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Trading Area Analysis for Retail Management
- 2. Brown Shoe Company (Caleres)-Famous Footwear Largest branded value-priced family shoe store chain 900 stores in 50 states Naturalizer is the flagship womens brand. Location Strategy When the company was focusing on 4000- 5000 square foot stores located in neighborhood centers typically anchored by supermarket or regional malls
- 3. When the company turned into a CK with an 8000 sq-foot format, the preferred locations were power/business centers. These centers are typically anchored by a discount store or softgoods anchors like T.J Maxx, Marshalls, Old Navy etc. because these stores attract customers also interested in buying shoes for the family. Typically a location is preferred if it has 50,000 households that meet the customer profile. To select the TA the firms analyses potential sites with the help of GIS data, the brand development index, the population index, the PRIZM clusters, comparable store analysis and the firms customer profile demographics, no.of households with children, lifestyle interests etc. TA analysis is normally the prime responsibility of Real estate managers (new store development, relocations, remodels and asset management) with the firm
- 4. Caf辿 Coffee Day A specialty coffee retailer Lots of emphasis on neighborhood- youth centric- nearby college campuses, shopping complexes or malls, high traffic zones or major traffic points such as airports or railway stations Depending on the location the chain operates in different formats music caf辿, cubercafe, garden caf辿, lounge caf辿 and highway caf辿. SKU mix is depended on the demographic profile of its catchment and also in tandem with the size and location of the cafe
- 5. Location (of strategic importance because of long term lease and significant commitment of resources-) Criteria to consider include population size and traits competition transportation access parking availability nature of nearby stores property costs length of agreement legal restrictions
- 6. Why is it strategic in nature? A store location necessitates a sizable investment and long term commitment an hence least flexible in the retail mix A typical leasing agreement would have a minimum period of 5 years and could lead up to 20 years for a departmental store Besides lease payments, the firm must spend money on lighting, fixtures, a storefront , fascia etc. A firm cannot easily move to another site or convert to another format it may be barred from subleasing to another party and also modifying ad, customer services, assortment and prices may be very cumbersome. Even if the retailer has its own building and land it might be hard to by an acceptable buyer
- 7. When a retailer moves from one location to other a) Some loyal consumers and employees may be lost; the greater the distance between the old and the new locations, the bigger the loss b) A new site may not have the same trait as the original one c) Store fixtures and renovations at a old site usually cannot be transferred to the new site; there remaining value is lost if they have not been fully depreciated
- 8. Trading-Area Analysis A trading area is a geographic area A trading area is a geographic area containing the customers of a containing the customers of a particular firm or group of firms for particular firm or group of firms for specific goods or services specific goods or services
- 9. Benefits 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 chains competitors will open nearby Discovery of ideal number of outlets, geographic weaknesses Review of other issues, such as transportation
- 10. The Trading Areas of Current and Proposed Outlets
- 11. GIS Software (Roger Tomlinson) Geographic Information Systems digitized mapping with key locational data to graphically depict trading-area characteristics such as population demographics data on customer purchases listings of current, proposed, and competitor locations Leads to the creation of TSA in either MSA (50,000+) or in MSA(10000-13000)
- 12. The TIGER Map Service(topologically integrated geographic encoding and referencing)
- 13. Some Private Firms Offering Mapping Software Autodesk Claritas (Potential Rating Interest for ZIP Markets PRIZSM) ESRI GeoVue Mapinfo
- 14. The Segments of a Trading Area
- 15. The Size and Shape of Trading Areas Primary trading area - 50-80% of a stores customers Secondary trading area - 15-25% of a stores customers Fringe trading area - all remaining customers
- 16. Two stores can have different trading areas even if they are in the same shopping district or shopping center E.g: Situated in one shopping center could be a branch of an apparel chain with a distinctive image and people willing to travel up to 20 miles A shoe store average - people willing to travel up to five miles
- 17. Destinations Versus Parasites Destination stores have a better assortment, better promotion, and/or better image They generate trading areas much larger than competitors Dunkin Donuts: Its worth the trip! America runs on Dunkin Parasite 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 the area for other reasons A magazine stand in a hotel lobby and a snack bar in a shopping center are parasites
- 18. Trading Areas and Store Types (as a rule of thumb bigger the store bigger the TA) Largest TRADING TRADING AREAS AREAS Smallest Department stores Supermarkets Apparel stores Gift stores Convenience stores
- 19. The 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 Consumer surveys Computerized trading area analysis models
- 20. Computerized Trading-Area Analysis Models Analog Model (potential sales of a new store is estimated on the basis of revenues for similar stores in existing areas, the competition at a prospective location, the new stores expected market share at that location and the size and density of the locations primary trading area) Regression Model (mathematical equations showing the association between the potential stores sales and several independent variables at each location such as population size, average income, the number of house holds, nearby competitors, transportation barriers and traffic patterns) Gravity Model (is based on the premise that people are drawn to stores that are closer and more attractive than competitors stores. The distance between consumer and competitors, the distance between consumer and a given site and store image are included in this model)
- 21. Reillys Law Reillys law Reillys law of retail gravitation, a traditional means of trading-area delineation, establishes a point of indifference between two cities or communities, so the trading area of each can be determined
- 22. Dab = Limit of City As trading area, measure in miles along the road to city B d= Distance in miles along a major roadway between cities Pa = Population of city A Pb = Population of city B
- 23. The twin cities of Hyderabad (A) and Secunderabad (B) are linked by a highway of 20 kilometers. With a population of 90,000 in Hyderabad and 10,000 in Secunderabad, calculate the maximum distance from which people can come to Secunderabad for shopping?
