MKT 322 Retailing and ECommerce

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Chapters 9, 10 Site Selection Trading Area
Analysis
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Factors Affecting Attractiveness of a Site
Accessibility

• Road pattern and condition
• Natural and artificial barriers
• Visibility
• Traffic flow
• Parking
• Congestion
• Ingress/egress

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Location

• Good Location CAN Overcome Mediocre Strategy Mix
• Poor Location Difficult to Overcome
• Requires Extensive Decision Making
• Least Flexible Element of Strategy Mix

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Locational Advantages within a Center
Principle of cumulative attraction - a
cluster of similar and complementary retailing
activities will have greater drawing power.
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Trade Area
Primary zone - 60 to 65 percent of its
customers Secondary zone - 20 percent of a
stores sales Tertiary zone - customers who
occasionally shop at
the store or shopping center
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Oblong Trade Area caused by Major Highways and
Natural Boundaries
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Customer Spotting

• Purpose to spot, or locate, the residences of
  customers for a store or shopping center.
• How to obtain data
• credit card or checks
• customer loyalty programs
• manually as part of the checkout process
• automobile license plates

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Demographic Data and GIS Vendors

• Demographic data vendors specialize in
  repackaging and updating census-type data.
• Geographic Information System (GIS) is a computer
  system that enables analysts to visualize
  information about their customers demographics,
  buying behavior, and other data in a map format.
• GIS is a spatial database that stores the
  location and shape of information.
• Analysts can identify the boundaries of a trade
  area and isolate target customer groups

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Decennial Census Data of the U.S.

• Only once every 10 years
• Each household in the country is counted to
  determine the number of persons per household,
  household relationships, sex, race, age, and
  marital status.

Source The Census and You, U.S. Department of
Commerce, Bureau of the Census.
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Buying Power Index (BPI)

• Published annually in Demographics USA
• Measures a given markets 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.
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Buying Power Index
Why .5 / .3 / .2?
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Measuring Competition

• Calculate total square footage of retail space
  devoted to a type of store per household
• Higher ratios will indicate higher levels of
  competition

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Methods for Estimating Demand

• Analog approach
• - Not really an estimation of demand
• Multiple regression analysis
• Gravitational Models
• Reillys Model
• Huffs model

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The Analog Approach (similar store approach)
3 Steps
1. Current trade area is determined by using the
customer spotting technique. 2. Based on the
density of customers from the store, the primary,
secondary and tertiary trade area zones are
defined. 3. Match the characteristics of our
current store with the potential new stores
locations to determine the best site.
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Multiple Regression Analysis

• Need to define the retail trade area potential
  for retail chains with greater than 20 stores.
• Similar to the analog approach, it uses
  statistics rather than judgement to predict
  sales for a new store.

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Multiple Regression Steps

• Current trade areas are determined by using the
  customer spotting technique
• Primary, secondary, and tertiary zones are
  determined by plotting customers on a map
• 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.

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Huffs 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 Also Important
aspect of Huff Model is comparison between
shopping centers, and their summed influence on
shoppers
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Huffs Model Formula
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The Most Expensive Shopping Streets in the World
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How expensive is expensive?

• Fifth Avenue (48th to 58th St.)
• 500 per sq. ft. per year
• What does this number represent?
• What is is for a 5,000 sq. ft. retail store?
• Compare with my old Independence, MO hardware
  store location
• Rent was approx. 7,000 per year

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What make a Retail Location Good?(worth a high
rent per sq. ft.)

• Many Factors (Discuss in class)
• Where do you get key info.?
• City Chamber of Commerce
• Previous Owners
• Private Surveys
• Observation
• BBC Guy

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Rent Comparisons

• Retail vs. Wholesale
• See next slide

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Shopping Centers
A shopping center is a group of retail and other
commercial establishments that is planned,
developed, owned, and managed as a single
property. Two main configurations strip
centers malls Strip centers have parking in
front of the stores and do not have enclosed
walkways linking the stores. Malls have a
pedestrian focus customers park in outlying
areas and walk to the stores. Traditional malls
are enclosed with walkways between two facing
strips of stores.
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Shopping Center Definitions
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Shopping Center Definitions
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Shopping Center Definitions
Fanueil Hall / Texas Place
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The Largest U.S. Shopping Malls
Name Location Gross Leasable

Space in Square Feet
Mall of America Del Amo Fashion Center South
Coast Plaza/Crystal Court Woodfield Mall SawGrass
Mills
Bloomington, MN Torrance, CA Costa Mesa,
CA Schaumberg, IL Sunrise, FL
4,200,000 3,000,000 2,900,000 2,700,000 2,300,00
0
See next slide...
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2 Largest Malls in the World

• West Edmonton Mall
• 5.2 Million sq. ft.
• 800 Stores
• 100 Restaurants
• FantasyLand Hotel
• Multiple Parks
• 100,000 Visitors / day
• www.westedmall.com

• Mall of America
• 4.2 Million sq. ft.
• 400 Stores
• 55 Restaurants
• Hotel
• Camp Snoopy
• Video Clip (Mk A)

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Retail Malls Generally in Trouble

• Mall of America close to default
• Many major malls closing across country
• Too much competition from other formats
• Strip Malls, etc.
• General Shopping Trends unfavorable

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Shopping Mall Trends

• hours spent at big malls declining
• Overdevelopment (Too many malls)
• More strip malls and Factory Outlets
• How have big malls changed to bring back
  shoppers?
• Become Destination Centers

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Leasing Info.
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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.

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Variations of Percentage Leases

• 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
• Percentage lease with specified minimum -
  retailer must pay a minimum rent no matter how
  low sales are.
• Sliding scale - percentage of sales as rent
  decreases as sales go up.

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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.

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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.

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Prohibited Use Clause

• Limits the landlord from leasing to certain
  tenants
• Some tenants take up parking spaces and dont
• bring in shoppers bowling alley, skating
  rink, meeting hall, dentist, or real estate
  office.
• Some tenants could harm the shopping centers
• wholesome image bars, pool halls, game
  parlors, off-track betting establishments,
  massage parlors and pornography retailers.

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Exclusive Use Clause

• 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 dont reach a certain level after a
  specified number of years, or if a specific
  co-tenant in the center terminates its lease.

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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 its found.
• Retailer can buy insurance that specifically
  protects it from these risks.

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Other Legal Issues

• Zoning and Building Codes
• 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 sites desirability
• Licensing Requirements
• Some areas may restrict or require a license for
  alcoholic beverages

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Buying Retail Property

• Cost of Land !!!

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What about this?
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Northern Kansas City, Missouri