UNIT 3 STORE SITE SELECTION
* TOPICS IN THIS CHAPTER :-
Note: You can also redirect to any topic notes by clicking on any below topic. Thankyou...
3.1 Introduction
3.2 Types of Locations
3.2.1 Isolated Store
3.2.2 Unplanned Business District
3.2.3 Planned Shopping Centre
3.3 The Choice of a General Location
3.4 Location and Site Evaluation
3.5 Decision Process for Site Selection
3.6 Summary of this Chapter
3.7 Very Very Important Questions
3.1 INTRODUCTION:-
- After talking a lot about Customer Buying Behaviour and Customer Retention w.r.t retail in our preceding two units, in this unit you are going to learn about certain site selection of stores.
- For a store a right site ensures that right type of customers walk into the store and hence, the site selection has to be done in proper stages.
- The first stage in site selection is to identify the trading area, then to identify the type of location that is desirable as per company’s retail objectives.
- Thereafter the selection of general location is done, which is followed by evaluation of alternative store sites.
- Thus, it will be clear that the retail team needs to assess the store sites very carefully as the management has to make substantial investment into opening a new retail store.
- Any miscalculated decision may cost the retailer a substantial loss in terms of cash-flow besides the loss of image.
- It is imperative that retail management has to put in its best team for assessing site selection process so as to avoid all the subsequent hassles faced in store operation and management.
3.2 TYPES OF LOCATIONS:-
- Generally one can identify three types of locations as explained by Berman B and Evans R J in their book ‘Retail Management–A strategic Approach’.
- There are isolated store, unplanned business district, and planned shopping centre.
- Each type of location has certain attributes like composition of competing retail stores, availability of parking space, nearness to office areas or residential locations, and other relevant factors.
- Let us look at each of these types for better understanding of their location specific attributes.
3.2.1 Isolated Store:-
- An isolated store is a stand-alone retail outlet, which is either located on a highway or a street.
- It being a stand-alone store naturally it has no competition from adjacent stores selling same products or any other types of products which can share customer traffic.
- The advantages can be listed as follows for such type of stores:
● There is no competition from any type of stores in its close proximity.
● Being the only store in an isolated area it has relatively low rental costs.
● The store has the flexibility in organizing interiors of the store as there is lesser space constraint.
● Isolated stores are good for selling one-stop shopping items like grocery and food items or convenience items. The retailer is able to make the most of the available space by keeping all the items that can go in a single purchase basket.
● The store due to its isolated location is able to attract the attention of road traffic due to higher visibility an account of its roadside location.
● The facilities can be modified to suit the need of the target consumers as well as that of the store due to lower space constraint issues.
● Parking is not a problem, os this was one of the main reasons for putting up the store in an isolated location.
● Cost reductions are possible due to low rentals thereby leading to lower prices.
Disadvantages
- There are also disadvantages which can be listed as follows:
● It is difficult to attract customers in the initial phase due to its location and being unknown to larger customer groups.
● It has the disadvantage of being located in an isolated spot, where customers may not like to travel very often.
● Many customers do not want to settle on their choice in the first instance itself and want to scout for more retail outlets to check on the variety and prices before they decide on their purchase decision.
● The advertising expenses for an isolated store would be high atleast till it becomes well known spot among its target customers.
● Common expenses like common premises lighting, security, facility maintenance, and garbage collection are not shared by other stores in the nearby vicinity as it normally happens for business or high street locations.
● Since the spot is in an isolated location the store has to be constructed from the scratch as no ready possession will be possible on rental basis.
● Generally as a rule unplanned business streets and planned shopping centres are very much popular among consumers; such locations generate a large share of the retail sales.
- Generally large store formats like Wal-Mart supercenters, which sell all kinds of items right from stationery to apparels at the most competitive prices are well suited for isolated locations.
- Similarly in the Indian scenario we have Big Bazaar, Sabka Bazar, Big Apple, Six Ten, 365 days, Reliance Trend, More, Spencer and Hyper-city stores which sell a big range of convenience items along with groceries at competitive prices are well suited for an isolated location store.
- A small specialty store will face lot of difficulty in developing a customer base that is willing to travel to a store that does not keep a large assortment of products nor have a strong image for merchandise range or competitive pricing.
