Retail Analysis for Business Owners and Entrepreneurs

Regional Capacity Analysis Program

Rural Development CenterA program of the Grow Iowa Foundation

Retail Analysis for Business Retail Analysis for Business

Owners and EntrepreneursOwners and Entrepreneurs

Steve AdamsHarrison and Monona Counties

June 30, 2010



Defining your trade area:

Any group of communities or counties where

the existence or lack of a business affects

decision making in another area. Includes

pricing, location, and expansion decisions.

Understanding Your Trade Area



1st Step: Recognize how

demographic patterns reflect and

affect the underlying economy.












•Sales performance is affected by retail growth in

surrounding counties and throughout the region.

•Commuting rates shape where people shop. If they are

driving further to work, they will drive further for certain

shopping needs. Local shopping becomes convenience

driven

•Consumers economize on the number of shopping trips

they make, reducing transaction costs.




Understanding Your Trade Area:

Measures•Performance measures of great importance: Pull Factors

and Per Capita Sales.

Definitions:

Pull Factor: Represents the number of consumers a

community or county serves, a pull factor greater than one

indicates it is attracting shoppers

Per Capita Sales: The average dollars spent per resident

within a given area. Higher than average sales per capita

are found in trade centers and tourist areas.











Understanding Your Trade Area:

MeasuresSales Capacity and Potential Sales

Definitions:

Potential Sales: The dollar amount of sales expected if

there is no surplus or leakage from the area.

Sales Capacity: The dollar amount of sales expected

with typical surplus or leakage for a community or county

with similar characteristics. Relative measure to your

peer group.






Businesses require a certain critical mass to stay in business

and be successful.

We can infer this with population thresholds, which are the

average number of people required to support a business.

Examples:

Florist: 9,475 Clothing Stores: 3,401

Gas Station: 1,503 Restaurant: 1,260

Dentist: 2,754 Hobby Sporting: 5,781

Automotive Repair: 1,410 Lawn & Garden: 5,194







What about the recession, What about the recession,

stupid? stupid? o Successful Businesses will view recession as an opportunity rather than a nail in the coffin.

o Examples of businesses born or expanding in downturns:

oBurger KingoCNNoMicrosoftoFed ExoMore than half of Fortune 500 companies



SWOT Analysis

Identify your:

Strengths

Weaknesses

Opportunities

Threats

Iowa State University Retail Trade Analysis Program



StrategiesStrategies

Porter’s Five Forces Analysis



• Studies suggest that industry factors dictate about 10-20% of a company’s profitability

• Firm specific effects represent another 20-40%

• Proper management requires analysis of firm and industry, along with recognition of exogenous factors

StrategiesStrategies



Firm Level: Framework for Competitive

Advantage



Price Elasticity:

Describes the degree to which consumer’s adjust the quantity demanded of a good when the price changes. Businesses need to understand the demand for their good or service to make proper decisions

Inelastic Goods (over some horizon): Gasoline, waterTend to be goods with no close substitutes

Elastic Goods: Dining out, luxury automobiles, sugarGoods with many substitutes

Economic Concepts for the Business Economic Concepts for the Business

OwnersOwners



Relative Prices:

Ratio of two prices of similar goods

Consumers typically choose on relative prices not

absolute prices

Increase in store brand demand

Economic Concepts for Business Economic Concepts for Business

OwnersOwners



•Rural areas struggling.

•Demographics and incomes changing across

time.

•Population consolidation to trade centers.

•Convenience and location issues are keys.

What do we know for sure?



Marketing and Rethinking Your Trade

Area1. Decide how big you want your market to be (local, regional, or

bigger).

2. Decide who are your most valued customers.

3. What is the most efficient way to deliver your message to that

base.

4. In terms of expansion, use the web. Web marketing can create

opportunities by avoiding the pitfalls of population thresholds

and travel times.



1. Know and listen to your customers, it’s the oldest adage for a reason.

2. Make the moat around your business deep and wide.

3. Know your inventory and your competitors.

4. Adjust your pricing if and when you can.

5. Remain liquid!

6. Conduct SWOT analysis and industry analysis. Consider your overall

position, what competitive advantage do you have?

ConclusionConclusion

What can you do to prosper

and survive tough times?



Business Planning & Financing Business Planning & Financing

Resources Available Through:Resources Available Through:

Rural Development Center

2011 N 4th Street

Red Oak, IA 51566

Office: 712-623-5521

www.EnterprisingIowans.com

www.BuyIowaOnline.com



Iowa State University Retail Trade Analysis ProgramIowa State University Retail Trade Analysis

For more information and research please visit:

www.recap.iastate.edu

Presentation prepared by: Meghan O’BrienRetail Economist

Documents

Retail Analysis for Business Owners and Entrepreneurs