Pam and Susans: Locating New Stores

Situation
Pam and Susans is a chain of discount department stores.* The original store was opened in the South in the mid-
1950s b Pam and Susans father. !bout 10 ears ago" Pam and Susan too# o$er operational control of the stores"
wor#ing together under a %oint power sharing arrangement. The unusual management arrangement and consensus
decision ma#ing b the two women" for which the ha$e recei$ed a great deal of publicit" ha$e contributed in part to
sales growth and to the recent upsurge in new store openings. &undamentall" howe$er" their success is based on an
uncann abilit to appropriatel stoc# stores and underprice competitors. State-of-the-art business processes are at the
core of their low price structure.
There are currentl '50 Pam and Susans stores" mostl located throughout the South. ()pansion has been
incremental" growing from its Southern base into the *order States and increasingl into the Southwest. +dentification
of the most appropriate sites for new stores is becoming an issue of increasing strategic importance.
Store location decisions are based upon estimates of sales potential. The traditional process leading to estimates of
sales potential starts with demographic analses" site $isits" and studies b the compans real estate e)perts
,augmented b input from local e)perts-. The demographic data %udged rele$ant for a gi$en store location is that for
people within a stores estimated .trading /one"0 usuall operationali/ed as consisting of those census tracts within a
15 minute dri$e of the store. Planners in the real estate department consider current and e)pected future competition"
ease of highwa access" costs of the site" planned s1uare footage of the store" and estimates of a$erage sales per
s1uare foot" based on data from all e)isting stores. The %udgmentall combine the demographic information" site
information and o$erall sales rates to come up with an estimate of sales for a new store. Pam and Susans stores ha$e
primaril targeted lower-middle class to poorer neighborhoods2trading /ones.
+ncreasingl" actual store sales at new locations ha$e de$iated from estimates pro$ided b the real estate department.
Pam and Susan want to de$elop better methods for estimating sales potential. ! consultant ,ou- has been hired to
e)plore the possibilit of using the census data in stores trading /ones" along with data on indi$idual stores" to
construct regression models to help ma#e the location decisions..
To e)plore this option" a number of $ariables deri$ed from the most recent census were compiled for the trading /one
of each of the '50 stores ,there is no o$erlap in the trading /ones of the '50 stores-.
Demographic Variables:
population3 4 blac#
population3 4 Spanish spea#ing
4 in each of the following famil income categories ,000s-3 0-105 10
6
-175 17
6
-'05
'0
6
-805 80
6
-505 50
6
-1005 9100
median earl famil income
median rent per month
median home $alue
4 home owners
4 with no cars
4 with one car
4 households with T:
4 households with washer
4 households with drer
4 households with dishwasher
4 households with air conditioner
4 households with free/er
4 households with second home
4 adults ,o$er age '5- with the following ears of education3 0-;5 9-115 1'6
total population
a$erage famil si/e
Store Data (collected on each store)
s1uare feet of selling area ,000s-
annual sales ,000s of <-
4 hard goods
Competitive !pes
Tpe 13 =ensel populated areas" particularl good store sites with relati$el little direct competition
Tpe '3 >ood locations in relati$el high-income areas" with little direct competition
Tpe 83 ?ocations near ma%or shopping centers
Tpe 73 Stores in downtown areas of suburbs
Tpe 53 Stores with competition from discounters onl ,not from department stores-
Tpe @3 Stores in shopping centers
Tpe A3 Bld stores located along the sides of ma%or roads.
Proposed New Site Locations
Site " Site #
Store si$e:
gross s1uare feet 1A0"000 1@0"000
selling s1uare feet 1'5"000 1'0"000
Competiti$e group 1 5
Population
blac# 70.04 18.;4
Spanish spea#ing 10.;4 @.@4
&amil income ,000-
0-10 '@.@4 19.'4
10
6
-17 17.04 18.04
17
6
-'0 19.94 ''.'4
'0
6
-80 '8.94 'A.14
80
6
-50 18.84 15.A4
50
6
-100 '.04 '.54
9 100 0.84 0.84
Dedian earl income <1@";8; <1;";0'
Dedian rent per month <1@0 <1@@
Dedian home $alue <7@"A90 <8@"05;
4 homeowners 10.1 10.A
4 no cars 5A.0 77.0
4 1 car 8@.@ 75.A
4 T: 90.0 98.@
4 washer 71.; 58.@
4 drer 9.0 1'.'
