Retail Management

Chapter 7: Retail Locations

LEARNING OBJECTIVES

• Describe the types of retail locations available to

retailers.
• Review the types of unplanned locations.
• Analyze the characteristics of the different types of
shopping centers.
• Discuss nontraditional retail locations.
• Match the locations to the retailer’s strategy.
CONTENTS

• Retail pricing strategy

• Unplanned locations
• Shopping centers and planned retail locations
• Nontraditional locations
• Locations and retail strategy
• Additional
 Retail pricing strategy

The importance of pricing decisions is growing because today’s

customers have more alternatives to choose from and are better
informed about the alternatives available in the marketplace.

Read chapter 14:

Retail Pricing
PRICING STRATEGIES

High/Low Everyday Low

Pricing Pricing (EDLP)
Somewhat misleading
Frequently because low doesn’t
mean “lowest”

Discount through Low-price guarantee

sales promotions policy
Advantages of the Pricing Strategies

High/low pricing
EDLP approach
strategy
Assures customers of low
Increases profits
prices

Reduces advertising and

Creates excitement
operating expenses

Reduces stockouts and

Sells slow moving
improves inventory
merchandise
management
SETTING RETAIL PRICES

Setting Prices Based on Costs

Pricing Optimization Software

Profit Impact of Setting a Retail Price:

“The Use of Break-Even Analysis”
MARKDOWNS

Clearance
markdowns

Reasons
OR for Taking
Markdowns
Promotional
markdowns
MARKDOWNS

Optimizing Markdown Decisions

Reducing the Amount of Markdowns

Liquidating Markdown Merchandise

Markdown
Markdown
Markdown example

SOLD
RETAIL SOLD W1 STOCK SOLD W2 STOCK SOLD W3 STOCK STOCK TOTAL
W4
PRICE EOW1 EOW2 EOW3 EOW4
QUANTITY 10,000
COGS(USD) 10,000
TOTAL COGS (USD) 100,000,000
MARKUP (%) 50%
RETAIL PRICE (USD) 15,000 15,000 2,000 8,000
MARKDOWN W1 20% 12,000 4,000 4,000
MARKDOWN W2 10% 10,800 2,200 1,800
MARKDOWN W3 25% 8,100 1,000 800
MARKDOWN W4
TURNOVER (USD) 30,000,000 48,000,000 23,760,000 8,100,000 109,860,000
MARGIN (USD) 9,860,000
MARGIN (%) 9.86%

Note: W: week, EOW: End of Week, COGS: Cost of Good Sold

 The important of location

“What are the three most important things in retailing?”,

“Location, location and location”

Rich by Real Estate

 Location is typically one of the most influential
considerations in a customer’s store-choice
decision
Why is store
location such an
Location decision can be used to develop a
important sustainable competitive advantage
decision for a
retailer?

Location decisions are risky

 Not for
Retailer

For
Retailer
Process of Choosing Particular Locations

• Size of the trade area

• Occupancy cost of the location
• Pedestrian and vehicle customer traffic location
• Restrictions on operations by property managers
• Convenience of location for customers

“Trade area: the geographic area that encompasses most of the

customers who would patronize a specific retail site”
Characteristics of Different Retail Locations
TYPES OF RETAIL LOCATIONS
 Unplanned Location

Freestanding Urban Mainstreet

sites locations locations
 Freestanding sites

“Freestanding sites Advantages Disadvantages

are retail locations
for an individual, • Convenience for • Limited trade area
isolated store customer when not around
unconnected to • High vehicular nearby retailers
other stores; traffic and visibility • Higher Occupancy
however, they might • Modest occupancy costs that strip
be near other costs centers
freestanding stores
• Separation from • Usually located
or near a shopping
competition where there is little
center.”
pedestrian traffic
Freestanding sites (cont.)

“Outparcels are Some advantages

freestanding stores that are
not connected to other
stores in a shopping center,
but are located on the
• Can offer customers the
premises of a shopping convenience of a drive-through
center, typically in a window
parking area.” • Extensive parking
• Clear visibility from the street
Urban locations
Low income residential
area within a large city

Central Business Gentrified

Inner city
District residential sites

the traditional downtown renewal and rebuilding of

financial and business area offices, housing, and
in a city or town retailers in deteriorating areas
Urban locations (cont.)

• Retailers need to tailor their offerings to the unique characteristics of urban

gentrified consumers and the restrictions associated with these locations
• Selecting a store to patronize, these urban consumers, compared with
suburban consumers, typically place more importance on reducing their
shopping time rather than the breadth and depth of the retailer’s assortment
• Retailers with urban locations also need to recognize the differences in
consumer needs within these markets
• Deal with the traffic and parking problems in these gentrified residential
areas, many residents use public transportation or walk when they go
shopping
Main Street locations

• Main Street refers to the traditional downtown shopping area in smaller towns
and secondary shopping areas in large cities and their suburbs
• Focus shopping experience and pedestrian walkways
• Main Street locations share most of the characteristics of locations in
gentrified urban areas, but their occupancy costs are generally lower
• Main Street locations do not draw as many people as the CBD because
fewer people work in the area, and the fewer stores generally mean a
smaller overall draw to the area
 Shopping centers and planned retail
locations

Shopping center is a group of retail and

other commercial establishments that are
planned, developed, owned, and
managed as a single property

PhD. Michael Levy

Characteristics

• Combining many stores at one location

• Lease agreements typically require that retailers in the center pay
a portion of the common area maintenance (CAM) costs
• Managed by a shopping center property management (SCPM)
firm
Types of shopping centers