3.2.2 Unplanned Business District:-
- The unplanned business district by its name itself suggest that the stores are located in a particular location just by chance without any plan, because the store thinks that it is the best location for them from business point of view.- For example there may be group of stores which sell ladies apparel only like Biba, Rituwear, Madame, Stelitos, Kins etc. thereby forming an attraction for consumers of ladies apparels who are so much keen to check on varieties.
- As explained by Berman Barry and Evans R Joel, ‘Retail Management – A Strategic Approach’, 10th edn., ch 10 pp 293-297, Pearson Education Inc, New delhi, 2008, there are four types of unplanned business districts viz. central business district, secondary business district, neighbourhood business district, and string.
- A central business district (CBD) is generally a hub of retail stores in a particular location of the city.
- In foreign countries it is usually a downtown location.
- The CBD is that location where there is a good density of office buildings and the stores.
- In Mumbai one can identify such locations as Lower Parel area, Worli and Dadar; all these locations are in central Mumbai area and has a high level of pedestrian and vehicular traffic.
- In Delhi one can find Connaught place is like a CBD area. Lots of CBD are also coming up in Gurgaon & Greater Noida.
- The main area constituting CBD is no more than a square mile, with many cultural and entertainment facilities located in and around it (this is particularly applicable for Dadar and Connaught place).
- The CBD generally has atleast one large departmental store along with specialty and convenience stores.
- There is no pre-defined setting in the opening of stores, which generally have a long history (the store location and ownership may pass from one generation to another), retail trend that exist during a particular time (for example the store may change from selling textile fabrics to ready-mades) and availability of space in the vicinity.
● Easy access to public transport facilities;
● There are variety of stores in different formats and offering different positioning base for the same product category, like high price end to lower price end or highly fashionable to regular collection;
● There is usually good variety and range available;
● Wide range of prices are available within a given product category;
● Even wide range of services are available right from air travel booking to agencies offering tour packages, transport, hotel bookings, insurance and so on;
● CBDs are close to commercial offices and cultural and entertainment facilities;
● There is a high concentration of pedestrian traffic – which is true for central locations like Dadar and Connaught Place. Some of new examples of CBDs are at Greater Noida in a name of New Cannought Place.
- But there are also weaknesses, which need to be kept in mind for a CBD location, which can be enumerated as below:
● There is always inadequate parking facility.
● There is usually traffic congestions on the main roads.
● Travel time is high for those who have to come from suburbs.
● Central cities have become synonymous with low positioned areas and hence, are not much favoured by customers belonging to higher strata of society.
● The condition of buildings located in CBD area are not in good shape due to their existence since old times, thus constraining the overall appearance of the stores located in such buildings. Also roads and other facilities are not of a good standard as compared to newer locations in suburbs.
● Due to the constraints of expansion of sites, the rent in such locations are very high.
● Sometime due to space constraints and area limitations only certain product categories are available in CBD areas thereby creating discontinuity of complete product range.
● Due to space constraints some of the big departmental stores may decide to open bigger stores with much wider collection in a new suburban district.
- The CBDs still remain a major retailing force, inspite of the share of such centres in the overall retail sales going down as compared to that of planned shopping centres.
- The drop is also due to shifting of residential population as well as offices to suburbs – due to better planned shopping facilities as well as commercial and residential facilities made available at better rentals or cost.
- According to one retail location expert “a superior CBD embodies a character, look, flavour, and heritage that are not found in other locations, especially in the surrounding region.
- Why would a person choose a down town as a destination with so many other alternatives available? The answer is a strong sense of the place, a characteristic rarely associated with malls, bigger retailers or suburban commercial areas.”
2. Secondary Business District
- After discussing about CBD in detail in our preceding head, let us discuss SBD in more elaborative manner.
- A secondary business district (SBD) is an unplanned shopping area which are usually located close to major road junctions – where there is an intersection of roads or signals.
- Every major city will have many SBDs which mainly cater to population and residential areas in and around the location.
- Such locations will have a small branch of a big departmental store or a branch of a discount store with many other small retailers located in and around.
- Such SBDs are seen in and around Mumbai and its suburban areas particularly near-by western and central railway stations.
