on bottom line (increased promotional dollars (awareness campaign)) Impact of location change on loyal clientele – confusion, ill-will Goal = “one-hundred percent location”, p. 242 Considerations of location change in lease agreements Some are 5, 10 or even 30yrs Inability to sublet Responsible for financial loss if lease broken Non-compete agreements Considerations of location change in ownership situation Potential loss in sale situation May require a long time May require financing the purchaser One hundred percent location = the optimal location for a particular store The 100% location for one store may not be the same for another.

Location, Location, Location Criteria to consider include: Population Density Demographics Economics major industry characteristics employment rates availability of labour Neighbours nature of nearby stores competition Availability availability of locations legal restrictions property costs length of agreement Accessibility transportation access parking availability proximity to supplies Trade Area Analysis Site Selection

The Segments of a Trading Area (Fig 9.5) 50-80% Trading Area: A geographic area containing the customers of a particular firm or group of firms for specific goods or services 15-25% The rest

The Trading Areas of Current and Proposed Outlets (Fig. 9.2 ) Trading area overlap  Why would a retailer pursue such a strategy?

How to delineate trading areas Analogue models (Simplest) Estimates sales based upon similar stores in area, estimated market share, competition and population size and density Regression models Use a series of mathematical equations to show associations between potential sales and a number of independent variables Gravity models People drawn to stores that are closer and more attractive than competitors’

Reilly’s Law Reilly’s law of retail gravitation, a traditional means of trading-area delineation, establishes a point of indifference between two cities or communities, so the trading area of each can be determined Uses population and distance between areas as measures Good because: Reasonably reliable method Less costly to determine (two indicators) Easy Limitations: Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets Distance travelled does not reflect travel time and actual distance may not correspond with perceptions of distance Assumes equal retailer efficiency City B City A 10 km 30 km Pop=10,000 Pop=90,000 Point of Indifference

Huff’s Law Huff’s law delineates trading areas on the basis of: Huff’s law of shopper attraction is another gravity model. It determines the probability of a shopper visiting a location. Huff’s law delineates trading areas on the basis of: product assortment travel times and the sensitivity of the kind of shopping to travel time.

Swiss Chalet Case Study CLIENT: Swiss Chalet is one of five restaurant chains owned by Cara. Other brands include Harvey’s, Milestones, Montana’s, Kelsey’s; presence in every province. CHALLENGE: To easily evaluate the potential for Swiss Chalet delivery and takeout for any market in the country to help determine how many new restaurants could be added to a market. To communicate the delivery areas to the Call Centre staff so that customer orders could be efficiently routed and guaranteed delivery times could be met.

Swiss Chalet Case Study SOLUTION: Used HouseholdSpend data to provide a template for mapping Showed: key demographics current Swiss Chalet delivery sales total expenditures for food away from home current market share of restaurant expenditures Also provided (not shown): Demographic Estimates and Projections data Also provided: Demographic Estimates and Projections data to determine which areas were growing fast enough to either expand current kitchen capacity or to add another restaurant within the local market. RESULTS: SC used maps to: modify the boundaries of its delivery areas to improve delivery times to its current customers to add new restaurants in locations that were being under-served. EA also built custom applications allowing the Swiss Chalet Call Centre to identify which restaurant should deliver take-out food to new customers

Two data sets were used in this example: shopping centers with their characteristics, and small census units with some related data. The purpose of this example was to create a market profile for a single mall. The Gross Leasable Area (GLA) was used as an attractiveness variable. The patronage probability surface (a grid) was created for a selected mall (Figure 1). A potential customer is assumed to be located at every grid cell. The probability of a customer patronizing a selected mall is positively related (directly proportional) to the attractiveness of the mall and negatively related (inversely proportional) to the distance between the mall and the customer, given the presence of all competing malls.

Trade area analysis for a single site using multiple variables for site attractiveness The difference between Examples 1 and 2 is that in Example 2 more than one variable was used as an attractiveness index. “The value of the model depends on the ability to incorporate a number of different measures of store attractiveness” (Jones, Simmons 1993, p.345). If more variables are included, it is easier to understand a variation in patronage patterns. In addition to the GLA, in this example the number of stores in each mall and the number of parking spaces were also considered as the attractiveness attributes. These three variables were converted to z-values and added together to make up an attractiveness index. Some of the attractiveness index values were negative and software could not calculate a surface. To alleviate this problem, the minimum negative z-value was added to all attractiveness values in order to create positive numbers, so that software would be able to handle the task. Figure 2 shows the probability surface created for the same mall using an attractiveness index composed of three, instead of one, characteristics. These three variables are correlated to some degree. Comparison of maps in Figures 1 and 2 indicates that considering more attractiveness variables increases the drawing power of the analyzed mall. The extent of isolines has changed (for an example see isoline labeled with the value of 0.3).  

