1. LOCATION ANALYSIS OF RETAIL (Subject: Location and Spatial Analysis)
Belinda Ulfa Aulia, ST, MSc
DEPARTMENT OF URBAN AND REGIONAL PLANNING
2018

2. Location, Location, Location
What are the key reasons Apple opened their store in the most expensive places in Manhattan?
Location, Location, Location

3. Location: Reaching Your Target Market
Know your target market → Find the formats and locations
Which Retail Formats will most effectively reach Target Market?
Retail Formats
Store-Based
Nonstore-Based
Business District
Shopping Centers/ Mall
Two most important decisions a retailer needs to make:
Selecting a target market
Determining which retail format will most effectively reach this market.
The retailer can reach potential customers through both store and nonstore based retail formats
Street Peddling
Internet
Direct Selling
Freestanding
Nontraditional
Mail-Order
Automated Merchandising Systems

4. Steps in Selecting Retail Location
Identify the most attractive markets in which its operates
Identify the most attractive sites that are available
The choice of retail location involves three decisions:
(1) market identification, or identify the most attractive market
(2) site analysis, or evaluating the demand and supply within each market
(3) site selection, selecting the best site (or sites) available.
Select the best site(s) available
The most attractive retail markets are not necessarily the largest.

5. Factors Affecting the Demand for a Region or Trade Area
Retailers often focus the analysis on Metropolitan Statistical Area (MSA) (populations > 50K) and Micro politan Statistical Area (population ~10K).
→ First, we want to find out where can we locate our stores.
Retail site selection is a very strategic decision. Once a location is chosen, a retailer must live with it for many years. Even if a retailer finds the "right" neighborhood, the wrong site can spell disaster.
In the United States, retailers often focus their analysis on a Metropolitan Statistical Area (MSA) because consumers tend to shop within an MSA.
An MSA is a core urban area with 50,000 or more inhabitants or an urbanized area of at least 50,000 inhabitants and a total MSA population of at least 100,000 (75,000 in New England).
A micropolitan statistical area is a smaller unit of analysis with only 10,000 inhabitants in its core urban area.

6. (1) Economic Conditions
A large, fully employed population means high purchasing power and high levels of retail sales.
Retail location analysis must also consider how long growth will take place and how it will affect demand for merchandise sold in the area’s stores.
Most retailers prefer to locate in areas where the population is large and growing. However, other retailers adopt the strategy of moving into newly developing areas, counting on developing suburbs to bring future growth.
Under what circumstances is it desirable for retailers to establish stores in sparsely populated areas? Is it ever a good idea?
Key: Examine an area’s level and growth of population and employment

7. (2) Competition
Saturation Theory: Examines how the demand for goods and services in a potential trading area is being served by current retail establishments in comparison with other potential markets.
Three possible outcomes
Retail store saturation
supply=demand
Understored
supply<demand
Overstored
supply>demand
Competition: The level of competition in an area also affects demand for a retailer’s merchandise.
The saturation theory implies a balance between the number of existing retail stores (supply) and their use (demand).
Saturated trade area offers customers a good selection of goods and services, while allowing competing retailers to make a good profit.
Understored trade area is one that has too few stores selling a specific good or service to satisfy the needs of the population.
3. Overstored trade area is an area that has so many stores selling a specific good or service that some stores will fail.
Why retailers are going urban?

8. (3) Strategic Fit High income, dual career family Families with kids
In addition to population level, growth and competition, the area needs to have consumers who are in the retailer’s target market, those who are attracted to the retailer’s offering and interested in patronizing its stores.
The area must have the right demographic and lifestyle profile.
Families with kids
Outdoor Enthusiasts

9. Number of Stores in an Area So, how Many Stores to Open in an Area?
Economies of Scale vs Cannibalization
One promotional costs for all stores Open stores as long as profits
Number of Stores in an Area --> Retailers must consider the trade-offs between lower operating costs and potential sales cannibalization from having multiple stores in an area.
Economies of Scale from Multiple Stores
Since retail chains plan to go into an area with a network of stores, they attempt to achieve promotion and distribution economies of scale for all the multiple locations. Multiple stores in an area are needed to justify the cost of building a new distribution center. While there are scale economies gained from opening multiple locations in an area, there also are diminishing returns associated with locating too many additional stores in an area due to cannibalization (one store taking sales away from another).
Because a primary retailing objective is to maximize profits for the entire chain, retailers should continue to open stores only as long as profits continue to increase. In this case, the retailer would continue to open stores as long as the marginal revenues achieved by opening a new store are greater than the marginal costs.
For franchise operations, each individual franchise owner wants to maximize his or her profits. Some franchisors (owners of the franchise) grant their franchisees (owners of the individual stores) an exclusive geographical territory so that other stores under the same franchise do not compete directly with them.

