CHAPTER 9 TRADINGAREA ANALYSIS 9 1 Chapter Objectives

CHAPTER 9: TRADING-AREA ANALYSIS 9 -1

Chapter Objectives • • To demonstrate the importance of store location for a retailer and to outline the process of choosing a store location To discuss the concept of a trading-area and its related components To show trading-areas may be delineated for existing and new stores To examine three major factors: population characteristics, economic base characteristics, and competition/level of saturation © 2013 Pearson Education 8 -2

Location, Location • Criteria to consider include • • © 2013 Pearson Education population size and traits competition transportation access parking availability nature of nearby stores property costs length of agreement legal restrictions 8 -3

Figure 9 -1: Importance of Location to Foot Locker © 2013 Pearson Education 8

Choosing a Store Location Step 1: Evaluate alternate geographic (trading) areas in terms of residents and existing retailers Step 2: Determine whether to locate as an isolated store or in a planned shopping center Step 3: Select the location type Step 4: Analyze alternate sites contained in the specific retail location type © 2013 Pearson Education 8 -5

Trading-Area Analysis A trading-area is a geographic area containing the customers of a particular

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 © 2013 Pearson Education • • Assessment of effects of trading area overlap Ascertain whether chain’s competitors will open nearby Discovery of ideal number of outlets, geographic weaknesses Review of other issues (e. g. transportation) 8 -7

Figure 9 -2: The Trading-Areas of Current and Proposed Outlets © 2013 Pearson Education

GIS Software • Geographic Information Systems • © 2013 Pearson Education Digitized mapping with key locationspecific data used to graphically depict trading-area characteristics such as o population demographics o data on customer purchases o listings of current, proposed, and competitor locations 8 -9 9

Figure 9 -3(A): GIS Software in Action © 2013 Pearson Education 8 -10

Figure 9 -3(B): GIS Software in Action © 2013 Pearson Education 8 -11

Figure 9 -3(C): GIS Software in Action © 2013 Pearson Education 8 -12

Figure 9 -3(D): GIS Software in Action © 2013 Pearson Education 8 -13

Figure 9 -4: The Segments of a Trading-Area © 2013 Pearson Education 8 -14

Figure 9 -5: Delineating Trading-Area Segments © 2013 Pearson Education 8 -15

The Size and Shape of Trading-Areas • Primary trading-area • • Secondary trading-area • • 15 -25% of a store’s customers Fringe trading-area • © 2013 Pearson Education 50 -80% of a store’s customers all remaining customers 8 -16

Destination Versus Parasite Stores o o o Destination stores o have a better assortment, promotion, and image. They generate tradingareas much larger than o competitors. Dunkin’ Donuts: “It’s worth the trip!” o © 2013 Pearson Education 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 area for other reasons. Magazine stand in office building 8 -17

Trading Areas and Store Types Largest Department stores Supermarkets TRADING AREAS Apparel stores Gift

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: • • • © 2013 Pearson Education Trend analysis Consumer surveys Computerized trading-area analysis models 8 -19

Computerized Trading-Area Analysis Models Analog Model Regression Model Gravity Model © 2013 Pearson Education

Analog, Regression and Gravity Models • • • Analog models– simplest. Revenue estimates based on similar stores, competition, expected market share, size and population density Regression models- looks at population size, average income, transportation barriers and traffic patterns Gravity models– looks at distance and shopping selection at given location © 2013 Pearson Education 8 -21

Reilly’s Law Reilly’s law of retail gravitation—a traditional means of trading-area delineation—establishes a point of indifference between two cities or communities so that the tradingarea of each can be determined. © 2013 Pearson Education 8 -22

Reilly’s Law Dab = d 1+ © 2013 Pearson Education Pb/Pa 8 -23

Reilly’s Law 50 miles ¡ ¡ ¡ Dab_ ¡ © 2013 Pearson Education 1+

Reilly’s Law • • • Dab = 50/5 = 10 miles from smaller city and 40 miles from larger city Indifference point Assumes that larger city has more retail facilities and greater drawing power as a result Assumes that road conditions, congestion, driving conditions are equal in both cities © 2013 Pearson Education 8 -25

Limitations of Reilly’s 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. © 2013 Pearson Education 8 -26

Huff’s Law Huff’s law of shopper attraction delineates trading-areas on the basis of product assortment at various shopping locations, travel times from the shopper’s home to alternative locations, and the sensitivity of the kind of shopping to travel time. © 2013 Pearson Education 8 -27

Table 9 -1 a: Chief Factors to Consider in Evaluating Retail Trading-Areas Population Size and Characteristics • • Total size and density Age distribution Average educational level Percentage of residents owning homes © 2013 Pearson Education • • Total disposable income Per-capita disposable income Occupation distribution Trends 8 -28

Table 9 -1 b: Chief Factors to Consider in Evaluating Retail Trading-Areas • •

Table 9 -1 c: Chief Factors to Consider in Evaluating Retail Trading-Areas Closeness to Sources of Supply • • • Delivery costs Timeliness Number of manufacturers • • • © 2013 Pearson Education Number of wholesalers Availability of product lines Reliability of product lines 8 -30

Table 9 -1 d: Chief Factors to Consider in Evaluating Retail Trading-Areas • • • Economic Base Dominant • Freedom from industry economic and seasonal Extent of fluctuations diversification • Availability of Growth credit and projections financial facilities © 2013 Pearson Education 8 -31

Table 9 -1 e: Chief Factors to Consider in Evaluating Retail Trading-Areas Competitive Situation • • Number and size of existing competition Evaluation of competitor strengths and weaknesses © 2013 Pearson Education • • Short- and longrun outlook Level of saturation 8 -32

Table 9 -1 f: Chief Factors to Consider in Evaluating Retail Trading-Areas • • Availability of Store Locations Number and type • Owning versus of store locations leasing opportunities Access to transportation • Zoning restrictions • Costs © 2013 Pearson Education 8 -33

Table 9 -1 g: Chief Factors to Consider in Evaluating Retail Trading-Areas • •

Elements in Trading-Area Selection Population Characteristics Economic Base Characteristics Nature and Saturation of Competition

Figure 9 -9: The Census Tracts of Long Beach, NY © 2013 Pearson Education

Table 9 -3 Selected 2010 Population Statistics for Long Beach Trading-Areas a and B Area A Area B (4164 & 4166) (4167. 01 and 4168) Total population, 2010 12, 532 10, 430 Population change 2000 -2010 (%) -8. 7 -5. 7 College graduates 12 and older, 48. 2 2010 (%) 48. 9 Median household income, 2010 $98, 317 Managerial and professional specialty occupations (% of employed persons 16 and older), 2010 © 2013 Pearson Education $94, 778 47. 1 51. 5 8 -37

Trading Area Saturation Indices • • • Number of persons per retail establishment Average sales per retail store Average sales per capita Average sales per square foot of selling area Average sales per employee Saturated, oversaturated and undersaturated conditions © 2013 Pearson Education 8 -38

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