LESSON 5
SITE SELECTION
Objective:
After reading this lesson, you will be able to understand the meaning and importance of location, Types of location, choosing a general location and specific location and the Terms of occupancy
Structure:
5.1. Introduction
5.2. Location
5.3. Types of Locations:
5.3.1. The Isolated Store
5.3.2. Unplanned Business District
5.3.3. The planned shopping center
5.4. Choice of a General Location:
5.4.1. Terms of Occupancy:
5.5. Summary:
5.1. Introduction
Effective site location and site selection is a complex process that requires extensive data analysis. Demographics, business data, competition and lifestyle segmentation are important components to be considered when evaluating a potential location or retail location. Location and retail location decisions require a systematic and efficient approach for assessing and evaluating customers and markets.
5.2. Location
It is vital to locate your business in the strongest position: this is the key to the success of any retail development. You can change management but you can’t change your site.
Retail site selection is a strategic decision. Once a location is chosen, a retailer must live with it for many years. The difference between moving into a particular trade area and one that isn’t can mean the difference between a successful store and a failure. Further, even if a retailer finds the “right” neighborhood, the wrong site can spell disaster. Consider, for instance, the location of a new doughnut shop. The retailer has the option to locate in two sites, one across the street from the other. One might think that it should simply choose the cheaper site. But one site has easier access and its signs are highly visible to motorists passing by. More important, that same site is on the way into the central business district, whereas the other is on the way to the suburbs.
5.3. Types of Locations:
There are three basic location types to distinguish among: the isolated store, the unplanned business district, and the planned shopping center. Each has its own attributes relating to the composition of competing stores, parking facilities, nearness to non-retail institutions (such as office buildings), and other factors.
5.3.1. The Isolated Store:
An isolated store is a freestanding retail outlet located on either a highway or a street. There are no adjacent retailers with which this type of store shares traffic.
The advantages of this type of retail location are many:
- There is no competition.
- Rental costs are relatively low.
- There is flexibility.
No group rules must be abided by in operation.
- Larger space may be attained.
- Location is by choice.
- Isolation is good for stores involved in one step or convening shopping
- Better road and traffic facility is possible
- Facilities can be adopted to individual specifications
- Easy parking can be arranged
- Cost reduction are possible, leading to lower price
There are also various disadvantages to this retail location type:
- Initial customers may be difficult to attract.
- Many people will not travel very far to get to one store on a continuous basis
- Most people like a variety in shopping
- Advertising coasts may be high
- Operating costs-such as outside lighting, security, maintenance of grounds, and trash collection – cannot be shared
- The existence of other retailers and community zoning laws may restrict access to desirable locations
- A store must often be built rather than rented
- As a rule, unplanned business districts and planned shopping centers are much more popular among consumers; they generate the bulk of retail sales.
The difficulty of attracting and holding a target market is the major reason large retailer or convenience oriented retailers are usually those best suited to isolated locations. A small specialty store would probably not be able to develop a customer following at this type of location because people would be unwilling to travel to or shop at a store that does not have a very large assortment or a strong image for merchandize and/or prices.
Years ago, when discount operations were frowned on by traditional retailers, numerous shopping centers forbade the entry of discounters. This forced numerous discounters to become isolated stores are to build their own centers, and they have been successful. Today, diverse retailers are been isolated locations, as well as at business districts and shopping centers sites. Some retailers, including many gas stations and convenience stores, continuity emphasize isolated locations.
5.3.2. Unplanned Business District:
An unplanned business district is a type of retail location where two or more stores situate together (or in close proximity) in such a way that the total arrangement or mix of stores is not due to prior long-range planning. Stores locate based on what is best for them, not the district. Thus, for shoe stores may exist in an area with no pharmacy.
There are four kinds of unplanned business district: the central business district, the secondary business district, the neighborhood business district, and the String.
a. Central Business District: A central business district (CBD) is the hub of retailing in a city. It is the largest shopping area in that city and is synonymous with the term downtown. The CBD exists in the part of a town or city with the greatest density of office building and stores. Both vehicular and pedestrian traffic are very high. The core a CBD is often no more than a square mile, with cultural and entertainment facilities surrounding it. Shoppers are drawn from the whole urban area and include all ethnic groups and all classes of people.
