Retail Management

Module 6: Trade-Area Analysis and Site Selection

Selecting a Store Location

What you'll learn to do: Explain the significance of selecting a store location

Your stores location will ultimately influence the consumers view of your company [brand]. Opening a store in the wrong location will cause your shop to stick out in a bad way. Think wearing a tank top to a black tie event. Consumers will be confused if the store seems out of place and ultimately not shop.

Studying customer foot traffic, walkways and outside factors all come into play when selecting a store location. Having consistent walk by foot traffic will cost more in monthly rent. If you are selling impulse purchase items this is a big benefit. Opting for a second or third floor location will save you money on rent and provide privacy. Stores planning on doing extensive marketing would benefit from the cheaper monthly rent.

In a mall, designers use elevators and escalators to encourage movement around the mall and impulse purchases [2].

Learning Outcomes

  • Define environmental analysis
  • Discuss why location selection needs to involve significant analysis of data
  • Explain the effects of location choice on short and long run planning

Environmental Analysis

You are a consultant and have been hired by a high-end steakhouse to find a location for their new restaurant. They are looking at several locations, but are concerned about making sure the area where they locate can support their price structure. They know that there are many options to eat in the community they are targeting. When looking at the environmental aspects of this location analysis process, where would you start?

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After reviewing the articles and watching the video, what things are important in analyzing the environment for a new business?

There are many environmental factors that surround customers and competition. The changing retail scenario is important to note, especially at the point where you are selecting a location. Changing locations is difficult and costly, so insuring a good fit from the beginning through effective analysis processes is an important step.

Economic factors

Can a location afford the prices charged by the new steakhouse? Research income levels, median house prices, education levels and other aspects of the financial demographic status of an area to see if this would be a good fit. Checking out other restaurants and retail stores in the area will also be helpful here.

Demographic and Social Factors

Ages of the people in the community, along with information on shopping (in our case eating out) habits are helpful. Is there a large number of double income families? Do many of the families have young children? If the population of the area does not need your product or service, it will be impossible to create a successful retail endeavor.

Brand Profusion

What other restaurants or retail stores are in the area? If there are too many similar to yours it may be difficult to create a market share in a location. If there are already four steakhouses in the area, at varying price points, breaking in to the market may be complicated.

So once you have done review from an environmental standpoint, take a look back at the four “P”s of retail sales

  1. Place
  2. Product
  3. Price
  4. Promotion

When looking for a place to put your new endeavor, you need to also make sure that the market wants your product and are willing to pay the price your product demands. Location (place) is the key to a successful endeavor, but you must insure that the place you pick will support the product and price.

Practice Questions

Data Analysis for Location Selection

There is a fun little storefront available that would be perfect for your new boutique! As cute and affordable as this space is, how will you know if it will be a successful space to locate? Can you do what you want here? Are there competing boutiques, enough parking, and proper zoning? There is so much to think about and look at when choosing a location for your business!

Multistore retailers have additional location issues to deal with:

Moving a business is expensive. Analyzing the location choice is important from the onset, so that moving does not become an issue down the road. Since a poor location can limit the success of a store and may actually be instrumental in the demise of a store, the initial research and analysis is a step that needs attention when you look to open a retail space, whether it is a small boutique or a new Walmart store,.

A retailer with an excellent location has a strategic advantage to other similar retailers. A product or service that sells like hot cakes in one area, may not sell nearly as well in another location, or may not sell at all!

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In this lecture, Dr. Jonathan Reynolds discusses new challenges in retail location analysis:

With the advent of technology, online shopping and next day delivery, it has become even more vital to do the proper analysis prior to opening a brick and mortar retail store. In determining a location we first want to evaluate:

  1. The alternate geographic trading areas. Trade areas are defined as a contiguous geographic area which accounts for the majority of a stores sales and customers.If you are a small local business, this will be a narrower area, but if you are looking for space for a larger retail outlet, you will have many options available.

    • Do you want a rural, suburban, or metropolitan location?
    • How much per capita buying power is required for your product? If the people can’t afford your product, or there are not enough people in a certain area to buy your product, it will be difficult to be successful.

  2. Determine the type of location. When looking at possible types of locations, you will need to evaluate:

    • Population—are there enough people in the area?
    • Is the density of the area suitable to meet our needs?
    • What are the characteristics of the population?
    • What is the income level and social and cultural mix of the population?

  3. Literacy of the population

    • What is the literacy level and educational level of the populations?
    • What languages do they speak and what is the religious structure?

  4. Trading factors

    • Are there other stores like yours in the area?
    • What do they stock and what is the reputation of these stores?
    • Is there are large enough trading area for you to flourish along with the others?

  5.  Accessibility

    • Can people get to you (vehicles, public transit, pedestrians)?
    • Is there parking and how far are you from other retail areas?
    • Can individuals with physical disabilities access your location?

  6. Amenities

    • Are you planning to be open when people want to shop?
    • Do you do deliveries, online ordering and accept credit cards?

There are so many factors to consider, and we will review many of these as we move forward in the course. It isn’t as simple as hanging out a shingle. The importance of analysis as you decide where to place your retail store or restaurant may result in your success or failure as a business!

Practice Questions

Location Effects on Planning

When you open a new retail location, the hope is always for a long successful business. Recent closings of what looked like successful business operations has shed new light on the importance of proper site selection, proper analysis when securing the site, and meeting the needs of customers once you have located your space.

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"Why Are Retail Chain Stores Being Closed?" by Barbara Farfan on The Balance: Small Business

Knowing the demographic of your location is a very important part of long term planning. Knowing if the population will be customers into the future, can be important. If the area is a highly transient population, a college town for example, where you get a continued influx of 18-22 year old students, locating a coffee shop near campus may be a great idea. If you have a similar transient area where young families move in and out (a first time homebuyer community), opening a daycare center would be a prudent long term business.

Being able to ebb and flow with changes in demographics is another long term planning option. An example might be a restaurant in an upscale retirement community, having the ability to also meet the needs of a changing demographic through different food or price points over time.

Looking at the history of the planned location can tell a story. If it was a once thriving community that is starting to suffer from neglect due to a turn to more rental properties rather than owner occupied homes, that may be a sign that the neighborhood is changing in a way that may not support your retail endeavor. On the other hand, a rundown community, that has recently seen an upsurge in restoration and new building, along with owner occupied spaces or a new and upcoming art center, may be the perfect place to locate long term.

Picking the space that will work in the long-term is important in your planning. Having the ability to grow or change with the community will be an important component of long term success.

Practice Questions

  1. Kone, "Planning Retail People Flow: A Handbook for Architects, Developers, and Builders."
  2. Kone, "Planning Retail People Flow: A Handbook for Architects, Developers, and Builders."

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