- 24. Limitations of Reillys 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
- 25. Huffs Law Huffs law of shopper attraction delineates trading areas on the basis of product assortment (of the items desired by the consumer) carried at various shopping locations, travel times from the shoppers home to alternative locations, and the sensitivity of the kind of shopping to travel time
- 26. Pij = Probability of a consumers travelling from home i to shopping location j Sj = Square footage of selling space in shopping location j expected to be devoted to a particular product category Tij = Travel time from consumers home i to shopping location j 了= Parameter used to estimate the effect of travel time on different kinds of shopping trips n = Number of different shopping locations
- 27. Assume a leased department operator studies three possible locations with 200, 300 and 500 total square feet of store space allocated to mens cologne (by all retailers in the area). A group of potential customers lives 7 minutes from the first location, 10 minutes from the second, and 15 minutes from the third. The operator estimates the effect of travel time to be 2.
- 28. Points to be considered while using Huffs law To determine Location 1s trading area, similar computations would be made for people living at a driving time of 10, 15, 20 minutes and so on. The number of people at each distance who would shop there are then summed. Thus stores in location 1 could estimate their total market, the trading area size and the primary , secondary and fringe area for a product category.
- 29. Chief Factors to Consider in Evaluating Retail Trading Areas Total size and density Age distribution Average educational level Percentage of residents owning homes Total disposable income Per capita disposable income Occupation distribution Trends Population Size and Characteristics
- 30. Chief Factors to Consider in Evaluating Retail Trading Areas Management Management trainees Clerical Availability of Labor
- 31. Chief Factors to Consider in Evaluating Retail Trading Areas Delivery costs Timeliness Number of manufacturers Number of wholesalers Availability of product lines Reliability of product lines Closeness to Sources of Supply
- 32. 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
- 33. Chief Factors to Consider in Evaluating Retail Trading Areas Number and size of existing competition Evaluation of competitor strengths and weaknesses Short-run and long-run outlook Level of saturation Competitive Situation
- 34. Chief Factors to Consider in Evaluating Retail Trading Areas Number and type of store locations Access to transportation Owning versus leasing opportunities Costs Availability of Store Locations
- 35. Chief Factors to Consider in Evaluating Retail Trading Areas Taxes Licensing Operations Minimum wages Regulations
- 36. Under-stored Trading Area Over-stored Trading Area Saturated Trading Area.
- 37. Big B Video, ESRI & Maptitude http://cb.hbsp.harvard.edu/cb/web/video.seam?id=6 559-AVO-ENG https://www.youtube.com/watch?v=-0tAVjHpQN0&t =9s . (ESRI & Starbucks) https://www.youtube.com/watch?v=pXdEqAeOvDI (Maptitude TA formulation)
- 38. Fill rate Expression Ability to fulfill the orders placed in the expected lead-time (in reality an indication of the systems ability to anticipate the demand from the retailers or customers) LFR = Total No: of units received Total number of units ordered OFR = Total SKU categories for which 100%of un its orders were received Total number of SKU units orders
- 39. Scenario 1 Scenario 11 SKU Order quantity Receipt SKU Order Quantity Receipt A 2000 1990 A 2000 2000 B 3000 2800 B 3000 3000 C 1000 990 C 1000 1000 D 3000 2700 D 3000 0 E 4000 3990 E 4000 4000 Total 13000 12470 Total 13000 10000
- 40. Scenario -1 LFR = 95% OFR=0% Scenario -11 LFR=76% OFR=80%
- 41. Index of Retail Saturation IRS = H * RE/RF IRS = Index of Retail Saturation for particular area H = No. of households in the area RE = Annual retail expenditure for a particular line of trade per household in that area RF = Total square footage of that particular line of trade in that area saturation into their decisions