Retail Management Unit 4

Unit 4 Retail Location Selection

Structure:
4.1 Introduction
Objectives
4.2 Importance of retail locations
4.3 Factors determining the location decision
4.4 Types of retail locations
4.5 Steps involved in choosing a retail location
4.6 Measurement of success of location
4.7 Summary
4.8 Glossary
4.9 Terminal questions
4.10 Answers

4.1 Introduction
In the previous unit, you have learnt about retail market segmentation and
retail strategy. In this unit, you will learn about another important concept in
retail management – retail location selection.
Retail location selection is an important strategic decision a retailer has to
make. It is easy to change merchandise mix, to alter prices and to improve
communication with the consumers once the store comes into existence.
But it is very difficult to change the location once the store is already
established. Moving from one location to another may result in loss of
customers and employees. Moreover, the new location may not always
have the advantages of the earlier location. The significance of this decision
can be gauged from the fact that location is very often an integral element of
the retail strategy.
Despite the growth of non-store retailing, a rapidly changing retail
environment, and the consumer has made the location of the store even
more significant. The issue becomes even more complex when a retailer
operates multiple formats, catering to a diverse section of target customers.
In this unit, you will learn about the importance of store location, the types of
retail location, factors influencing location decision and steps in choosing a
retail location.

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Objectives:
After completing this unit, you should be able to:
 explain the importance of retail locations
 describe the various types of retail locations
 identify various factors determining the location decision
 explain various steps involved in choosing a retail location.

4.2 Importance of retail locations

Retail location selection is a very important decision of a retailer. The
following points illustrate the significance of retail location:
1) It involves huge capital investment.
2) When chosen, a retailer must stay on the site for many years because it
is expensive to change.
3) A location is usually one of the most important elements customers
consider while selecting a store.
4) The site may be in a shopping centre. In such a case, the retailer can
be sure that it will have a suitable mix of neighbours, sufficient parking
places, fine traffic and other customer services.
5) It affects the volume of business and profits.
6) It affects transportation costs and human resources cost.
The term ‘location’ and ‘site’ are often used interchangeably but there is a
distinction between the two. Location is a broader term, which denotes the
store and its trading area from where the majority of its customers originate,
while a site generally refers to the specific building or part of the building
where a store is located.
Location and site decisions for a retail store are important to determine the
revenue. The characteristics of location and site should be in line with the
operations and customer service characteristics. They should interact in a
positive and synergetic way. For example, a designer men’s store located in
an upmarket shopping centre or a mall near a posh residential location,
housed in an attractive building with adequate parking facilities, offering a
wide selection, and providing excellent ambience and customer service, can
be said to have tied its entire marketing mix in a synergetic manner.
Because of this, there is a high probability of making huge profits. Hence, it
is important that retailers understand the location decision in the context of
the store’s operations and marketing strategy.

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4.3 Factors determining the location decision

There are several general factors that influence the selection of the retail
location. They are:
Type of goods: The type of goods to be sold is a major factor which helps
while considering the location decision. For instance, convenience goods
require easy access of shops, allowing the customer to make a quick
purchase. A mall would not be a good location for convenience goods.
Population: The larger the population of the trading area, better it is for a
retail store. High population in the trading area increases the retail potential.
Cost: This is one of the most important factors for determining the location
decision. The cost of land, rental value and other developmental costs are
important for any retailer to start a store. For instance, retailers would prefer
a location in the sub-urban region than inside a city like Bangalore since the
land value and other costs are high inside the city.
Competition: The retailer considers the number, size and quality of
competition before selecting a location. If many retailers of the same
category exist in the area selected, then the chances of succeeding is low.
Customer attraction power: Major shopping centres like Chandni Chowk
in Delhi and Commercial Street in Bangalore attract customers from far off.
Thus while selecting the location retailers consider the customer
attractiveness of that area.
Availability of access routes: Retailers also consider the availability of
easy access routes. They prefer a location with less traffic jams and
congestion. There seems to be a contradiction that while retailers prefer
highly populated area for starting a store they also look for areas with less
traffic jams.
Communication: This includes transport facilities as well as information
infrastructure. Transport links are particularly important if the business
delivers products, sells directly using a sales force or is dependent on import
and export.
Labour: When a start-up needs to hire employees, then access to a reliable
group of staff with relevant skills is important. Thus availability of skilled
labour is another important factor when considering retail location.

