Retail Management - Business Location
In populous cities such as Mumbai,
Delhi, Tokyo, and Shanghai to name a few, consumers face rush-hour traffic jams
or jams because of road structure. In such cases, to access a retail outlet to
procure day-to-day needs becomes very difficult. It is very important for the
consumers to have retail stores near where they stay.
Importance of Location in Retail Business
Retail store location is also an
important factor for the marketing team to consider while setting retail
marketing strategy.
Here are some reasons −
1 Business location is a unique factor
which the competitors cannot imitate. Hence, it can give a strong competitive
advantage.
2. Selection of retail location is a
long-term decision.
3. It requires long-term capital
investment.
4. Good location is the key element for
attracting customers to the outlet.
5. A well-located store makes supply and
distribution easier.
6. Locations can help to change
customers’ buying habits.
Trade Area: Types of Business Locations
A trade area is an area
where the retailer attracts customers. It is also called catchment area.
There are three basic types of trade areas −
1. Solitary Sites
These are single, free standing shops / outlets,
which are isolated from other retailers. They are positioned on roads or near
other retailers or shopping centres. They are mainly used for food and non-food
retailing, or as convenience shops. For example, kiosks, mom-and pop stores
(similar to kirana stores in India).
Advantages −
Less occupancy cost, away from competition, less operation restrictions.
Disadvantages −
No pedestrian traffic, low visibility.
2. Unplanned
Shopping Areas
These are
retail locations that have evolved over time and have multiple outlets in close
proximity. They are further divided as −
·
Central business districts such as traditional
“downtown” areas in cities / towns.
·
Secondary business districts in larger cities and
main street or high street locations.
·
Locations along a street or motorway (Strip
locations).
Advantages − High pedestrian traffic during
business hours, high resident traffic, nearby transport hub.
Disadvantages − High security required, threat of
shoplifting, Poor parking facilities.
Planned Shopping Areas
These are retail locations that are
architecturally well-planned to provide a number of outlets preferably under a
theme. These sites have large, key retail brand stores (also called “anchor
stores”) and a few small stores to add diversity and elevate customer’s
interest. There are various types of planned shopping centres such as neighbourhood
or strip / community centres, malls, lifestyle centres, specialty centres,
outlet centres.
Advantages − High visibility, high customer
traffic, excellent parking facilities.
Disadvantages − High security required, high
cost of occupancy.
Factors Determining Retail Locations
The marketing team must analyse retail
location with respect to the following issues −
·
Size
of Catchment Area / Trade Area − Primary (with
60 to 80% customers), Secondary (15 to 25% customers),
and Tertiary (with remaining customers who shop occasionally).
·
Occupancy
Costs − Costs of
lease / owning are different in different areas, property taxes, location
maintenance costs.
·
Customer
Traffic − Number
of customers visiting the location, number of private vehicles passing through
the location, number of pedestrians visiting the location.
·
Restrictions
Placed on Store Operations −
Restrictions on working hours, noise intensity during media promotion events.
·
Location
Convenience −
Proximity to residential areas, proximity to public transport facility.
Steps to Choose the Right Retail Location
A retail company needs to follow the
given steps for choosing the right location −
Step 1 - Analyse the market in terms of
industry, product, and competitors −
How old is the company in this business? How many similar businesses are there
in this location? What the new location is supposed to provide: new products or
new market? How far is the competitor’s location from the company’s perspective
location?
Step 2 – Understand the Demographics − Literacy of customers in the
prospective location, age groups, profession, income groups, lifestyles,
religion.
Step 3 – Evaluate the Market Potential − Density of population in the
prospective location, anticipation of competition impact, estimation of product
demand, knowledge of laws and regulations in operations.
Step 4 - Identify Alternative Locations − Is there any other potential
location? What is its cost of occupancy? Which factors can be compromised if
there is a better location around?
Step 5 – Finalize the best and most suitable
Location for the retail outlet.
Measuring the Success of Location
Once the retail outlet is opened at the
selected location, it is important to keep track of how feasible the choice of
the location was. To understand this, the retail company carries out two types
of location assessments −
Macro Location
Evaluation
It is conducted at a national level when
the company wants to start a retail business internationally. Under this
assessment, the following steps are carried out −
·
Detailed
external audit of the market by analysing locations as macro environment such
as political, social, economic, and technical.