4 dishwasher @.0 7.@
4 air conditioner 1A.9 89.8
4 free/er @.1 5.0
4 second home 1.@ 7.@
(ducation3 4
0-; 8A.7 70.1
9-11 '7.1 '8.5
1' '9.0 '5.5
18.15 5.@ 5.'
1@ plus 8.9 5.A
Total population 955"000 781"';5
!$erage famil si/e 8.A 8.5
%eport re&uirements:
'( )sing statistical anal!sis including regression* pivot table etc( #rie+l! describe
what !ou discovered(
Ee ha$e lots of data on the trading /ones of '50 e)isting stores. Ee want to use this data
to construct regression models to predict sales based on this data. Ee will then use this
model to decide which location ,site ! or *- would be a better choice.
+ will do the calculations in SPSS" but if ou prefer another statistical program" ou should
be able to follow m methods to do the analses using different software.
The dependent $ariable ,the one we want to predict- will be .sales0.
,( #e+ore !ou run regressions* !ou should do scatterplots o+ each independent
variable against the dependent variable( -n the interest o+ time* dont actuall! do
all o+ the scatterplots( "ssume the! all show either a linear or no relationship with
the dependent variable( hat said* since we .now its important to do this step* do
a +ew scatterplots and identi+! one that shows a positive or negative linear
relationship and one that shows no relationship( -nclude these as e/hibits(
To choose which scatterplots to loo# at" + first loo#ed at the correlations between the
independent $ariables and sales. The table with the Pearson correlation coefficients is
below3
To summari/e the correlations" the following $ariables are positi$el correlated with sales3
4blac#" 4spanishsp" 4inc0-10" 4inc10-17" 4inc17-'0" 4nocars" 4sch0- ;"
populat" s1rft
the following $ariables are negati$el correlated with sales3
4inc'0-80" 4inc80-50" medianinc" medianrent" 4owners" 4washers" 4drers"
4dishw" 4aircond" 4free/er" 4sechome" 4sch1'" 4sch1'6" famsi/e" comtpe
and the following $ariables are not significantl correlated with sales3
4inc50-100" 4inc1006" medianhome" 41car" 4t$s" 4sch9-11" perhard
*elow are some sample scatterplots ,for sales against populat" medianinc" and
medianhome-3
Correlations
.275
.000
250
.547
.000
250
.615
.000
250
.614
.000
250
.265
.000
250
-.310
.000
250
-.404
.000
250
-.107
.092
250
.010
.870
250
-.325
.000
250
-.394
.000
250
.030
.638
250
-.690
.000
250
.701
.000
250
.010
.876
250
-.058
.358
250
-.562
.000
250
-.657
.000
250
-.491
.000
250
-.290
.000
250
-.639
.000
250
-.287
.000
250
.486
.000
250
.008
.903
250
-.238
.000
250
-.218
.001
250
.600
.000
250
-.280
.000
250
.349
.000
250
1
.
250
.016
.805
250
-.660
.000
250
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
Pearson Correlation
Sig. (2-tailed)
N
%black
%spanishsp
%inc0-10
%inc10-14
%inc14-20
%inc20-30
%inc30-50
%in50-100
%in100!
medianinc
medianrent
"edian#o"e
%owners
%nocars
%1ar
%t$s
%washers
%dryers
%dishw
%aircond
%freezer
%sechome
%sch0-8
%s#9-11
%sch12
%sch12
!"!#$%&
'%()*+,
)-.'&
S%&'S
P'()%(*
C"(&/!,
S%&'S
P+P,&%-
1
8
0
0
0
0
0
1
6
0
0
0
0
0
1
4
0
0
0
0
0
1
2
0
0
0
0
0
1
0
0
0
0
0
0
8
0
0
0
0
0
6
0
0
0
0
0
4
0
0
0
0
0
2
0
0
0
0
0 0
S
%
&
'
S
40000
30000
20000
10000
0
"edianin
50000 40000 30000 20000 10000 0
S
%
&
'
S
40000
30000
20000
10000
0

"edian#o"e
140000 120000 100000 80000 60000 40000 20000
S
%
&
'
S
40000
30000
20000
10000
0
0( )sing the available variables (but N1 using comt!pe)* develop the best model !ou can to predict store
sales( 2ow good is this model3 4usti+! !our conclusion with appropriate numbers( #ased on this model*
how would !ou describe the nature o+ location sites that are li.el! to have higher sales3
ip: remember that !ou need to remove one o+ the income variables and one o+ the schooling variables to
avoid a problem with multicollinearit!(
"+ter developing !our model* describe how !ou would test the remaining regression assumptions (dont
actuall! do the tests* 5ust state what the! are)(
To find a model" + used stepwise regression. This is a method that loo#s at all of the possible models with one
independent $ariable" pic#s the best one" then adds on another independent $ariable" pic#s the best of those models"
and so on. To do this in SPSS" ou go to anal/e regression linear and choose .stepwise0 as the method.