- SBDs do carry goods and services similar to those of CBD areas, but the stores being smaller they carry lower width and depth of merchandise assortment.
- The products sold in SBDs are more of convenience type.
- The advantages of SBDs are:
● Access to public transport; and
● Close to road allowing for quick exit to one’s location;
● Less crowds than CBDs;
● Better service from store due to size of the stores being smaller;
● Located close to residential areas;
- The SBDs major disadvantages are:
- There are no complete offerings.
- If someone wants to buy pharmaceutical products he may not be able to find one among the clutter of apparel stores.
- Due to location at traffic signals and intersection of roads there could be traffic congestions, but not as much as that in CBD areas.
- Some parks difficulties are:
● Not many chain stores in SBD areas.
● But the weaknesses listed above are not as big as those for CBD locations, and hence, the business of these locations is more stable than that of CBDs.
3. Neighborhood Business District
- Again neighborhood business district (NBD) is an unplanned shopping area that serves the convenience and service needs of a single residential area.
- The NBD will comprise several small stores catering to laundry and pressing services, a stationery store, pharmaceutical store, a barber shop, kirana stores, liquor stores, small garment and textile store, small size restaurants and bars, etc.
- There could be super-market store selling grocery, food, and convenience items.
- NBDs are found in every residential colonies and areas situated on the main streets of the residential areas.
- An NBD offers convenient location, store hours that suit the local population, sufficient parking facility, familiar atmosphere.
- The major weaknesses of NBD could be limited assortment of merchandise; only select services possible, prices may not be very competitive due to non-existence of competition as compared to that is available in CBD and SBD areas.
4. String
- A string is also an unplanned shopping area which consists of group of retail stores selling the same product-line.
- These stores will be generally located next to each other along a street or main road.
- A string location has advantages of lower rent, better visibility from the roads/streets, availability of space for expansion of the store, and lower operating expenses.
- The disadvantages are lower product variety, higher advertising costs, extra travel for consumers interested in the concerned products, and have to build the store premises from scratch.
- But there are other common advantages that can be shared by the stores located on the same street like common lighting in the vicinity, security arrangement, general maintenance of the street, and the greatest advantage is drawing more consumers to the location; thus increasing the consumer traffic to individual store.
3.2.3 Planned Shopping Centre:-
- Berman Barry and Evans R Joel had explained in his book about ‘Retail Management A Strategic Approach’, 10th Eedn., Ch 10 pp 298-303, Pearson Education Inc, New Delhi, 2008 that a planned shopping centre consists of a group of architecturally unified commercial establishments on a site that is centrally owned or managed, designed and operated as a unit, based on balanced tenancy, and accompanied by parking facilities.- In India one can identify cities, where in a limited manner the planned shopping centre technique is followed, like New Mumbai (Vashi), Chandigarh and Gandhinagar, where the shopping sites are identified well in advance as per the overall city plan and the stores have to follow certain norms with respect to maintaining certain ambience and standard.
- The location, size and mix of stores are related to the trading area served.
- Spread over a total lettable area of 450,000 square feet, the Promenade will have three floors — the ground and upper ground floor for retail and the first floor entirely dedicated to entertainment.
- DT cinemas – the multiplex with 7 screens, will be the largest cinema complex in Delhi and surrounding areas.
- One hundred and twenty retailers have already signed up for the space.
- The true planned shopping centres work with the idea of balanced tenancy which ensures sufficient number of stores with a suitable mix of product groups that will complement each other by providing completeness to the product offerings in terms of range, quality, and prices.
- To ensure balanced tenancy the management of such a centre specifies the space to be allocated to each type of product group and the number of retail outlets that will represent each product group.
- It may even put limitations on the number of productlines that can be carried by each store, and also specifies the type of firms that can own the stores.
- In a well-managed shopping centre the aim is to run the show in a coordinated and well balanced manner thereby achieving co-operation and growth of its tenants.
- The planned shopping centers have much important strength; some of them are as follows:
● Based on the long range plan the assortment offered by stores is almost complete covering all aspects of the range.
● It serves one stop family shopping experience.
● Supported by a strong suburban population.
● Stores have a very good co-operative attitude and there is sharing of common costs.
