Chapter 8

Retail Site Location

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
What Are the Three Most Important Things in
Retailing?

7-2 Location! Location! Location!

Eddie Tan/Life File/Getty Images
Why is Store Location Important for a Retailer?

■ Location is typically prime

consideration in customer’s store
choice.
■ Location decisions have strategic
importance because they can help to
develop sustainable competitive
advantage.
■ Location decisions are risky: invest
or lease?

F. Schussler/PhotoLink/Getty Images

7-3
Factors Affecting the Demand for a Region

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Economic Condition

■ It is important to consider when evaluating the

potentials an area
 Density population
 Growth of population
 Employment rate

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Competition

Some retailers are going small town:

 Lack of competition
High level of disposable income
Large, untapped labor force (8.1)

The McGraw-Hill Companies, Inc./John Flournoy, photographer

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Strategic Fit

■ Potential customers fit the

retailer’s target market
 Income
 Lifestyle
 Merchandising behavior

 Viettien Shirt.
 McDonald’s – families with teen
 Toys”R”- families with kid

The McGraw-Hill Companies, Inc./John Flournoy,

photographer 4-7
Operating Costs

 Cost is Varies across areas, but the higher

cost, the greater sales.
 High cost does not mean the price do.
 Local and state legal environment has
effect operating cost.

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Nick Koudis/Getty Images
Number of store in an area

■ Economic of scale from multiple stores

 Cost decreases
 sales increase as a whole.
■ Cannibalization
 Diminishing return when adding more store.
 But amount of profit grown up
 Make it less attractive for competitors to enter the
area.

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Evaluating a Site

■ When evaluating and selecting a specific site,

retailers consider:
 The characteristic of the site
 The characteristic of the trading area
 The estimated potential sales that can be generated

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Site Characteristics

8-11
 Site Characteristics

Traffic Flow and Accessibility 8.2

Good for convenience retailers



 Too much can impede access to

store
 Road pattern and condition
 Natural and artificial barriers
 Visibility
 Traffic flow
 Congestion
PhotoLink/Getty Images
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 Evaluating a Site

■ Retailers have same market segment, non

 Location – competing goods want to be located
near?
 Store Visibility  Wal-Mart, Supermarket, Best Buy?
 Parking ■ In an enclosed mall, what retailers would
Abercrombie & Fitch want to be located
 Adjacent near?
Tenants  American Eagle Outfitter, Ann Taylor,
Body Shop, Electronic Boutique
■ Principle of Cumulative Attractiveness

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Site Characteristics

■ Cost and Restrictions

 Costs
• Rent
• Common Area Maintenance Fee/Insurance
• Advertising Fee
 Restrictions
• Signage
• Tenant Mix
• Operating hours

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Steps in Evaluating Sales Potential of a Site

■ Define Trade Area

 Drive Time vs. Geographic Distance
 Primary, Secondary, Tertiary
■ Estimate Sales Potential
 Huff Model
 Analog Approach
 Regression Analysis

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Zones in a Trade Area

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Trade Area

■ Define Trade Area

 Primary zone - 60 to 65 percent of its customers
 Secondary zone - 20 percent of a store’s sales
 Tertiary zone - customers who occasionally shop at
the store or shopping center
■ Trade Area can be diveded by taking time
 5 minutes
 10 minutes
 More 10 minutes

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 Methods for Estimating Demand

Huff’s Model

Analog Approach

Regression Analysis

Royalty-Free/CORBIS

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 Huff’s Gravity Model

Based on the premise that the probability that

 a given customer will shop in a particular store /
center becomes larger as the size of store / center
grows
 and distance or travel time from customer
shrinks

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Huff’s Gravity Model

λ
P ij= S j / Tij
λ
Σ S j / Tij

Pij = Pnrobbability that customer i shop at location J

Si = Size of the store at lacation J
Tij = travel time for customer i to get to location j
Λ = relative effect of travel time vesus store size
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Application of Huff Gravity Model

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Huff’s Gravity Model

PRC = 10,000/5 2 =
.889
10,000/52 + 5,000/52

POH = 10,000/152 =
.182
10,000/152 + 5,000/52

.889 x $3 million + .182 x $5 million = $4,910,000

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Trading Area

City B 3.5 miles

(Population 14,000)
X

14.5 miles
City A
(Population 240,000)
3.2 miles mi les
10.8 Y 1.3 miles
Z 3.7 miles

City C
City D
(Population 21,000)
23
(Population 30,000)
Types of Leases

Fixed – Rate Leases

Percentage Leases

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 Fixed Rate Leases
Retailer pays a fixed amount per month over the life of
the lease.
 Net lease : Retailer pays a fixed amount per month
and variable fees
 Graduated Lease : Rent increases by a fixed
amount over a specified period of time.
 …

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 Percentage Leases

 Lease based on a % of sales

 Retailers also typically pay a maintenance fee based on
their square footage of leased space.
 Percentage lease with specified maximum
 % 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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Term of the Lease

 Because most lease

Prohibited
contract developed by
use
lessor, so lessee (retailer)
clause
should pay attention to
some clauses in the
leasing contract.
Exclusi
Escape
ve use
clause
clause

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Prohibited Use Clause

do not lease the public space such as bowling allay,

meeting hall, parking space….
do not use space that could harm the shopping center’
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 (like a bank or McDonal’s)
 Specify if certain retailer leaves center, they can
terminate lease or reduce paying.

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Escape Clause

.
Escape Clause
Allows the retailer to terminate its lease if sales don’t
reach a certain level after a specified number of years, or if
a specific co-tenant in the center terminates its lease.

8-30
Group exercise

■ Nhóm bạn hạy tìm hiểu các chủ gian hàng tại
các trung tâm thương mai/ siêu thị tại TP .HCM
đang áp dụng kiểu trả tiền thuê diện tích như
thế nào? Lý do?
■ Đồng thời nhóm cũng tìm hiểu mức giá thuê mặt
bằng tại trung tâm thương mai/ siêu thị TP.HCM
hiện nay phụ thuộc vào các yếu tố nào?

4-31