The CBD has at least one major department store and broad grouping of specialty and convenience stores. The arrangement of these stores follows no pre-set format; it depends on history (first come, first located), retail trends, and luck.
Here are some strengths that allow CBDs to draw a large number of shoppers and potential shoppers.
- Excellent goods/service assortment
- Access to public transportation
- Variety of store types and positioning strategies within one are
- Wide range of prices
- Variety of customer services
- High level of pedestrian traffic
- Nearness to commercial and social facilities
In addition, chain headquarters stores are often situated in CBDs. These are some of the inherent weaknesses of the CBD.
- Inadequate parking
- Traffic and delivery congestion
- Travel time for those living in the suburbs
- Many aging retail facilities
- Declining condition of some central cities relative to their suburbs
- Relatively poor image of central cities to some potential consumers
- High rents and taxes for the most popular sites
- Movement of some popular downtown stores to suburban shopping centers
- Discontinuity of offerings (such as four shoes stores and no pharmacy)
b. Secondary Business District (SBD). However, an unplanned shopping area in a city or town that is usually bounded by the intersection of two major streets. Cities-particularly larger ones-often have multiple SBDs, each having at least a junior department store (which may be a branch of a traditional department store or a full line discount store), a variety store, and/or some larger specialty stores – in addition to many smaller stores. This type of location has grown in importance as cities have increased in population and “sprawled” over larger geographic areas.
c. Neighborhood Business District (NBD) is an unplanned shopping area that appeals to the convenience shopping and service needs of a single residential area. An NBD contains several small stores, and a restaurant. The leading retailer is typically a supermarket, a large drugstore, or a variety store. This type of business district is situated on the major street(s) of its residential area.
An NBD offers consumers a good location, long store hours, good parking, and a less hectic atmosphere than a CBD or SBD. On the other hand, there is a limited selection of goods and services, and prices (on the average) tend to be higher because competition is less than in a CBD or SBD.
d. String is an unplanned shopping area comprising a group of retail stores, often with similar or compatible product lines, located along a street or highway. There is little extension of shopping on to perpendicular streets. A string may start with an isolated store, success then breeding competitors. Car dealers, antique stores, and clothing stores are examples of retailers often situating in strings.
A string location has many of the advantages of an isolated store (lower rent, more flexibility, better road visibility and parking, and lower operating costs). Along with some disadvantages (limited product variety, increased travel for many consumers, higher advertising costs, zoning restrictions, and the need to build premises). Unlike an isolated store, a string store has competition at its location. This draws more people to the string over prices and less store loyalty for each outlet there. But an individual store’s increased traffic flow, due to being in a string rather than an isolated site, may be greater than the customers lost to competitors. This may explain why four gas stations will locate on opposing corners.
5.3.3. The planned shopping center:
A planned shopping center consists of a group of architecturally unified commercial establishments built on a site that is centrally owned or managed, designed and operated as a unit based on balanced tenancy, and surrounded by parking facilities. Its location, size, and mix of stores are related to the trading area served. A typical shopping center has one or more anchor stores and a range of smaller stores. Through balanced tenancy, the stores in a planned shopping center complement each other as to the quality and variety of their product offerings, and the kind and number of stores are linked to the overall needs of the population. To ensure balanced tenancy, the management of a planned shopping center usually specified the proportion of total space to be occupied by each kind of retailer, limits the product lines that can be sold by every store there, and stipulates what kinds of firm can acquire unexpired leases. At a well-run center, a coordinated and cooperative long-run retailing strategy is followed by all stores.
The planned shopping center has several positive attributes:
- Well-rounded goods and service assortments based on long-range planning
- Strong suburban population
- Interest in one-stop, family shopping. Cooperative planning and sharing of common costs.
- Creation of distinctive, but unified, shopping center images
- Maximization of pedestrian traffic for individual stores
- Access to highways and availability of packing for consumers
- More appealing than city shopping for some people.
- Generally lower rent and taxes than CBD stores (except for most enclosed regional malls)
- Generally lower theft rates than CBD stores
- Popularity of malls
- Open (Shopping area off-limits to vehicles).
- Closed (shopping area off-limits to vehicles and all stores in a temperature-controlled facility).
- Growth of discount malls and other newer types of shopping centers
There are also some limitations associated with the planned shopping centers.