● The shopping centre has a unified and distinct image because of its well-co-ordinated look and feel.
● Due to complementary nature of the product range presented by the stores, each store is able to attract good walk-in traffic of consumers.
● There is good provision for parking due to proper planning.
● Access to highways and other main roads is made easy.
● Due to complete assortment of goods being available and other facilities such centres being preferred over city shopping.
● Generally the rents are lower as compared to CBDs.
● Both the open type (shopping area off-limit to vehicles) and the closed type (all stores in a temperature controlled facility, and also off-limit to vehicles) of malls are popular.
- The limitations of planned shopping centres are as follows:
● There are regulations on the space utilization as well as working hours.
● The rents are higher than that of an isolated store location.
● Each store has to follow rules and regulations about the type of products/productlines that can be sold from a store.
● There could be many malls in the same trading area, catering to a similar target audience.
● Due to sameness of every mall in terms of look and facility the consumer may feel boredom with shopping activity.
● Generally such shopping centres are dominated by large anchor stores.
● Some shopping centres/malls’ facilities are aging as they have been in existence for a longer period.
- There are three types of planned shopping centres viz. Regional, Community, and Neighborhood.
- The brief description of each of these planned shopping centres, which are seen in developed countries, is given below for students’ better understanding:
1. Regional Shopping Centre
- It is a large planned shopping facility, which could be open or closed type.
- It caters to people who work or live up to a 30 minute drive away.
- The size of the market it caters to is about 100000+.
- On an average the driving time to the mall/shopping centre is about 20 minutes.
- Normally a regional shopping centre has about one to two huge departmental stores, each with a minimum size of 100000 square feet, besides there are about 100 to more than 150 small retail outlets.
- The new trend is for setting up megamalls, with huge shopping area –almost 1 million square feet of retail space with multiple anchor stores and several hundreds of specialty stores accompanied by food court and entertainment facilities.
- These groups of stores offer a very wide and deep assortment of different product categories that shoppers are always on the lookout.
- The idea is to make the customer carry a full basket of intended as well as unintended purchase of merchandise, as well as any other services required.
- The customer is able to make the visit as one stop family shopping experience.
- Some regional shopping centres have turned into social, cultural, and vocational centres for an entire suburban area.
- These centres have become meeting places for younger lots as well as a place for entertainments and events.
- An average visitor spends about an hour or more at a regional shopping centre.
2. Community Shopping Centre
- These are shopping centres which are moderate sized with a medium sized department store or discount store or a category killer store along with many small sized stores.
- Community shopping centre usually offers moderate assortment of shopping and convenience goods and services to consumers from the nearby residential areas.
- It caters to about 50000 to 100000 people, who live or work within a 10 to 20 minute drive.
- These are better planned shopping centres as compared to neighbourhood shopping centres from long term point of view.
- As in regional shopping centres the balanced tenancy is enforced.
- Usually the promotions are done jointly by all stores in the shopping centre.
- The composition of the stores and their ambience along with the ambience of the shopping centre is duly maintained as per the defined goal.
- There are two noteworthy types of community shopping centres viz.
Power centre and the Lifestyle centre. Power centre is a shopping location with about half a dozen of category killer stores or several complementary stores specializing in one product category; occupying 200000 to 400000 square feet of shopping space and located on a major highway or road intersection.
- A lifestyle centre is usually an open-air shopping site.
- It devotes about more than 150000 to 500000 square feet of retail space to premium and well-known specialty stores selling upscale product-lines and brands.
- The focus of this kind of shopping centre is on lifestyle product categories like apparel, home products, books and music along with restaurants.
3. Neighbourhood Shopping centre
- This is a planned shopping centre with the main anchor being a super market or a drug store.
- The other stores include a laundry, a bakery, a stationery store, a dry cleaner, beauty parlour, barber shop, a liquor store, a hardware store, a restaurant, etc.
- The company currently operates a total of 284 outlets across 21 states and 74 cities in the country.
- The company is promoted by Jawed Habib, a renowned Hair Expert who started the company with a vision to provide quality hair styling and beauty services to the wider populace of the country.
- With his passion and relentless efforts, he has established an effective system which is self sufficient in terms of providing quality services to clients all across.