&irst of all" we are onl going to loo# at those $ariables that are correlated with sales. So" for all of these analses"
were not going to include 4inc50-100" 4inc1006" medianhome" 41car" 4t$s" 4sch9-11" or perhard ,or comtpe- as
independent $ariables. Fote that two of the income $ariables and one of the schooling $ariables has been remo$ed in
this step ,as the tip suggests-. +f there remains a problem with colinearit" we can fi) it later.
Gsing stepwise regression" SPSS loo#ed at 18 different models. Eere going to use the last one ,so" for the !FB:!
table" + remo$ed the results for all but the last model to sa$e space-. !ll of the SPSS output is below3
0ariables ,ntered2.emo3ed
a
%noars . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
P+P,&%- . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%o/ners . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%s.anis#
s.
. Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
. %noars Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
S9(4- . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%/as#ers . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%s#12! . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%3ree:er . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%s#12 . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%airond . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
%in20-30 . Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
. %/as#ers Ste./ise (Criteria0 Pro1a1ilit2-o3-4-to-enter 56 .0507 Pro1a1ilit2-o3-4-to-re"o$e 86 .100).
;odel
1
2
3
4
5
6
7
8
9
10
11
12
13
<aria1les
'ntered
<aria1les
(e"o$ed ;et#od
*e.endent <aria1le0 S%&'S
a.
(odel )4mmary
.701 .491 .489 3896.527
.728 .530 .526 3753.759
.746 .557 .551 3651.691
.763 .582 .576 3552.129
.760 .578 .573 3563.505
.770 .593 .586 3507.485
.777 .604 .596 3465.771
.782 .612 .603 3437.322
.787 .620 .609 3409.492
.793 .629 .617 3374.883
.799 .638 .625 3339.110
.805 .647 .633 3305.013
.802
"
.643 .630 3316.813
;odel
1
2
3
4
5
6
7
8
9
10
11
12
13
( ( S=>are
%d?>sted
( S=>are
Std. 'rror o3
t#e 'sti"ate
Preditors0 (Constant)7 P+P,&%-7 %o/ners7
%s.anis#s.7 S9(4-7 %s#12!7 %3ree:er7 %s#127
%airond7 %in20-30
".
Coefficients
a
11952.685 2409.388 4.961 .000
4.360'-03 .001 .224 4.418 .000 .579 1.728
-55.347 13.294 -.278 -4.163 .000 .333 3.007
304.772 63.871 .244 4.772 .000 .569 1.757
23.313 7.749 .127 3.008 .003 .838 1.194
104.378 27.620 .213 3.779 .000 .468 2.136
-158.047 44.337 -.230 -3.565 .000 .357 2.799
105.814 38.160 .147 2.773 .006 .526 1.900
-57.095 18.248 -.139 -3.129 .002 .749 1.335
-81.547 32.225 -.107 -2.531 .012 .825 1.212
(Constant)
P+P,&%-
%o/ners
%s.anis#s.
S9(4-
%s#12!
%3ree:er
%s#12
%airond
%in20-30
;odel
13
@ Std. 'rror
,nstandardi:ed
Coe33iients
@eta
Standardi:ed
Coe33iients
t Sig. -olerane <A4
Collinearit2 Statistis
*e.endent <aria1le0 S%&'S
a.
%5"0%
n
4.76'!09 9 529096554.2 48.094 .000
"
2.64'!09 240 11001247.30
7.40'!09 249
(egression
(esid>al
-otal
;odel
13
S>" o3
S=>ares d3 ;ean S=>are 4 Sig.
