CHAPTER 8- Part 2

Retail Site Location

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 Learning Objectives

Learning Objective 8-3 Understand how retailers analyze the

trade area for a site.
Learning Objective 8-4 Explain the different types and terms of
leases.

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 Trade Area Definition
Learning Objective 8-3 Understand how retailers analyze the trade area for a
site.

Trade Area Definition : a trade area is a contiguous

geographic area that accounts for the majority of a store’s
sales and customers.it can be divided into three zones;
• Primary trading area
• The geographic area from which the shopping center or store
site derives 50 to 70 percent of customers
• Secondary trading area
• 20 to 30 percent of the site’s customers
• Tertiary trading area or fringe trading area
• The remaining customers who come from widely dispersed
areas, might travel long distances

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 EXHIBIT 8-3 Zones In a Trade Area

Jump to long description in

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 Factors affecting the Size of the Trade Area

Factors Affecting the Size of the Trade Area: The

actual boundaries of a trade area are determined by the
store’s :
• Accessibility
• Natural & physical barriers
• Competition
• Nature of merchandise sold
• Assortment offered
• Location of alternative sources for the merchandise

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 Example
The Starbucks in a central business district may have a
trade area of only 2 or 3 blocks, while a category specialist
like Michaels may draw customers from 10 miles away and
The Container Store, which is the only store of its kind in a
city might draw customers from 30 miles away.

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 Negotiating a Lease
Learning Objective 8-4 Explain the different types and terms of leases.

Types of Leases
• Percentage Leases: the rent is based on a
percentage of sales, in addition retailers typically pay
a common area maintenance fee ( CMA ).

• Percentage lease with a specified maximum:

• a lease that pays the shopping center a percentage of sale
up to a maximum amount.
• this type of lease rewards good retailer performance by
allowing the retailer to hold rent constant above a certain
level of sales.

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 Negotiating a Lease
Learning Objective 8-4 Explain the different types and terms of leases.

Types of Leases- continued

• Percentage lease with a specified minimum: the retailer
must pay a minimum rent no matter how low sales are.
• Sliding scale lease: the percentage of sales paid as rent
decreases as the sale go up. For instant , a retailer may pay
4 %c on the first $200,000 in sales then 3 % on sales greater
than $200,000.
• Fixed-Rate Leases: a retailer pays a fixed amount
per month over the life of the lease.
• Graduated lease: rent increases by a fixed amount over a
specified period of time, for example: rent may be
$1000/month for the first 3 years and $1250/month for the
next 5 years.
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 Negotiating a Lease
Terms of the Lease
• Cotenancy Clause:
• may require that a certain percentage of a shopping center
be leased or that specified stores be in the center. Refer to
the example in the next slide

• Prohibited-use Clause
• Limits center from leasing to certain kinds of tenants.
• Many retailers don’t want the shopping center space to be
leased to establishments that take up parking spaces but
don’t bring in shoppers such as bowling alley, skating rink ,
meeting hall, dentist or real estate office

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 Example
Cotenancy Clause Example; If GAP goes into a mall, it
doesn’t want to be by itself, it prefers to have a group of
retailers that it views as complements, like Banana
Republic , American Eagle, bebe…etc.

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 Negotiating a Lease
Terms of the Lease- continued
• Exclusive-use Clause
• Prohibits center from leasing to tenants that sell competing
products. For example, a discount store’s lease may prohibit
the landlord to lease other discount store, variety stores or
limited assortment value retailers.
• Some retailers are specific about how the storefront appears,
example floor to ceiling glass store fronts.
• Other retailers want nothing to block the view of the store
from the street , which doesn’t allow outparcels in the
parking lot. Refer to outparcel definition in the next slide

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 Negotiating a Lease
Terms of the Lease- continued
• Outparcel: is a building ( such as a bank or McDonald’s ) or
kiosk ( such as an automatic teller machine )that sits in the
parking lot of a shopping center but is not physically attached
to the center.