- It occupies about 30000 to 100000 square feet of shopping area and the focus of such shopping centres is convenience oriented goods and services.
- It caters to 5000 to 50000 people working or living nearby, who are not more than 15 minute drive away.
- Kids who ought to be playing street cricket wearing Bata slippers can be found hanging out at the gaming arcade wearing Nike sneakers.
- There are old people sitting in one corner because they are either too tired to walk or just not amused.
- The fairly rich shop almost every weekend but the other 95% just dress well and show up because they have nowhere else to go and nothing better to do.
- It is usually arranged in a strip and in the initial phase the tenancy is more balanced, which may get disturbed over a period of time as new tenants may not face the initial restrictions.
- In US neighbourhood shopping centres account for more than 60 per cent of the shopping centres.
3.3 THE CHOICE OF A GENERAL LOCATION:-
- In order to finalize a general location, the retailer first has to decide on the locational format of the store planned.
- It must decide whether it wants to go for an isolated store or unplanned district store or planned centre store.
- The final choice is dependent upon the advantages and disadvantages presented by each locational format which are evaluated in the context of retail firm’s long term strategy.
- Once, the locational format is decided then the retail firm must choose a broadly defined site.
- The retail firm will have to decide on two aspects.
- First of all the firm will have to determine the specific kind of isolated store or unplanned district or planned shopping centre.
- For finalizing on an isolated store it must decide whether it want to be on a highway or side street. In case of an unplanned business district the retail firm will have to decide whether it wants to be in CBD or SBD or NBD or in a string.
- A retailer who wants to be in a planned shopping centre will have to choose a regional shopping centre or community shopping centre or neighbourhood shopping centre; further it may have to decide on the derivative forms like megamall or power centre or lifestyle centre.
- Secondly, a retail firm will have to decide on general store placement.
- For an isolated store it means picking a specific highway or side street.
- For an unplanned business district or planned shopping centre, it means picking a specific area or district – for example a downtown area or central area or suburban district.
- So in this step the retail firm is finalizing on the general location for opening a store.
- The factors to be considered in assessing and choosing a general location and a specific site within that location are discussed in detail in the next section, as most of the strategic decisions to be taken are common for these two steps.
3.4 LOCATION AND SITE EVALUATION:-
- A retail firm has to follow some specific processes while evaluating a general location and the specific sites contained within such general location.
- It is natural that different retailers will have different needs for locating their stores; hence, a location which may be rated high on certain attributes may not be rated same by another retail firm.
- For example a lifestyle branded retailer would have different requirement in terms of both the general location and the specific site within such general location as compared to that of a convenience store.
- The lifestyle branded retailer would give more weightage to heavy pedestrian traffic, proximity to major departmental store and other specialty stores; whereas the convenience store would give more weightage to ample parking space, heavy vehicular traffic – so that possibility of customers taking time out to drive in the store’s parking lot is higher, it need not be in the vicinity of other stores.
- Thus, the convenience store has very different locational and site specific needs as compared to a lifestyle branded store.
- Tables 3.1 provides a checklist on attributes that need to be evaluated both for general location and specific site.
- A retailer needs to evaluate every probable location and specific site on all the attributes for arriving at an overall rating for the location as well as for the specific site.
| General Location | Attributes/Criteria | Rating | Weights | Weighted rating |
|---|---|---|---|---|
| Pedestrian traffic | Number of people Type of people | |||
| Vehicular traffic | Number of vehicles Type of vehicles Traffic congestion |
|||
| Parking facilities | Number and quality of parking spots Distance to store of the parking spots Availability of employee parking |
|||
| Transportation | Availability of mass transport Access from major highways Ease of access to delivery trucks |
|||
| Store composition | Number and size of stores competitiveness Affinity Retail balance |
|||
| Specific Site | Visibility Possibility of common promotions Placement in the location Size and shape of the lot Size and shape of the building Condition and age of the lot and building |
|||
| Terms of occupancy | Ownership or leasing term Operation and maintenance costs Sharing of common expenses related to maintenance of the site and security Taxes Zoning restrictions Voluntary regulations |
|||
| Overall Rating | General location Specific site | |||
| The retailer will give rating on each of the attributes listed in the above table, on a scale of 1 to 10; 1 being excellent and 10 being poor. | ||||
- In the above table there is provision for weightages which provide for weighted ratings.