·
Most
important factors are listed such as customer’s level of spending, degree of
competition, Personal Disposable Income (PDI), availability of locations, etc.,
and minimum acceptable level for each factor is defined and the countries are
ranked.
·
The
same factors listed above are considered for local regions within the selected
countries to find a reliable location.
Micro Location
Evaluation
At this level of evaluation, the
location is assessed against four factors namely −
·
Population − Desirable number of suitable
customers who will shop.
·
Infrastructure − The degree to which the store is
accessible to the potential customers.
·
Store
Outlet −
Identifying the level of competing stores (those which the decrease attractiveness
of a location) as well as complementary stores (which increase attractiveness
of a location).
·
Cost − Costs of development and
operation. High start-up and ongoing costs affect the performance of retail
business.
Formulating a location strategy
typically involves the following factors:
1. Facilities.
Facilities planning involves determining what kind of space a company will need
given its short-term and long-term goals.
2. Feasibility.
Feasibility analysis is an assessment of the different operating costs and
other factors associated with different locations.
3. Logistics.
Logistics evaluation is the appraisal of the transportation options and costs
for the prospective manufacturing and warehousing facilities.
4. Labour. Labour
analysis determines whether prospective locations can meet a company's labour
needs given its short-term and long-term goals.
5. Community
and site. Community and site evaluation involves examining whether
a company and a prospective community and site will be compatible in the
long-term.
6. Trade
zones. Companies may want to consider the benefits offered by
free-trade zones, which are closed facilities monitored by customs services
where goods can be brought without the usual customs requirements. The United
States has about 170 free-trade zones and other countries have them as well.
7. Political
risk. Companies considering expanding into other countries must
take political risk into consideration when developing a location strategy.
Since some countries have unstable political environments.
8. Governmental
regulation. Companies also may face government barriers
and heavy restrictions and regulation if they intend to expand into other
countries. Therefore, companies must examine governmental—as well as
cultural—obstacles in other countries when developing location strategies.
9. Environmental
regulation. Companies should consider the various
environmental regulations that might affect their operations in different
locations. Environmental regulation also may have an impact on the relationship
between a company and the community around a prospective location.
10. Incentives.
Incentive negotiation is the process by which a company and a community
negotiate property and any benefits the company will receive, such as tax
breaks. Incentives may place a significant role in a company's selection of a
site.
Depending on the type of business,
companies also may have to examine other aspects of prospective locations and
communities. Based on these considerations, companies are able to choose a site
that will best serve their needs and help them achieve their goals.
COMPANY REQUIREMENTS
The initial part of developing a
location strategy is determining what a company will require of its locations.
These needs then serve as some of the primary criteria a company uses to
evaluate different options. Some of the basic requirements a company must
consider are:
·
Size. A company must
determine what size property or facility it needs.
·
Traffic. If it is in the
service business, a company must obtain statistics on the amount of traffic or
the number of pedestrians that pass by a prospective location each day.
·
Population.
Whether a service or manufacturing operation, a company must examine the
population of prospective locations to ensure that there is a sufficient number
of potential customers (if a service business) or a sufficient number of
skilled or trainable workers. In addition, manufacturers also benefit from
being close to their customers, because proximity to customers reduces shipment
time and increases company responsiveness to customers.
·
Total costs.
Companies must determine the maximum total costs they are willing to pay for a
new location. Total costs include distribution, land, labor, taxes, utilities,
and construction costs. More obscure costs also should be considered, such as
transportation costs to ship materials and supplies, and the loss of customer
responsiveness if moving further away from the customer base.
·
Infrastructure.
Companies must consider what their infrastructure requirements will be,
including what modes of transportation they will need and what kinds of telecommunications
services and equipment they will need.
·
Labour. Companies must
establish their labour criteria and determine what kind of labour pool they
will need, including the desired education and skilled levels.
·
Suppliers.
Companies must consider the kinds of suppliers they will need near their
locations. In addition, having suppliers nearby can help companies reduce their
production costs.
Besides these basic requirements,
companies must take into consideration their unique requirements of prospective
locations. These requirements may correspond to their overall corporate
strategy and corporate goals and to their particular industries.
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