GIS Solutions: Resources and Case Studies http://www.environicsanalytics.ca/services.aspx?item=trade_area_analysis_site_modelling http://www.environicsanalytics.ca/tradearea.aspx http://www.environicsanalytics.ca/case_swiss_chalet.aspx http://www.mappinganalytics.com/trade-area-analysis/trade-area-analysis.html http://www.directionsmag.com/articles/retail-trade-area-analysis-using-the-huff-model/123411 http://www.esri.ca/en_resources/files/EC1_0057_1201_1B_Rona.pdf http://www.pbinsight.com/files/case-studies/case-study-files/24HourFitnessCSweb.pdf

3 Types of Locations Planned Isolated Shopping Store Centre Unplanned Business District Isolated Store – a freestanding retail store on either a highway or a street. There are no adjacent stores with which the isolated store shares traffic. Advantages – lower costs (rental, some delivery), no competition, road visibility, ease of parking, flexibility (no group rules, facility adaptation) Disadvantages – advertising costs; no shared ops costs; first attracting customers difficult; often required to buy/build; customers like convenience and variety; zoning laws Unplanned Business District – two or more stores located together (or in close proximity) that are not the result of planned tenancy Four kinds - CBDs, SBDs, NBDs and strings Planned Shopping Centres – centrally owned and managed; balanced tenancy; non-compete agreements Advantages – shared cost of operations; lower rent than CBDs; foot traffic; parking provision Disadvantages – no road visibility; little flexibility; aging facilities; domination of anchors (or loss of anchor!); loss of interest in shopping Choice will depend partly upon whether the retailer is a destination or parasite store

CBD Revitalization in Canada Calgary’s Inglewood: http://www.thestar.com/travel/article/792345--calgary-s-inglewood-on-the-upswing Kitchener example It has been said that Canadian cities are not in as much need of CBD revitalization as some US areas because we didn't have urban flight in the 60's However, many CBDs did experience a decline in the quality and quantity of their retailing. Consider Winnipeg Some recent revitalization projects include: Toronto, Victoria, Ottawa and Calgary (Talbot Consultants)

Planned Shopping Centres in Canada: Fast Facts There are about 4400 shopping centres in Canada (www.icsc.org) About 1.2 million Canadians work in shopping centres There are 14 square feet of shopping centre space per capita in Canada (23 in US) Shopping Centre sales = $528/ft2 in Canada ($309/ft2 in US) – Colliers Canada, 2011 Ninety-two percent of Canadians over age 12 visit some type of centre in an average month.

Canadian Shopping Centre Trends BUT… Sales at traditional enclosed malls in both Canada and the US have been on the decline. Development has been slow Vaughan Mills (opened Oct. 2004) was the first new mall construction after a decade of stalled development; encountered many difficulties CrossIron Mills (opened August 2009 in Rocky View Alberta) was the first enclosed shopping centre development in Western Canada in over 20 years but had to reinvent traditional leasing with “Swing Shops” “Most Canadian malls are mediocre emporiums peddling overpriced goods, barely superior to malls in the Third World.” - Paco Underhill

Factors Contributing to Mall Decline Mall merchandise is predominantly fashion; growth in other categories Mall fashion stores appeal to teens yet few malls in Canada have done much to attract a teen market. Many large retailers are moving "off-mall". (e.g. - The Sony Store, Bombay Company, Sears Canada) Shoppers becoming more time sensitive and prefer frequenting one-stop shops Shopper boredom with ‘chore shopping’ orientation of mall retailers (Talbot Consultants)

Megamalls The West Edmonton Mall was the first megamall in North America and remains the continent's largest today. West Edmonton Mall Trivia http://www.westedmall.com/about/default.asp

Life-Style Centres in Canada Park Place, Barrie, ON The Village in West Vancouver The Shops at Don Mills Dartmouth Crossing

Mixed Use Centres Questions: Do you think it possible for an “open-air” concept of shopping to be successful in Canada? When making a site selection decision for a lifestyle centre, what criteria should be considered? What types of retailers would be appropriate to such a development? Explain.

Can a lifestyle centre work in Atlantic Canada?

Takeaways Location is one of the most important decisions a retailer can make (inflexibility) There are a variety of considerations in making the right decision (population, economic base, competitive environment, accessibility, availability) The right decision depends on the type of retailer, its target customer, its image and overall strategy When locations change the retailer needs to be able to adapt