- The advantage of weights is to provide for the importance given by a retailer to certain attributes as compared to another retailer for whom some other attributes may be more important.
- You may take the example of a lifestyle branded store versus the convenience store, as discussed earlier, to check on the result of the weighted ratings on their individual choice of location and specific site.
- The weights help each type of retailer with his specific needs to evaluate the location and site on all the above attributes by giving weights that will match the needs in terms of their importance or priority.
- The total of weights should be 1 or 100% when distributed among all the attributes given in the above table.
- One can also distribute 100% weights among the attributes for location and another 100% weights can be distributed among the attributes for evaluation of specific site.
- Selection of sites by Indian retail firms:
- The diagram shown below provides a flow diagram for site selection by major retail chains like Shoppers-stop and Pantaloon.
- The diagram indicates that the process followed by Indian retail firms is almost similar to the one followed by international retail firms.
3.5 DECISION PROCESS FOR SITE SELECTION:-
- Once the retailer has finalized on the general location and the best available sites in a location, the retailer is ready for the final decision on the best site location.
- You have seen in the above section how the retailer can go about evaluating and assessing the best location and site; but retailers are well advised to use the assistance of a real estate professional in this stage.
- Even if the retailer’s internal team has done all the assessment till this point, the assistance of a real estate professional is still essential.
- Patrick M Dunne et al., ‘Retailing’, 4th edn., ch.7 pp 259, South Western – Thomson Learning Inc. USA, 2002, it is said that the retailer should always attempt for a 100 percent perfect location for its store. “A 100 per cent location is a location where there is no better use for the site than the retail store that is being planned.”
- Though there is no sure answer for finding the 100% location, however, there is a general agreement among experts on the type of factors the retailer should consider in evaluating sites.
- Figure 3.10 shows the important factors to be considered for selection of a site.
1. Nature of Site
- When dealing with a specific site one must necessarily give consideration on the following aspects like:
- It is important that the specific site should be visible easily.
- Particularly site on a major road or near the entrance of a mall will have higher visibility than any other site.
- Higher visibility helps the store in creating immediate invite to the new consumers and also builds faster awareness.
- Right placement of the store in a given location is another important aspect needs to be noted by a retailer.
- For example, a corner location in a shopping area which is at the intersection of two roads or streets is the most visible location both for the pedestrians as well as to vehicular traffic.
- Generally such sites are very costly, not only due to high visibility but such sites also offer more window display area and multiple entrances to customers.
- Many restaurants, cafes and lifestyle brands prefer such locations.
- Convenience stores prefer side of the street location for better visibility and quick access to customers.
- A retailer needs to check on the size and shape of the building, for a departmental store sufficient space is required and preferably a square shaped store as compared to the space and size for a small apparel brand.
- The building in which the store is to be located needs to have proper arrangement for parking, walkways, wash-rooms, etc.
- The condition and aging of the site and the building must also be studied by the retailer.
- An old building will naturally create problem if there are any leakages or redevelopment issues are involved.
- Similarly, for a site if it has not been maintained properly by the earlier tenant will raise the innovation and repair cost for the new tenant.
- The retailer needs to check on the history of ownership of the building in case it is to be located in a building, to ensure that there are no whatsoever hassles after the possession of the site in the concerned building.
- Similarly the store-site must be checked on its history of previous owners or tenants, just to ensure that the place do not have any inherent drawbacks, which are not known from external appearance.
- Retailer need to be careful about the mix of neighbours and the tenancy balance.
2. Traffic Characteristics
- The retailer has to carefully study the characteristic of the traffic flow; both the pedestrian type and the vehicular type.
- If the pedestrian and the vehicular traffic is of the right type then it surely is a good determinant of potential sales.
- For example if a retailer of premium branded apparel is considering two alternative sites.
- One site is in a CBD area, while the other one is located in SBD area with group of specialty stores, close to an exclusive residential area.
- The CBD site will generate more traffic in and around the store, but not of the right type as buyers of premium brand generally prefer to visit exclusive and less crowded locations; the SBD will be able to attract traffic of the right kind because of its closeness to specialty stores and exclusive residential area.