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Suppliers: The business that is mainly dependent on supplies of a specific

raw material prefers to be located near the source of supply or supplier so
that costs are lower. Hence this factor tends to be important when selecting
a retail location.
Demographics: Demography refers to the study of population
characteristics. The various demographic variables that retailers have
access to, are consumer’s age, gender, income, education, family
background and population etc,. This study, thus, provide retailers with
information that help them locate and define the required customer base.
Demand: The demand for a retailer’s goods and services has a significant
impact on the retailer’s store location. Demand is a function of the
population and the purchasing power of the consumers living in a particular
location, which the retailer is targeting. If there is less or no demand, in a
particular location, for the products which retailer wants to sell then there will
be an adverse effect on the retailer’s business. Thus ‘demand’ is an
important factor while considering retail location.
Infrastructure: Different types of retailers require different types of
channels to deliver goods and services to customers. The distribution of
goods is highly dependent on existing infrastructure such as highways,
roads, railways and airways.
Self Assessment Questions
1. Retail location affects transportation costs and human resources cost.
(True/False)
2. The retailer considers the number, size and quality of competition
before selecting a location. (True/False)
3. Type of goods to be sold is a major factor which helps while considering
the location decision. (True/False)

4.4 Types of retail locations

Commercial retail locations are available in many different types. Like most
communities, there are probably older shopping areas, new bustling retail
locations and some tucked away shops. Retailers have many store location
factors to consider while selecting a place for their business. Here are a few
common types of retail locations.

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Mall space: From small shop to large anchor stores, a mall has many
retailers competing with each other under one roof. These are generally 3 to
5 anchor stores, or large chain stores, and then dozens of smaller retail
shops. Typically the rent in a mall location is much higher than other retail
locations. This is due to the high amount of customer traffic a mall attracts.
Before selecting this type of store location, one must be sure the shopper
demographic matches the description of the customers. Mall retailers will
have to make some sacrifices in independence and adhere to a set of rules
supplied by the mall management.
Shopping centre: A shopping mall, shopping centre, shopping arcade,
shopping precinct or simply mall is one or more buildings forming a complex
of shops representing merchandisers, with interconnecting walkways
enabling visitors to easily walk from unit to unit, along with a parking area –
a modern, indoor version of the traditional marketplace. A community
probably has many shopping centres in various sizes. Some shopping
centres may have as few as 3 units or as many as 20 stores. The types of
retailers, and the goods or services they offer, in the strip mall will also vary.
Smaller shopping centres and strip malls may have a limited parking area
for the customers.
Downtown area: Like the mall, this type of store location may be another
premium type of choice. However, there may be more freedom and fewer
rules for the business owner. Many communities are hard at work to
revitalize their downtown areas and retailers can greatly benefit from this
effort. However, the lack of parking is generally a big issue for downtown
retailers.
Office building: The business park or office building may be another option
for a retailer, especially when they cater to other businesses. Tenants share
maintenance costs and the image of the building is usually upscale and
professional.
Home-based: More and more retail businesses are getting a start at home.
Some may eventually move to a commercial store location, while many
remain in the business owner's spare room. This type of location is an
inexpensive option, but growth may be limited and selective. It is a harder
business because it is difficult to separate business and personal life in this

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type of setup and the retailer may run into domestic problems if there isn't a
different address and/or phone number for the business.
Various options are available to the retailer for choosing the location of his
store. The choice of the location of the store again depends on the target
audience and the kind of merchandise to be sold. For example, the location
of a convenience store would not be suitable or that of an expensive
jewellery/fashion boutique. Typically store location may be classified as:
The isolated store or a freestanding location: A freestanding or isolated
store location is a store that is located on the major traffic artery, without any
other competitive retailers nearby. The biggest advantage of such a setup is
that there is no competition around and the business can be monopolised.
Due to this isolation, rents are usually low and facilities like ample parking is
available. When taking a decision to locate a store as an isolated store, a
retailer needs to bear the high advertising costs as the retailer need to draw
out customers’ attention to visit the location. Gas stations, convenience
stores, hotels and fast food restaurants on highways, many a times operate
as freestanding locations.
This type of retail location is usually located in any stand-alone building. It
can be tucked away in a neighbourhood location or right off a busy highway.
Although it depends on the landlord, there are generally no restrictions on
how a retailer should operate his business. It usually has ample parking
space and the cost per square foot is reasonable. The price for all that
freedom may be traffic. Unlike the attached retail locations where customers
may walk in because they were shopping nearby, the retailer of a free
standing location has to work at marketing to get the customer inside.
Part of a business district and part of a shopping centre: Retail stores
can also be located as a part of a business district. A business district is a
place of commerce in the city, which developed as a historical centre of
trade and commerce in the city or town and most probably, would have no
pre-set format or structure. A business district can be classified as a central,
secondary or a neighbourhood business district. A shopping centre has
been defined as ‘a group of retail and other commercial establishments that
is planned, developed, owned and managed as a single property’.