10. Evaluating a Site for Locating a Retail Store
When evaluating and selecting a specific site, retailers consider:
The characteristic of the site
The characteristic of the trading area
The estimated potential sales that can be generated
Factors influence market demand and market supply
Leasing agreements
Stockbyte/Punchstock Images

11. I. Site Characteristics
Traffic Flow is number of people who would pass by the store.

12. Traffic Flow and Accessibility
The bigger traffic, the more customers shop. Good for convenience retailers
Accessibility
Road pattern and condition
Natural and artificial barriers
Visibility
Parking
Congestion
Traffic Flow and Accessibility
One of the most important factors affecting store sales is the number of vehicles and pedestrians that pass by the store, or the traffic flow.
When the traffic is greater, more consumers are likely to stop in and shop at the store.
Traffic counts are particularly important for retailers offering merchandise and services bought on impulse, but less important for destination retailers.
The accessibility of a site is the ease with which a customer can get into and out of it. The accessibility analysis has two stages; a macro analysis followed by a micro analysis.
Natural barriers, such as rivers or mountains, and artificial barriers, such as railroad tracks, major highways or parks, may also affect accessibility.

13. Location Characteristics
1. Parking
2. Store Visibility
3. Adjacent retailers
1) Parking?
Observe shopping center at various times
Employee parking availability
Shoppers that use cars
Parking by non-shoppers
Typical length of a shopping trip
2) Store Visibility
Ability that customers can see the store from the street.
(3) Adjacent Tenants
In an enclosed mall, what retailers would Abercrombie & Fitch want to be located near?
American Eagle Outfitter, Ann Taylor, Body Shop, Electronic Boutique
Principle of Cumulative Attractiveness

14. Restrictions and Costs
Some locations place restrictions on type of retail tenants that are allowed in a shopping center in their lease agreements restricting competing retailers from the location.
The restrictions may also work to the disadvantage of the retailer by limiting their efforts to create visibility with signs and other external features.
Locations with complementary, as well as competing, adjacent retailers have the potential to build traffic. Complementary retailers target the same market but with non-competing merchandise.

15. Davidson et al (1980)

16. A. Regional Decision
a. Regional population (size, growth, density, distribution, empty area).
b. Metropolitan and city network (size, distance, linkages).
c. Unique environmental charateristic (climate, vegetatition, terrain).
d. Economic charateristic (employment, industry, trends).
e. Target market population (number and percentage).
f. Regional cultural tastes.
g. Competitive intensity.
h. Store and shopping center saturation level
i. Effective buying power

17. B. Market Area Decision
a. General population dimenstion (size, growth, density, distribution) and Target market population dimension.
b. Metropolitan and city transportation and highway network
c. Economic charateristic and Effective buying power.
d. Market potential in particular merchandise lines.
e. Consumer cultural and fashion taste.
f. Competitive intensity, Store and shopping center saturation level.
g. Distribution capabilities.
h. Unique environmental charateristic.
i. Legal/zoning restrictions
j. Business climate, including availibility of capital resources.

18. C. Trade Area Decision
Trade area can be divided into three zones: main zone, secondary zone, and tertiary zones (outer ring).
 The main zone is a geographical area where shopping malls or stores gained 60% - 65% of total consumer sales rate
 secondary zone is a geographic area that accounts for 20% of total consumer sales rate.
 While the tertiary zone is a zone where only occasional visitors to shop at the trade center. Some of the reasons why visitors in this zone went shopping center is a distance away from the house is the availability of access to the freeway, shops are on the way to work, and the store is located close to the tourist area.

19. Typical Size & Trading Area of Shopping Centers
3rd Quarter 2002 Analyst Presentation
1/23/2019 3:10:42 PM
Typical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping Center Neighborhood
Gross Leasable Square Feet 30,000 to 150,000
Primary Trade Area
3 Miles

20. Typical Size & Trading Area of Shopping Centers
3rd Quarter 2002 Analyst Presentation
1/23/2019 3:10:42 PM
Typical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping Center Community
Gross Leasable Square Feet 100,000 to 350,000
Primary Trade Area
3-6 Miles

21. Typical Size & Trading Area of Shopping Centers
3rd Quarter 2002 Analyst Presentation
1/23/2019 3:10:42 PM
Typical Size & Trading Area of Shopping Centers
LO 2
Type of Shopping Center Regional
Gross Leasable Square Feet 400,000 to 800,000
Primary Trade Area
5-15 Miles

22. D. Site Decision a. Site description (size, shape)
b. Lease requirement/land cost
c. Parking ratio
d. Pedestrian flow
e. Traffic flow (average speed)
f. Public transportation acces
g. Visibility
h. Acces to trade area

23. Trading-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

24. Zones in a Trade Area
Pick a store or shopping center and have students define the trade area. Point out all the factors that shape the trade area. (These are listed below) Why isn’t it round? After they’ve defined the general boundaries, then get them to explain how they would determine the primary and secondary zones.