- The retailer needs to assess the availability of parking space, which is the most essential part related to vehicular traffic.
- The availability of parking space tempts the regular passers-by to make a quick or planned visit for completing their purchases.
- As a thumb rule shopping centre estimate that there should be atleast five spaces for every 1000 square feet of selling space in medium sized shopping centres and ten parking spaces for every 1000 square feet of selling space in a large shopping centre.
- Another important factor needs to be considered by a retailer is the ease with which the consumers can reach the store site.
- The availability of public transport facilities also help in easy accessibility.
- Besides, the retailer needs to check on condition of the roads leading to the store site; is it on a one way street; heavy road traffic causing congestions, limiting accessibility to the site; limitation of crossings to the main road causing public to take a long detour.
- It must be remembered that customers try to avoid heavy congested roads and shopping areas and prefer other alternative locations that minimize travel/ driving time and other problems.
3. Type of Neighbours
- It is important for a retail store to give consideration to type of neighbouring retail outlets that surround the retail store.
- If these outlets are of similar types or are compatible with each other then it normally help the retail store in generating good traffic to the store.
- For example, if a kids apparel store is to be opened and there are two alternative sites available.
- In one site the neighbouring outlets belonged to a toy store, Archie’s gift store and ladies routine/regular items store.
- At the other site the neighbours were adult innerwear store, a Gym store, and sports store.
- Naturally the retailer will find the first option best as the type of customers who would walk-in at other stores are compatible for the purchase of kids-wear and vice-a-versa.
- Thus, the overall traffic to the location would increase benefitting all the compatible stores in that location.
- Therefore, it will be seen that a particular street will have group of hardware stores or group of shoe stores or group of electrical hardware, material/plumbing hardware, tiles, and plywood stores each complementing the other stores.
- Clustering of stores selling similar or compatible product lines is an old concept and still holds good for attracting crowd of interested consumers to the store.
- It also benefits the consumers as he has a choice to check on the collection and the prices available before deciding on the purchase.
4. Terms of Purchase or Lease
- The lease terms become an important factor of consideration once all the rest of the factors have been evaluated and finalized.
- The retailer needs to consider following aspects of the lease term, before finalizing on them:
Review the length of the lease term:
- It can be either very long or very short.
- If it is very long then the retailer is forced to continue with the lease of the site and pay the due rentals, even when the site is not generating enough profits or margins for payment of operational expenses.
- And, if the retailer still decides to leave the property then, most probably, the retailer has to lose on the deposit amount or pay certain penalties.
- If the lease is too short then retailer is not able to gain on the advantage of capitalizing on the consumer base it has already created or is forced to pay very high rentals as per the latest trend and on revised terms of business, which may affect its operating cost of the store.
The exclusivity clause:
- Whether the retailer will be the only store that would sell the concerned product line or there will be more stores selling similar product lines.
- Though to some extent, as we discussed in the earlier section, similar stores located in the vicinity or next to each other in a shopping centre does help in generating business; but if the balance is not maintained and the number of stores selling same product lines go beyond certain limit, then it generates cut throat competition which ultimately make the stores selling similar merchandise unprofitable.
The guaranteed traffic rate:
- If the traffic rate falls down then the retailer is given the benefit of appropriate rent reduction.
- This is very useful clause, particularly during recessionary times, as it happened during the year 2008-09, when traffic rate fell down tremendously and forced many retailers to close down their operations in shopping centres/ malls, ultimately forcing the mall management to revise rentals for their key players.
Anchor clause:
- It allows for rental reduction if an anchor store fails to open on the targeted time or when the store opens.
- This is another useful clause for a retail firm as it protects its interest.
- Many a time it is observed that the store start its operation but the anchor store is not started, thereby the store losing on the traffic to the mall, which generally is attracted by the anchor store.
- The store is thus forced to pay rentals inspite of the lower traffic to the mall or shopping centre.
- Lease arrangement are generally made with either the tenant paying a fixed amount of rent per month along with one-time payment of security deposit amount; or the tenant has to pay a fixed percentage of sales revenue generated per month as commission, with a clause guaranteeing minimum rent payment in case the rent payable falls below the minimum guaranteed amount.