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 Negotiating a Lease
Terms of the Lease- continued
• Common Area Maintenance Costs, (CAM )
clauses
• Involve extensive negotiations
• Assign responsibility for taking care of common areas,
including sidewalks or parking lots.
• CAM costs in some cases might outpace even rents.
• Might include
• Contributions for capital improvements
• Paying for new roof
• Participate in purchase of adjoining land parcels

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 Key Terms 1 of 6
accessibility (1) The degree to which customers can easily get into and out of
a shopping center; (2) ability of the retailer to deliver the appropriate retail
mix to customers in the segment.
analog approach A method of trade area analysis also known as the similar
store or mapping approach. The analysis is divided into four steps: (1)
describing the current trade areas through the technique of customer
spotting; (2) plotting the customers on a map; (3) defining the primary,
secondary, and tertiary area zones; and (4) matching the characteristics of
stores in the trade areas with the potential new store to estimate its sales
potential.
artificial barrier In site evaluations, for accessibility, a barrier such as railroad
tracks, a major highway, or a park.
block group A collection of adjacent census blocks that contain between 300
and 3,000 people that is the smallest unit for the sample data.

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 Key Terms 2 of 6
census A count of the population of a country as of a specified date.
census block An area bounded on all sides by visible (roads, rivers) and/or
invisible (county, state boundaries) features that is the smallest geographic
entity for which census data are available.
common area maintenance (CAM) clause Shopping center real estate
contract clauses that assign responsibility for maintaining common areas,
such as parking lots and sidewalks.
congestion The amount of crowding of either cars or people.
cotenancy clause A clause in a leasing contract that requires a certain
percentage of a shopping center be leased, while others name specific
retailers or types of retailers that are to remain open.
cumulative attraction The principle that a cluster of similar and
complementary retailing activities will generally have greater drawing power
than isolated stores that engage in the same retailing activities.

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 Key Terms 3 of 6
customer spotting A technique used in trade area analysis that “spots”
(locates) residences of customers for a store or shopping center.
exclusive-use clause A clause in a lease that prohibits the landlord from
leasing to retailers selling competing products.
fixed-rate lease A lease that requires the retailer to pay a fixed amount per
month over the life of the lease.
fringe trading area The outermost ring of a trade area; includes customers
who occasionally shop at the store or shopping center. Also called tertiary
trading area.
geographic information system (GIS) A computerized system that enables
analysts to visualize information about their customers’ demographics,
buying behavior, and other data in a map format.
graduated lease A lease that requires rent to increase by a fixed amount over
a specified period of time.

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 Key Terms 4 of 6
metropolitan statistical area (MSA) A city with 50,000 or more inhabitants or
an urbanized area of at least 50,000 inhabitants and a total MSA population
of at least 100,000 (75,000 in New England).
micropolitan statistical area city with only 10,000 inhabitants in its core urban
area.
natural barrier A barrier, such as a river or mountain, that impacts accessibility
to a site.
outparcel A building or kiosk that is in the parking lot of a shopping center but
isn’t physically attached to a shopping center.
percentage lease A lease in which rent is based on a percentage of sales.
percentage lease with a specified maximum A lease that pays the lessor, or
landlord, a percentage of sales up to a maximum amount.
percentage lease with a specified minimum The retailer must pay a
minimum rent no matter how low sales are.

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 Key Terms 5 of 6
primary trading area The geographic area from which a store or shopping
center derives 50 to 70 percent of its customers.
prohibited-use clause A clause in a lease that keeps a landlord from leasing
to certain kinds of tenants.
regression analysis A statistical approach for evaluating retail locations based
on the assumption that factors that affect the sales of existing stores in a
chain will have the same impact on stores located at new sites being
considered.
secondary trading area The geographic area of secondary importance in
terms of customer sales, generating about 20 percent of a store’s sales.
sliding scale lease A part of some leases that stipulates how much the
percentage of sales paid as rent will decrease as sales go up.

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 Key Terms 6 of 6
spending potential index (SPI) Compares the average expenditure in a
particular area for a product to the amount spent on that product nationally.
tertiary trading area The outermost ring of a trade area; includes customers
who occasionally shop at the store or shopping center.
trade area A geographic sector that contains potential customers for a
particular retailer or shopping center.
traffic flow The balance between a substantial number of cars and not so
many that congestion impedes access to the store.
visibility Customers’ ability to see the store and enter the parking lot safely.

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