25. Factors Affecting the Size of the Trade Areas
Accessibility
Natural & Physical Barriers
Type of Shopping Area
Type of Store
Competition
Parasite Stores
The actual boundaries of a trade area are determined by the store’s accessibility, natural and physical barriers, type of shopping area, type of store, and competition.
Trade area size is also influenced by the type of store or shopping area. The difference is due to the nature of the merchandise sold and the total size of the assortment offered.
Another way of looking at how the type of store influences the size of a trade area is whether or not it is a destination or a parasite store.
A destination store is one in which the merchandise, selection, presentation, pricing or other unique features act as a magnet for customers. In general, destination stores have larger trade areas than parasite stores.
A parasite store is one that does not create its own traffic and whose trade area is determined by the dominant retailer in the shopping center or retail area.
The level of competition also affects the size and shape of a trade area for a particular store. Trade areas may shrink for retailers offering identical merchandise to others, and expand for retailers offering complementary goods to those carried by other retailers.

26. Computerized Trading-Area Analysis Models
Analog Model
Regression Model
Gravity Model

27. Reilly’s Law Gravity Model
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

28. Limitations of Reilly’s Law
Distance is only measured by major thoroughfares; some people will travel shorter distances along cross streets
Travel time does not reflect distance traveled. Many people are more concerned with time traveled than with distance
Actual distance may not correspond with perceptions of distance

30. Huff’s Law
Huff’s law of shopper attraction delineates trading areas on the basis of product assortment (of the items desired by the consumer) carried at various shopping locations, travel times from the shopper’s home to alternative locations, and the sensitivity of the kind of shopping to travel time.

31. (1) Huff’s Gravity Model
Estimating Potential Sales for a Store
(1) Huff’s Gravity Model
Size of the store at location j λ
Probability that customer I shops at location j
P = S / T
The relative effect of travel time versus store size (given) ij j ij Σ S λ / T j ij
Travel time for customer I to get to location j
This model, following Newton’s law of gravity, is 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 the store or center grows and the distance or travel time from customers to the store or center shrinks.
The objective of Huff’s approach is to determine the probability that a customer residing in a particular area will shop at a particular store or shopping center. To forecast sales, the location analyst multiplies the probability that the customer will shop at a particular place by an estimate of the customer’s expenses. Then, all the estimated expenditures in an area are aggregated to estimate sales from the area.
Pick two shopping centers, one big and one small. Draw them on the board, and put an X in the middle. Ask students if the two centers were equidistant from where they lived, where would they shop and why. They would hopefully say they would shop at the bigger center because it has a bigger assortment. Now move the X closer to the smaller center and re-ask the question. As the X gets closer to the smaller center, the propensity of the students to shop at the smaller center will get larger. Now ask them if a close location is more important for convenience goods or specialty goods. Of course, it is more important for convenience goods. This explains the exponent.
The probability that a given customer will shop in a particular store becomes larger as the size of store ↑ and distance or travel time from customer ↓.

32. Application of Huff Gravity Model
(Given λ=2)
Size
(000 Ft2)
Annual Sales
(millions)
Time from Existing Store
Time from
New Store
Existing Store
5,000 $8
Town: Rock Creek (RC) 5 10
Town: Oak Hammock (OH) 3 15
Competitive Store
10,000
What is the expected sales at the new store?

33. Huff’s Gravity Model PRC = 10,000/5 2 = .889 POH = 10,000/152 = .182
Probability of Rock Creek customers to shop at a new location:-
PRC = ,000/ =
10,000/52 + 5,000/102
POH = ,000/ =
10,000/ ,000/52
.889 x $3 million x $5 million = $4,910,000
Probability of Oak Hammock customers to shop at a new location:-
The expected sales for the new location would be:-

34. Analog Model Steps:-- Do a competitive analysis
(2) Analog Approach or the similar store approach (Edward Beiner Optical, 1988)
Retailer describes the site and trade area characteristics for its most successful stores and attempts to find a similar site.
Steps:--
Do a competitive analysis
Define present trade area
Analyze trade area characteristics by GIS
Match characteristics of present area with potential sites
Illustration of Site Selection: Edward Beiner Optical
Edward Beiner Optical is a South Miami, Florida store specializing in upper-end, high-fashion eyewear. It has one store in a Main Street location. Edward Beiner finds its Main Street location attractive with lower rent than a shopping mall and good pedestrian traffic and competition is not intense. Edward Beiner would like to find a new location whose trade area has similar characteristics.
First, the current trade area is determined by using a technique known as customer spotting in which customers are identified and their locations are plotted on a map.
Second, based on the density of customers from the store, the primary, secondary, and tertiary trade area zones are defined.
Finally, the characteristics of a current store are matched with potential new store locations to determine the best site