Preditors0 (Constant)7 P+P,&%-7 %o/ners7 %s.anis#s.7 S9(4-7 %s#12!7
%3ree:er7 %s#127 %airond7 %in20-30
".
*e.endent <aria1le0 S%&'S
n.
The model is3
sales 6 ''78,(9:8 ; <(<<=09(population) > 88(0=?(@owners) ; 0<=(??,(@spanishsp) ; ,0(0'0(s&r+t) ;
'<=(0?:(@sch',;) > '8:(<=?(@+ree$er) ; '<8(:'=(@sch',) > 8?(<78(@aircond) > :'(8=?(@inc,<A0<)
The coefficients can be found in the .Coefficients0 table abo$e. !ll of the coefficients are significantl different than
0 ,note the small p-$alues in the table-. + included a measure of collinearit in the analsis. ! low tolerance ,close to
0- or a high :+& ,$ariance inflation factor" close to 10- would indicate that we ha$e a collinearit problem. !s ou
can see from the last two columns of the table" we do not need to remo$e an of the $ariables from the model ,if there
were an collinear $ariables" the were e)cluded automaticall during the stepwise regression process-.
Ee still need to test that the residuals of the model are independent" normal" and ha$e constant $ariance. +ll test
those assumptions now" e$en though the assignment is %ust to mention them" not actuall test them.
+ ran the regression analsis again" this time sa$ing the unstandardi/ed residuals and the standardi/ed predicted $alues
of the model. ! scatterplot of the predicted $alues and residuals shows that the residuals are independent ,slope of 0-
and the $ariance is constant ,although the range of the $ariances might be slightl larger to the right of the graph-" and
a H-H plot of the residuals shows that the are normall distributed ,it is linear e)cept for a few points near the top I
in real life" ou might want to identif those outling points" remo$e them" and do the analses again-.
!ll the assumptions are met.
Standardi:ed Predited <al>e
4 3 2 1 0 -1 -2
,
n
s
t
a
n
d
a
r
d
i
:
e
d

(
e
s
i
d
>
a
l
15000
10000
5000
0
-5000
-10000 (s= 6 0.0000
Nor"al 9-9 Plot o3 ,nstandardi:ed (esid>al
+1ser$ed <al>e
20000 10000 0 -10000
'
B
.
e

t
e
d

N
o
r
"
a
l
3
2
1
0
-1
-2
-3
=( " group within the planning department has developed a more sub5ective approach in which potential sites
are classi+ied according to an assessment o+ the Bcompetitive t!peC o+ the trading $one( 2ow well does a
model 5ust using the Bcompetitive t!peC variables predict sales compared to the model !ou developed in
Step '3 (N1D: to do this !ou must create and use dumm! variables +or C1EFPD( %emember to use
onl! si/ o+ the seven dumm! variables in !our regression)(
! model onl using the comtpe data loo#s li#e this3
sales J 19'7A.A7@ I 1971.7@@,comtpe-
This model isnt as good as the pre$ious model ,note the lower r-s1uared $alue of 0.778 instead of 0.@78-.
(odel )4mmary
b
.666
a
.443 .441 4190.734
;odel
1
( ( S=>are
%d?>sted
( S=>are
Std. 'rror o3
t#e 'sti"ate
Preditors0 (Constant)7 C+;-CP'
a.
*e.endent <aria1le0 S%&'S
1.

%5"0%
b
3.19'!09 1 3188817820 181.572 .000
a
4.00'!09 228 17562250.53
7.19'!09 229
(egression
(esid>al
-otal
;odel
1
S>" o3
S=>ares d3 ;ean S=>are 4 Sig.
Preditors0 (Constant)7 C+;-CP'
a.
*e.endent <aria1le0 S%&'S
1.
Coefficients
a
19247.746 586.447 32.821 .000
-1931.466 143.338 -.666 -13.475 .000 1.000 1.000
(Constant)
C+;-CP'
;odel
1
@ Std. 'rror
,nstandardi:ed
Coe33iients
@eta
Standardi:ed
Coe33iients
t Sig. -olerane <A4
Collinearit2 Statistis
*e.endent <aria1le0 S%&'S
a.