Convenience,
Neighborhoo, Larger,
Theme/
and Enclosed Lifestyle Mixed-Use Multiformat
Power Centers Outlet Centers Festival
Community Shopping Malls Centers Developments Developments
Centers
Shopping (Omnicenters)
Centers
Number, Sales per Square Foot, and Growth Rate
of Shopping Centers
 Nontraditional Locations

any location that is attached to, located within, or located on

the property of an existing business or facility
Nontraditional Locations

Store-within-a-Store Airports

1 2 3 4

Pop-Up Stores and Merchandise Kiosks

Other Temporary
Locations
 LOCATION AND RETAIL STRATEGY

The location-type decision is consistent with the shopping

behavior and size of the target market and the retailer’s
positioning in its target market
Shopping Behavior of Consumers in Retailer’s
Target Market

Convenience Comparison Specialty

Shopping Shopping Shopping
Density of Target Market

Target
Target market
market

Target
market

A good location has many people in the target

market who are drawn to it
Uniqueness of Retail Offering

The convenience of locations is less

important for retailers with unique,
differentiated offerings than for
retailers with an offering similar to
other retailers
 Additional

“The three most important things in retail are

location, location, location. The three most important
things for our consumer business are technology,
technology, technology.”

— Jeff Bezos
Selecting a Store Location
Selecting a location by Criteria and Weight

Example: Importance of the criteria for site selection

(Scale 1 to 10: 10 is the best, 1 is the worst)

No. Criterion Weight

1 Rent cost 10
2 Geographical location 8
3 Population density 7
4 Vehicular Traffic 5
5 Number of competitors 6
Selecting a location by Criteria and Weight
Example: Evaluation scores
(Scale 1 to 10: 10 is the best, 1 is the worst)

Rent Geographical Population Vehicular Number of

No. Location
cost location density Traffic competitors
1 Location A 2 9 9 10 9
2 Location B 4 7 8 7 8
3 Location C 6 4 8 9 7
4 Location D 7 8 5 7 4
5 Location E 7 9 8 9 8
6 Location F 9 7 6 8 3
7 Location G 5 7 6 7 7
Selecting a location by Criteria and Weight
Example: Selecting 3 best locations: A, E and F
Geographical Population Vehicular Number of
No. Location Rent cost
location density Traffic competitors Total
Weight 10 8 7 5 6
1 Location A 2 20 9 72 9 63 10 50 9 54 259
2 Location B 4 40 7 56 8 56 7 35 8 48 235
3 Location C 6 60 4 32 8 56 9 45 7 42 235
4 Location D 7 70 8 64 5 35 7 35 4 24 228
5 Location E 7 70 9 72 8 56 9 45 8 48 291
6 Location F 9 90 7 56 6 42 8 40 3 18 246
7 Location G 5 50 7 56 6 42 7 35 7 42 225
Data Analysis for Location Selection

A retailer with excellent location has strategic advantage.

When considering location, you’ll want to evaluate:
• alternative geographic trading areas
• determine type of location (population, density)
• literacy level and educational level of populations
• languages spoken

Are there other similar stores?

• What do they stock and what is their reputation?
Location Effects on Planning

• Knowing demographic of location is important

• Preparing for ebbs and flows of demographic changes is another

planning option

• Looking at history of planned location can tell a story of the

market

• Having ability to grow or change with the community will be

important component
Retail Trading Area
U.S. Census Bureau and Demographic Data

U.S. Census Bureau data includes

• Number of people in household
• Household relationships
• Age, sex, race
• Number household units
• Status of plumbing facilities
• Owner occupied or rental
• Value of home and vacancy status
GIS and Location Decisions

• Geographic information system (GIS): system that can store,

retrieve, map, & analyze geographic data

• GIS helps visualize information about customer buying behaviors

and demographics

• GIS has a fee, but is updated frequently

• Nielsen is company that offers wide range of useful tools

Factors in Analyzing Trading Area

Types of Trading Areas

• Primary
• Secondary
• Fringe

Make sure that area surrounding location has

• Enough customers
• Enough money to spend
• Need for product or service you are bringing
• Competition in trading area
Available Retail Locations
Comparing Location Benefits

Unplanned shopping areas: spaces that developed over time

• Downtown areas, strip malls

Planned shopping areas:

• Omni-centers: large planned centers with variety of retail formats
• Lifestyle centers: located in upscale areas with specialty chain
stores, restaurants, and theatres
• Outlet centers: place that sells damage, discontinued, or surplus
merchandise
• Mixed use developments: shopping, restaurants, hotels, residential
spaces
Site Selection Decisions
Evaluating Site Characteristics

• The style of operation must match area

• Demographics: Who are your customers?

• Foot traffic: Can you people get to the door?

• Accessibility and parking

• Competition
Influence of Societal Views

• Using data from U.S. Census Bureau and GIS analysis to determine if
space you are thinking of is a good decision

• Societal environment is another component of a successful business

location

• Make sure to do your location and find space that has right
population to help business grow
Huff Gravity Model

• Huff’s model is mathematical model that recognizes correlation

between patronage and distance from location to store.

• The further a consumer is from location, the less likely they will be to
shop there.

• The model doesn’t account for factors that would affect a

customer patronizing the store.
Common Lease Types

• Percentage (retail business, mall)

• Net (any commercial lease)

• Double net (any commercial lease)

• Triple net (any commercial lease)

• Fully serviced (offices, industrial, and retail leases)

THANK FOR YOUR ATTENTION!