- Landlord-imposed regulations that reduce each retailers’ operating flexibility, such as required hours.
- Generally higher rent than an isolated store (with some regional centers being quite expensive).
- Restrictions on the goods/services that can be sold by each store
- A competitive environment within the center
- Required payments for items that may be of little or no value to an individual retailer, such as membership in a merchants’ association
- Too many malls in a number of areas (some observers call this “the milling of America)
- Rising consumer boredom with and disinterest in shopping as an activity.
- Aging facilities of some older centers
- Domination by large anchor stores
Regional Shopping Center: A large, planned shopping facility appealing to a geographically dispersed market. It has at least one or two full-sized department stores (each with a minimum of 1000,000 square feet) and 50 to 150 or more smaller retailers. A regional center has a very broad and deep assortment of shopping oriented goods, as well as a number of services intended to enhance the consumer’s experience at the center. The market for a typical regional center is 1000,000 + people, who live or work up to a 30-minute drive from the center. On average, people travel less than 20 minutes.
The regional center is the result of a planned effort to re-create the shopping variety of a central city in suburbia. Some experts even credit the regional shopping center with becoming the social, cultural, and vocational focal point of an entire suburban area. Frequently, a regional center is used as a town plaza, a meeting place, a concert hall, and a place for a brisk indoor walk. Despite people’s declining overall interest in shopping (which does pose a significant problem for retailers), on a typical visit to a regional shopping center, many people spend an average of an hour or more there.
Community Shopping Center: A community shopping center is a moderate-sized, planned shopping facility with a branch department store, in addition to several smaller stores (traditional or discount), a variety stores, and/or a category killer store, in addition to several smaller stores (usually similar to those in a neighborhood center). It offers a moderate assortment of both shopping and convenience-oriented goods and services to consumers from one or more nearby, well populated, residential areas. About 20,000 to 100,000 people, who live or work within 10 to 20 minutes of the center, are served by this location.
Neighborhood Shopping Center A neighborhood shopping center is a planned shopping facility, with the largest store being a supermarket or a drugstore. Other retailers in the center often include a bakery, a laundry, a dry cleaner, a stationary store. A barber shop or beauty parlor, a hardware store, a restaurant, a liquor store, and a gas station. This center focuses on convenience-oriented goods and services for people living or working nearby. It serves 3,000 to 50,000 people who are within a 15 minute drive (usually less than 10 minutes).
5.4. Choice of a General Location:
Location planning requires a retailer to select one of the three basic location formats; isolated, unplanned district, or planned center. The decision dependents on the firm’s strategy and a careful evaluation of the advantages and disadvantages of each alternative.
Once this is done, the retailer chooses a broadly defined site for its store(s), Step 3. Two decisions are needed here. First, the specific kind of isolated store, unplanned business district, or planned shopping center location must be picked. If a retailer wants an isolated store, it must determine whether to locate on a highway or side street. Should the retailer desire an unplanned business area, it must decide whether to locate in a CBD, an SBD, an NBD, or a string. A retailer seeking a planned area must decide whether to locate in a regional, community, or neighborhood shopping center – and whether to situate in a derivative from such as a mega mall or power center.
Second, the retailer must determine the general placement for its stores. For an isolated store, this means selecting a specific highway or side street. For an unplanned district or planned center. This means designating a specific district.
The assessment of general locations and the specific sites contained within them both require extensive analysis. Site selection is as crucial as the choice of a retail area, especially for stores that rely on customer traffic patterns to generate business.
In any area, the optimum site for a particular store is called the one-hundred percent location. Since different kinds of retailers need different kinds of locations, a location labeled as 100 percent for one firm may be less than optimal for another. An upscale ladies’ apparel shop would seek a location with different strengths than those desired by a convenience store. The specialty shop would benefit from heavy pedestrian traffic, closeness to major department stores, and proximity to other specialty stores. The convenience store would rather locate in an area with ample parking and heavy vehicular traffic. I do not need to be close to other stores.
Pedestrian Traffic:
Probably the most crucial measures of a location’s and site’s value are the number and type of people passing by. Other things being equal, a site with the highest pedestrian traffic is often best.
Because everyone passing a location or site is not necessarily a good prospect for all types of stores, many retailers use selective counting procedures, such as counting only makes and females carrying shopping bas. Otherwise, pedestrian traffic totals may include too many non-shoppers.