5. +f ou are allowed to use an of the $ariables ,the $ariables used in Step 1 abo$e and the competiti$e tpe
$ariables used in Step '-" can ou build a better model than that de$eloped in Step 1K =oes this new model
change how ou would describe locations li#el to ha$e higher salesK
! regression analsis using the $ariables from the original model and comtpe produces an e$en better model. The r-
s1uared $alue is 0.A'1" and there still isnt an problem with collinearit.
sales 6 '=<0<(:7: > :''(=<=(comt!pe) ; <(<<800'(populat) > 08(9:<(@owners)) ; ,,:(<=?(@spanishsp) ;
''(8?<(s&r+t) ; :0(700(@sch',;) > '=7(809(@+ree$er) ; '<'('70(@sch',) > =?(=9<(@aircond) >
=:(<,<(@inc,<A0<)
(odel )4mmary
b
.849
a
.721 .709 3025.670
;odel
1
( ( S=>are
%d?>sted
( S=>are
Std. 'rror o3
t#e 'sti"ate
Preditors0 (Constant)7 %in20-307 %s#12!7 S9(4-7
%airond7 P+P,&%-7 C+;-CP'7 %s#127
%s.anis#s.7 %3ree:er7 %o/ners
a.
*e.endent <aria1le0 S%&'S
1.
%5"0%
b
5.19'!09 10 518813570.9 56.672 .000
a
2.00'!09 219 9154681.423
7.19'!09 229
(egression
(esid>al
-otal
;odel
1
S>" o3
S=>ares d3 ;ean S=>are 4 Sig.
Preditors0 (Constant)7 %in20-307 %s#12!7 S9(4-7 %airond7 P+P,&%-7
C+;-CP'7 %s#127 %s.anis#s.7 %3ree:er7 %o/ners
a.
*e.endent <aria1le0 S%&'S
1.
Coefficients
a
14030.898 2313.457 6.065 .000
-811.404 147.710 -.280 -5.493 .000 .491 2.037
5.331'-03 .001 .269 5.743 .000 .582 1.718
-35.680 13.995 -.172 -2.550 .011 .281 3.557
228.047 59.576 .184 3.828 .000 .548 1.823
11.570 7.492 .063 1.544 .124 .769 1.300
83.933 27.063 .170 3.101 .002 .423 2.361
-149.536 41.720 -.211 -3.584 .000 .367 2.725
101.193 36.468 .139 2.775 .006 .511 1.958
-47.460 18.462 -.108 -2.571 .011 .718 1.393
-48.020 31.213 -.062 -1.538 .125 .778 1.286
(Constant)
C+;-CP'
P+P,&%-
%o/ners
%s.anis#s.
S9(4-
%s#12!
%3ree:er
%s#12
%airond
%in20-30
;odel
1
@ Std. 'rror
,nstandardi:ed
Coe33iients
@eta
Standardi:ed
Coe33iients
t Sig. -olerane <A4
Collinearit2 Statistis
*e.endent <aria1le0 S%&'S
a.
9( wo sites* " and #* are currentl! under consideration +or the ne/t new store opening( Ghich site would
!ou recommend3 4usti+! !our choice* using the model !ou li.e best +rom those !ou have developed(
Pic# the model ou li#e best and plug the data from sites ! and * into it. The site with the higher sales should .win0.
+ li#e the last model" so +ll use that one.
To a$oid doing the calculations b hand" + entered the data from stores ! and * into the SPSS file ,e)cluding the sales
data" since there isnt an-" and did the same regression analsis" sa$ing the unstandardi/ed predicted $alues. This
means that for all the stores" including sites ! and *" + ha$e the predicted sales $alues.
The predicted sales for site ! is <''"@;'"800 and the predicted sales for site * is <17"8@@"070. Therefore" + would
choose site !.
%eport Speci+ications
Prepare a report +or a nonAtechnical manager answering the &uestions above( he te/t o+ the report should
e/plain the process !ou +ollowed +rom !our initial e/ploration o+ the data to the development and assessment o+
the +inal model( D/hibits (graphs* tables* charts* regression output) should be constructed* labeled and
captioned so the! can be understood b! a nonAtechnical person and !our conclusions +rom each e/hibit should
be described in the te/t o+ the report(
Please communicate +indings clearl! (both technicall! and manageriall!) on the appropriate conclusions( "
reasonable guideline would be about three to +our pages o+ actual te/t plus e/hibits(
Gse the answers to the 1uestions abo$e to write the report.