35. Step 1: Competitive Analysis of Potential Locations
Step One: Competitive analysis is conducted on 4 potential sites.
Estimate the eyeglass sold per year per person
Take trade area population by ESRI
Estimate the trade area potential (square feet)
5 = 2 * 3
6 = 4 - 5
7 = 6 / 4
Site B is most preferred
B/C high trade area potential & relatively low competition.

36. Step 2: Customer Spotting Data Trade Area of Edward Beiner Optical
Step Two: Definition of the trade area comes next through the customer spotting technique.
The zones are based on drive times:
- Red: 5 minutes for the primary trade area
- Blue: 10 minutes for the secondary trade area
- Green: 20 minutes for the tertiary trade area

37. Step3: Trade area characteristics
Studied through reports generated by ESRI GIS.
Average household income is $92,653
28% have income between $75,000 and $149,000
14% have income over $150,000
The three miles ring around the store is very affluent
Populations are 53% Hispanic
Major geodemographic segments are High-Rise renters, Thriving immigrants, Top one percenters, and Wealthy Seaboard Suburbs
Step Three: Trade area characteristics were studied through reports generated by ESRI GIS.

38. Step 4: Match Characteristics of Present Trade Area with Potential Sites of Edward Beiner Optical
Trade area profile is high income, predominantly white-collar occupations, a relatively large percentage of older residents, upscale geodemographic segments and relatively low competition for expensive high-fashion eyewear.
Comparing the current location with four potential sites.
When the retailer has small number of outlets (n<20) the analog approach can work fine. The weaker the analogy the more difficult the location decision will be.

39. (3) Regression Analysis
Regression Model
(3) Regression Analysis
A common method of defining retail trade area potential for retail chains with greater than 20 stores.
Logic is similar to the analog approach
Using statistics rather than judgment to predict sales for a new store.
Steps are:-
1. Select appropriate measures of performance, such as per capita sales or market share.
Select a set of variables that may be useful in predicting performance.
Solve the regression equation and use it to project performance for future sites.
The common method of defining retail trade area potential for retail chains with greater than 20 stores is multiple regression analysis. Although multiple regression analysis uses logic similar to that of the analog approach, it uses statistics rather than judgment to predict sales for a new store.
Regression Analysis
Regression analysis does have limitations. To be reliable, a large database is required.
The analyst must be properly trained and must adhere to strict statistical procedures. Finally, since regression is an averaging technique, it seldom identifies extremely good or extremely poor potential locations.

40. Regression Model for Estimating Store Sales
Stores sales
= 275 x number of households in trade area (15 minute drive time)
+ 1,800,000 x percent of household in trade with children under 15
+ 2,000,000 x % of households in trade area in Tapestry segment “aspiring young ”
+ 8 x shopping center square feet
+ 250,000 if visible from street
+ 300,000 if Wal-Mart in center
Variable
Location A
Location B
Households within 15 minutes drive time
11,000
15,000
% of households with children under 15 years old
70%
20%
% of households in aspiring young geodemographic segment
60%
10%
Sq Ft of shopping center
200,000
250,000
Visible from street
Yes No
Wal-Mart in shopping center
Using the regression model:-
Stores sales at location A = $7,635,000, B= 6,685,000
→ Location A is better

41. Referensi
Applebaum, W. (1968). The Analog Method for Estimating Potential Store Sales. In C. Kornblau, Guide to
Store Location Research. Reading, Mass.: Addison-Wesley.
Breheny, M. J. (1988). Practical Methods of Retail Location Analysis: A Review. In N. Wrigley, Store Choice,
Store Location and Market Analysis (pp ). London: Routledge.
Brubaker, B. T. (2004). Site Selection Criteria in Community Shopping Centers: Implications for Real Estate Developers. Cambridge.
Buckner, R. W. (1998). Site Selection: New Advancements in Methods and Technology. New York: Chain Store Publishing Corp.
Laddel, et al (2009). Retail Site Selection: A New, Innovative Model for Retail Development. Woolbright Development, Inc.
Peraturan Presiden Republik Indonesia Nomor 112 Tahun 2007 Tentang Penataan Dan Pembinaan Pasar Tradisional, Pusat Perbelanjaan Dan Toko Modern
Schmidt, C. G. (n.d.). Location Decision-Making Within a Retail Corporation