9-1 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Trading-Area Analysis

RETAIL MANAGEMENT:A STRATEGICAPPROACH11th Edition11th Edition

BERMAN EVANS

1

9-2 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Chapter ObjectivesTo demonstrate the importance of store

location for a retailer and to outline the process of choosing a store location

To discuss the concept of a trading-area and its related components

To show how trading-areas may be delineated for existing and new stores

To examine three major factors: population characteristics, economic base characteristics, and competition/level of saturation

2

9-3 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Location, Location, Location Criteria to consider Criteria to consider

includeinclude population size and traits competition transportation access parking availability nature of nearby stores property costs length of agreement legal restrictions

3

9-4 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-1: Location and Nine West

4

9-5 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Step 1: Evaluate alternate geographic (trading)Step 1: Evaluate alternate geographic (trading)areas in terms of residents and existing retailersareas in terms of residents and existing retailers

Step 3: Select the location typeStep 3: Select the location type

Step 2: Determine whether to locate as anStep 2: Determine whether to locate as anisolated store or in a planned shopping centerisolated store or in a planned shopping center

Step 4: Analyze alternate sites contained in the Step 4: Analyze alternate sites contained in the specific retail location typespecific retail location type

5

9-6 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Trading-Area Analysis

A trading-area is a A trading-area is a geographic area geographic area

containing the customers containing the customers of a particular firm or of a particular firm or

group of firms for specific group of firms for specific goods or services.goods or services.

6

9-7 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Benefits of Trading-Area AnalysisBenefits of Trading-Area Analysis

Discovery of consumer demographics and socioeconomic characteristics

Opportunity to determine focus of promotional activities

Opportunity to view media coverage patterns

Assessment of effects of trading area overlap

Ascertain whether chain’s competitors will open nearby

Discovery of ideal number of outlets, geographic weaknesses

Review of other issues (e.g. transportation)

7

9-8 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-2: The Trading-Areas of Current and Proposed Outlets

8

9-9 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

GIS SoftwareGIS Software

Geographic Information SystemsDigitized mapping with key location-

specific data used to graphically depict trading-area characteristics such as population demographics data on customer purchases listings of current, proposed, and

competitor locations

9

9-10 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-3(A): GIS Software in Action

10

9-11 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-3(B): GIS Software in Action

11

9-12 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-3(C): GIS Software in Action

12

9-13 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-3(D): GIS Software in Action

13

9-14 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-4: The Segments of a Trading-Area

14

9-15 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-5: Delineating Trading-Area Segments

15

9-16 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

The Size and Shape of Trading-AreasThe Size and Shape of Trading-Areas

Primary trading-area 50-80% of a store’s customers

Secondary trading-area 15-25% of a store’s customers

Fringe trading-area all remaining customers

16

9-17 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Destination Versus Parasite StoresDestination Versus Parasite Stores

Destination storesDestination stores have a better assortment, promotion, and image.

They generate trading-areas much larger than competitors.

Dunkin’ Donuts: “It’s worth the trip!”

Parasite storesParasite stores do not create their own traffic and have no real trading-area of their own.

These stores depend on people who are drawn to area for other reasons.

17

9-18 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Largest

TRADINGTRADINGAREASAREAS

Smallest

Department stores

Supermarkets

Apparel stores

Gift stores

Convenience stores

18

9-19 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

The Trading-Area of a New StoreThe Trading-Area of a New Store

Different tools must be used when an area is evaluated in terms of opportunities rather than current patronage and traffic patterns:Trend analysisConsumer surveysComputerized trading-area analysis models

19

9-20 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Computerized Trading-Area Analysis ModelsComputerized Trading-Area Analysis Models

Analog Model

Regression Model

Gravity Model

20

9-21 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Reilly’s LawReilly’s Law

Reilly’s lawReilly’s law of retail gravitation—a traditional means of trading-area delineation—establishes a point of indifference between two cities or communities so that the trading-area of each can be determined.

21

9-22 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Limitations of Reilly’s LawLimitations 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.

22

9-23 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Huff’s LawHuff’s Law

Huff’s lawHuff’s law of shopper attraction delineates trading-areas on the basis of product assortment 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.

23

9-24 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-1a: Chief Factors to Consider in Evaluating Retail Trading-Areas

Total size and density

Age distributionAverage

educational levelPercentage of

residents owning homes

Total disposable income

Per-capita disposable income

Occupation distribution

Trends

Population Size and Characteristics

24

9-25 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-1b: Chief Factors to Consider in Evaluating Retail Trading-Areas

ManagementManagement trainees

Clerical

Availability of Labor

25

9-26 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-1c: Chief Factors to Consider in Evaluating Retail Trading-Areas

Delivery costsTimelinessNumber of

manufacturers

Number of wholesalers

Availability of product lines

Reliability of product lines

Closeness to Sources of Supply

26

9-27 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-1d: Chief Factors to Consider in Evaluating Retail Trading-Areas

Dominant industry

Extent of diversification

Growth projections

Freedom from economic and seasonal fluctuations

Availability of credit and financial facilities

Economic Base

27

9-28 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-1e: Chief Factors to Consider in Evaluating Retail Trading-Areas

Number and size of existing competition

Evaluation of competitor strengths and weaknesses

Short- and long-run outlook

Level of saturation

Competitive Situation

28

9-29 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-1f: Chief Factors to Consider in Evaluating Retail Trading-Areas

Number and type of store locations

Access to transportation

Owning versus leasing opportunities

Zoning restrictionsCosts

Availability of Store Locations

29

9-30 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-1g: Chief Factors to Consider in Evaluating Retail Trading-Areas

TaxesLicensingOperations

Minimum wagesZoning

Regulations

30

9-31 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Elements in Trading-Area SelectionElements in Trading-Area Selection

Population Characteristics

Economic BaseCharacteristics

Nature and Saturationof Competition

31

9-32 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Figure 9-9: The Census Tracts of Long Beach, NY

32

9-33 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

Table 9-3: Selected Population Statistics for Trading Areas A and B

Characteristics Area A Area B

Total population, 2000 13,732 15,499

Population change, 1990-2000 +8.2 +2.5

College graduates, 25 +, 2000 (%) 41.4 39.2

Median household income, 2000 $61,236 $61,242

Managerial and professional occupations (%), 2000

45.3 45.0

9-34 Retail Mgt. 11e (c) 2010 Pearson Education, Inc. publishing as Prentice Hall

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in

any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United

States of America.