A Proper pedestrian traffic count should encompass these four elements:
- Separation of the count by age and gender (children under a given age should not be counted).
- Division of the count by time (this allows the study of peaks, low points, and changes in the gender of the people passing by the hour)
- Pedestrian interviews (these let researchers find out the proportion of potential shoppers)
- Spot analysis of shopping trips (these allow observers to verify the stores actually visited)
Vehicular Traffic:
The quantity and characteristics of vehicular traffic must be examined, especially by retailers appealing to consumers who drive there. Convenience stores, outlets in regional shopping centers, and car washes are examples of retailers that rely on heavy vehicular traffic. Automotive traffic studies are quite important in suburban areas, where pedestrian traffic is often limited.
Parking Facilities:
Parking facilities must not be overlooked in assessing a location and specific sites in it. Most the U.S retail stores built over the past 50 years include some provision for nearby off-street parking. In many business districts, parking facilities are provided by individual stores, cooperative arrangements among stores, and municipal governments. In planned shopping centers, parking facilities are shared by all stores there. The number and quality of parking spots, their distances from store sites, and the availability of employee parking should all be evaluated.
Transportation:
The availability of mass transportation, access from major highways, and ease of deliveries must be examined in assessing a location and specific sites.
In a downtown area, closeness to mass transit is important, particularly for people who do not own cars, who commute to work there, or who would not otherwise shop in an area with traffic congestion and limited parking. The availability of buses, taxis, subways, trains, and other kinds of public transit must be investigated for any area not readily accessible by vehicular traffic. Because most downtown shopping areas are at the hub of a mass transit network, they allow people from all over a city to shop there.
Store Composition:
An area’s store composition should be studied. How many stores are there? How large are they? The number and size of stores should be consistent with the kind of location selected. A retailer interested in an isolated site would want no stores nearby; a retailer desiring a neighborhood business district would want to locate in an area with 10 or 15 small stores; and retailer looking for a regional shopping center wold want a location with more than 50 stores, including at least 1 or 2 large department stores (to generate customer traffic).
Specific Site:
Besides the factors already detailed, the specific site should be reviewed on the basis of visibility, placement in the location, size and shape of the lot, size and shape of the building, and condition and age of the lot of building.
Visibility refers to a sites’ ability to be seen by pedestrian or vehicular traffic. A site on a side street or at the end of a shopping center does not have the same visibility as one on a major road or at the entrance of a shopping center. High visibility makes passersby aware that a store exists and is open. Furthermore, some people hesitate to go down a side street or to the end of a center.
5.4.1. Terms of Occupancy:
Terms of Occupancy – including ownership versus leasing, the type of lease, operations and maintenance costs, taxes, zoning restrictions, and voluntary regulations – must be evaluated for each prospective site.
Ownership versus Leasing: A retailer with adequate financial resources can either own or lease premises. Ownership is more common in small stores, in small communities, or at inexpensive locations. It has several advantages over leasing. There is no chance that a property owner will not renew a lease or will double or triple the rent when a lease expires. Operations are flexible; the retailer can engage in scrambled merchandising, break down walls, and so on. It is also likely that property value will appreciate over time, giving he retailer a tangible asset if it decides to sell the business. The disadvantages of ownership are the high initial costs, the necessary long-term commitment, and the inflexibility in changing sites. Leasing lets retailers minimize their initial investment, reduce heir risk, acquire leases at prime sites that could not accommodate additional stores, gain immediate occupancy and customer traffic, and reduce their long-term commitment (if they desire).
Types of Leases:
Straight Lease: A retailer pays a fixed amount per month other the life of the lease. Rent will be depends on the size of floor area.
Percentage Lease: stipulates that rent is related to sales or profits. This differs from a straight lease, which provides for constant payments, regardless of revenues or earnings. A percentage lease protects a property owner against the effects of inflation and lets it benefit it a store is lower when its performance is weak and higher when performance is good.
Graduated lease: Calls for precise rent increase over a stated period of time. The rent is known in advance by both the retailer and the property owner, and based on anticipated increases in sales and costs.
A maintenance increase-recoupment lease has a provision allowing rent to increase if a property owners taxes, heating bills, insurance, or other expenses raise beyond a certain point. The provision most often supplements a strait rental lease agreement.