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Self Assessment Questions

4. Typically the rent in a mall location is lesser than other retail locations
(True/False)
5. A shopping centre or shopping arcade is one or more buildings forming
a complex of shops representing merchandisers, with interconnecting
walkways enabling visitors to easily walk from unit to unit. (True/False)
6. A ___________ is a retail location that is situated on the major traffic
artery, without any other competitive retailers nearby.

4.5 Steps involved in choosing a retail location

Selection of the store site can be a non-systematic process, which is based
on experience or environmental observation or following on the competitor’s
footsteps (or near competitors). On the other hand, it may be a systematic
process, which would be based on certain parameters and steps to be
followed. After identifying the region, the following steps have to be followed:
1. Identify the market in which to locate the store.
2. Evaluate the demand and supply within that market i.e. determine the
market potential or the market size and estimate the number of shops
that would be required to serve the market.
3. Identify the most attractive sites and Select the best site available.
Step 1: Market identification
The first step in arriving at a decision on retail location is to identify the
markets attractive and suitable to a retailer. This is as important as the
retailer needs to understand the market as well, especially in a country like
India, where every region has its own peculiarities, specifics and needs.
Similarly this is also important in case of an international expansion if the
business is focused on international trading.
Step 2: Determining the market potential
While determining the market potential, the retailer needs to take various
elements into consideration. Understanding the features of the population of
a country, region, or location is integral to developing retail marketing
strategy. Data on population and related statistics can be obtained from the
Census reports. After acquiring an idea of the size of the population, it is
essential to know the break-up of rural and urban population as growth of
urbanisation is again essential for the growth of retail. The retailer also

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needs to understand the level of literacy and the level of education in the
population. All the above data and information helps in knowing the market
potential for the retailer.
a) Characteristics of households in the area
The retailer needs to have a clear understanding of the average household
income level and the distribution of this income in the location. This is very
essential as the level of income largely determines the kind of facilities and
investment required etc. Also, understanding of the average age profile of
the population in the area is necessary as it helps in decision making. For
example, a neighbourhood which has a large number of young households,
may be more oriented towards fast food and casual clothing. An
understanding of the employment levels and the type of employment
indicates the kind of preferences that the population may have for certain
products or services.
b) Competition and compatibility
In order to determine the market potential, it is necessary to check the
compatibility of the retail store with the neighbouring retail outlets in an area.
For example, a good location for a gift shop would be near a department
store or a theatre or restaurant, as such a location would allow potential
customers to spend time looking at the gift shop’s display windows. On the
other hand, locating a high fashion boutique next to a bakery or a hardware
store may not be a very good idea. Therefore, it is necessary to consider the
level of compatibility and then carryout an analysis of the competition in the
proposed area. It is also necessary to try and estimate their strengths and
weaknesses, to understand the square foot area of the various stores in the
area and the kind of returns that they are able to obtain per employee per
square foot.
c) Trade area analysis
An integral part of determining the market potential is the analysis of the
trade area. A trade area is the geographical area that generates the majority
of the customers for the store. Knowing the boundaries of the trade area
helps retailers estimate the number of potential customers that may
patronage the store. Also, knowing the trade area allows for demographic
and lifestyle information to be gathered from a variety of public and private
sources. This information provides insight into the people in the trade area