- Generally, when a retailer decides on a site location in a shopping centre or mall it has to work on a lease term.
- In the case of stand-alone shop it is possible for the retailer to make outright purchase of the concerned property or the plot and then construct the store premises.
- Normally small stores located in small shopping centres or stores located in an inexpensive location will go for ownership.
- While finalizing on the purchase of property the retailer needs to consider the following aspects:
● Whether to construct a new building or buy an existing one;
● Purchase price and the maintenance cost;
● Zoning restrictions as specified by the municipal corporation or district authorities- on the type of business, open space to be kept around the property, construction rules, etc.
● The age and condition of existing facilities;
● The adaptability of existing facilities – in case the store wants to expand its existing product-lines or change of product lines; and
● The time to erect a new facility.
- Majority of stores in central business area, and regional shopping centre are leased due to high investment for ownership.
- It is observed that leasing minimizes the initial investment, reduces the risk in case the retailer wants to change business or withdraw from retail business, and allows access to prime locations, helps in building immediate traffic to the store, no long term commitment.
- Retailer is able to invest the money in other aspect of retail business or opening of more stores by entering into lease arrangement.
- The retailer who accepts lease terms also have to agree on limitations on operating flexibility, restriction on subletting and selling the business, possible nonrenewal problems, rent increases, and not gaining any advantage from rising real estate values.
5. Expected Profitability
- The last step in the evaluation of site is to develop an expected return on asset for each of the possible sites.
- For doing this analysis the retailer needs to work on three crucial variables: net profit margin; asset turnover; and return on asset for each of the identified sites.
- For working on return on asset the retailer must estimate the three factors: total sales, total assets, and net profit.
- Each of these factors may vary depending on the site location, for example sales estimate for a CBD site will be different than that for a neighbourhood site, similarly the asset required for CBD site will vary from that required for SBD site– also if the terms are on lease basis or ownership.
- Finally net profit estimates will vary too depending on the site location, not only because of varying sales amount but also due to different operating expenses – the salary and wages payable in CBD location will be much higher as compared to that payable in an isolated location or in a neighbourhood location.
- Once, the retailer has assessed these three factors viz. sales turnover, total asset requirement, and net profitability the retailer then can find the return on asset, which is the ultimate goal of any business – to achieve the best return on its investment.
- The formula to be used for finding percentage return on asset is as shown here below:
- Return on Asset = Net Profit ÷ Total Asset
3.6 SUMMARY OF THIS CHAPTER:-
● It is self-explanatory from the unit that location and store site selection plays a vital role in finding out an appropriate location. So choosing to locate the retail business will have a major impact on everything the retail store does.
● The difference between selecting the wrong location and the right site could be the difference between business failure and success.
● Community shopping centre usually offers moderate assortment of shopping and convenience goods and services to consumers from the nearby residential areas.
● It is self-explanatory from the unit that location and store site selection plays a vital role in finding out an appropriate location. So choosing to locate the retail business will have a major impact on everything the retail store does.
● The difference between selecting the wrong location and the right site could be the difference between business failure and success.
● Community shopping centre usually offers moderate assortment of shopping and convenience goods and services to consumers from the nearby residential areas.
3.7 VERY VERY IMPORTANT QUESTIONS:-
1. Discuss various types of locations.
2. Find out general locations on the basis of choice.
3. Identify location and site evaluation.
4. Decide the process for site selection.
5. “Community shopping centre usually offers moderate assortment of shopping and convenience goods and services to consumers from the nearby residential areas.” Explain and Elucidate
6. What do you mean by an isolated store? Is it necessary to have a store at highway or a street?
7. How do you think that Cost reductions are possible due to low rentals thereby leading to lower prices?
8. Explain CBD considered as a location where there is a good density of office buildings.
9. What measure one can take to put CBDs close to commercial offices and cultural and entertainment facilities?
10. Elucidate with the help of suitable example that how CBDs still remains a major retailing force?
11. “Probably with the success of an isolated store, many others want to open stores selling similar product lines to cash in on the shoppers flow into the area.” Explain
12. How do you think that A planned shopping centre consists of a group of architecturally unified commercial establishments?