A Net Lease: is called for all maintenance cost such as electricity, insurance and interior repair to be paid by the retailer which is responsible for their satisfactory quality. A net lease frees the property owner from managing the facility and lets the retailer have control over store maintenances. It would be used to supplement a straight lease or a percentage lease.
5.4.3. Other Considerations:
- Profile and segment your customer database to identify, quantify, reach and retain your most profitable customers.
- Measure the potential of retail site location analysis and identify new target markets for entry and expansion
- Set and achieve revenue and market share goals
- Determine the optimal site location deployment strategy in new markets
- Locate new retail location opportunities among an existing network
- Understand the critical drivers of business site location performance and success.
- Assess the network-wide impacts of new site locations, site relocations, retail location and site closures.
- Identify what products and services should be offered at a particular business site or retail location
- Determine the most appropriate concept and prototype for a given retail location
5.5. Summary:
Retailers consider several issues when assessing the attractiveness of a particular region, market, or trade area for their location strategy. They want to know about the people living in the area in terms of lifestyles, population, wealth of, growth rate, favorable business climate, level of competition etc., Location planning requires a retailer to select one of the three basic location formats: isolated, unplanned district, or planned center. The decision depends on the firm’s strategy and a careful evaluation of the advantages and disadvantages of each alternative. Besides the factors, the specific site should be reviewed on the basis of visibility, placement in the location, size and shape of the lot, size and shape of the building, and condition and age of the lot of building. Once location is finalized the next important issue is consideration of terms of occupancy – including ownership versus leasing, the type of lease, operations and maintenance costs, taxes, zoning restrictions, and voluntary regulations.
Key Terms:
Isolated store: is a freestanding retail outlet located on either a highway or a street. There are no adjacent retailers with which this type of store shares traffic.
Unplanned business district: is a type of retail location where two or more stores situate together (or in close proximity) in such a way that the total arrangement or mix of stores is not due to prior long-range planning. Stores locate based on what is best for them, not the district.
Central Business District: A central business district (CBD) is the hub of retailing in a city. It is the largest shopping area in that city and is synonymous with the term downtown.
Secondary Business District (SBD). However, an unplanned shopping area in a city or town that is usually bounded by the intersection of two major streets. Neighborhood Business District (NBD) is an unplanned shopping area that appeals to the convenience shopping and service needs of a single residential area. String is an unplanned shopping area comprising a group of retail stores, often with similar or compatible product lines, located along a street or highway. There is little extension of shopping on to perpendicular streets. A planned shopping center consists of a group of architecturally unified commercial establishments built on a site that is centrally owned or managed, designed and operated as a unit based on balanced tenancy, and surrounded by parking facilities.
Regional Shopping Center: A large, planned shopping facility appealing to a geographically dispersed market.
Community Shopping Center: A community shopping center is a moderate-sized, planned shopping facility with a branch department store, in addition to several smaller stores (traditional or discount), a variety stores, and/or a category killer store, in addition to several smaller stores (usually similar to those in a neighborhood center).
Straight Lease: A retailer pays a fixed amount per month other the life of the lease. Rent will be depends on the size of floor area.
Percentage Lease: stipulates that rent is related to sales or profits. This differs from a straight lease, which provides for constant payments, regardless of revenues or earnings.
Graduated lease: Calls for precise rent increase over a stated period of time. The rent is known in advance by both the retailer and the property owner, and based on anticipated increases in sales and costs.
A maintenance increase-recoupment lease has a provision allowing rent to increase if a property owners taxes, heating bills, insurance, or other expenses raise beyond a certain point
A Net Lease: is called for all maintenance cost such as electricity, insurance and interior repair to be paid by the retailer which is responsible for their satisfactory quality.
Questions:
1. What is location? And explain the factors influencing the location of a retail outlet?
2. What are the advantages and disadvantages of Central Business District?
3. Elucidate various types of locations and its nature.
4. What are the various terms of occupancy? Explain the types of leases.
5. What is an isolated store? Elucidate its importance in retail business?
References:
Michael Levy, Barton A Weitz; Retail management; Fifth Edition; Tata Mc Graw-Hill Publishing Company Limited.
Barry Besrman, Joel R. Evans; Retail management; Eighth Edition; Pearson Education Asia.