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and eventually allows consumer demand for products and services to be

calculated.
Trading areas are dependent on distance and do not always have to be
concentric in nature. Different business types will have different trade areas.
For instance, for certain products, people will travel from greater distances
to purchase them. For some other products, people will prefer to purchase
from a convenient place.
A trade area typically contains three parts: primary, secondary and tertiary.
The primary trading area covers between 50 to 80% of the store’s
customers. The secondary trading area contains additional 10 to 15% of the
store’s customers. Finally, the tertiary trade area covers the balance
customers. These three trading areas can be determined by studying the
frequency of purchases from a region and the average purchase amount.
Step 3: Identify the alternate attractive sites and select the best site
After determining the market potential and taking the decision on the
location of the store, a retailer has to select the site to locate the store.
There are various factors which affect this decision. The prominent among
them are:
 Traffic.
 Accessibility to the market.
 Total number of stores that exist in that area.
 Amenities available.
 To buy or to lease.
 Product mix offered.

4.6 Measurement of successful retail location

Retailers are of course mindful of the need to manage the productivity and
efficiency of their businesses. However, the larger publicly-quoted retailers
tend to avoid aggregate economic approaches to the measurement of
productivity, in favour of firm-level financial or operating measures and
benchmarks that are meaningful to investors and shareholders – and which
are more amenable to comparison and control. Whilst smaller and unquoted
retailers have fewer stakeholders to convince, they similarly rely upon a
relatively common set of operating and performance ratios.

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Retail key success indicators

A performance indicator or key performance indicator (KPI) is an
industry jargon for a type of performance measurement. KPIs are commonly
used by an organisation to evaluate its success or the success of a
particular activity in which it is engaged. Sometimes success is defined in
terms of making progress toward strategic goals, but often, success is
simply the achievement of some level of operational goal.
A success of retail location can be measured with the following parameters.
1. New customers acquired.
2. Status of existing customers.
3. Customer attrition.
4. Turnover (i.e., revenue) generated by segments of the customer
population.
5. Outstanding balances held by segments of customers and terms of
payment.
6. Collection of bad debts within customer relationships.
7. Profitability of customers by demographic segments and segmentation
of customers by profitability.
Self Assessment Questions
7. The first step in arriving at a decision on retail location is ___________.
8. In order to determine the market potential, it is necessary to check the
compatibility of the retail store with the neighbouring retail outlets in an
area. (True/False)
9. Customer attrition is one of the ways to measure the success of retail
location. (True/False)

4.7 Summary
Let us now summarise the key learning of this unit:
 The significance of this decision can be gauged from the fact that
location is very often an integral element of the retail strategy.
 Retailers have to be careful while choosing store location because of
two reasons. First, it is an important element when customer chooses
the store. Second, location is important for retailers to exploit
development survivable competition advantage.

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 The selection of the store site can be a non-systematic process, which is

based on gut feeling or environmental observation or an imitation of
competitors (or near competitors) On the other hand, it may be a
systematic process, which would be based on certain parameters and
steps to be followed.
 There are several general factors that influence the selection of the retail
location. They include type of goods, population, cost, and competition,
availability of access routes, communication, labour, demographics,
demand and availability of suppliers.

4.8 Glossary
Downtown area: The lower part or the business centre of a city or town.
Isolated store: Isolated store location is a store that is located on the major
traffic artery, without any other competitive retailers nearby.
Mall space: From small shop to large anchor stores, a mall has many
retailers competing with each other under one roof.

4.9 Terminal Questions

1. Explain the importance of retail locations.
2. Explain the various types of retail locations and their importance.
3. Identify various factors determining the location decision.
4. Explain various steps involved in choosing a retail location.
5. List the various performance measures of the success of retail location.

4.10 Answers
Self Assessment Questions
1. True.
2. True.
3. True.
4. False.
5. True.
6. Freestanding or isolated store location.
7. To identify the markets attractive and suitable to a retailer.
8. True.
9. True.

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Terminal Questions
1. Refer section 4.2
2. Refer section 4.4
3. Refer section 4.3
4. Refer section 4.5
5. Refer section 4.6

References:
 Berman, B., & Evans, J. R. (n.d.). Retailing Management. Pearson
Education.
 Levy, M., & Weitz, B. A. (n.d.). Retailing Management. Tata McGraw Hill.
 Pradhan, S. (n.d.). Retailing Management - Text and Cases. Tata
McGraw Hil.

E-References:
 www.economywatch.com
 www.emarketing.net.cn

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