Transcript Chapter 9
Trading-Area
Analysis
RETAIL
MANAGEMENT:
A STRATEGIC
APPROACH
11th Edition
BERMAN
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EVANS
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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 how 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
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Location, Location, Location
Criteria to consider include
population size and traits
competition
transportation access
parking availability
nature of nearby stores
property costs
length of agreement
legal restrictions
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Figure 9-1: Location and Nine West
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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
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Trading-Area Analysis
A trading-area is a geographic
area containing the customers
of a particular firm or group
of firms for specific goods or
services.
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Benefits of Trading-Area Analysis
Discovery of consumer Assessment of effects of
demographics and
socioeconomic
characteristics
Opportunity to
determine focus of
promotional activities
Opportunity to view
media coverage
patterns
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)
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Figure 9-2: The Trading-Areas of Current and
Proposed Outlets
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GIS Software
Geographic Information Systems
Digitized mapping with key location-specific
data used to graphically depict trading-area
characteristics such as
population demographics
data on customer purchases
listings of current, proposed, and competitor
locations
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Figure 9-3(A): GIS Software in Action
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Figure 9-3(B): GIS Software in Action
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Figure 9-3(C): GIS Software in Action
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Figure 9-3(D): GIS Software in Action
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Figure 9-4: The Segments of a Trading-Area
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Figure 9-5: Delineating Trading-Area Segments
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The Size and Shape of Trading-Areas
Primary trading-area
50-80% of a store’s customers
Secondary trading-area
15-25% of a store’s customers
Fringe trading-area
all remaining customers
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Destination Versus Parasite Stores
Destination stores
Parasite stores do not
have a better
assortment,
promotion, and
image.
They generate
trading-areas much
larger than
competitors.
Dunkin’ Donuts: “It’s
worth the trip!”
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.
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Trading Areas and Store Types
Largest
Department stores
Supermarkets
TRADING
AREAS
Apparel stores
Gift stores
Smallest
Convenience stores
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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:
Trend analysis
Consumer surveys
Computerized trading-area analysis models
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Computerized Trading-Area Analysis Models
Analog Model
Regression Model
Gravity Model
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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 trading-area of
each can be determined.
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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.
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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.
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Table 9-1a: 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
Total disposable
income
Per-capita disposable
income
Occupation
distribution
Trends
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Table 9-1b: Chief Factors to Consider in Evaluating
Retail Trading-Areas
Availability of Labor
Management
Management trainees
Clerical
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Table 9-1c: Chief Factors to Consider in Evaluating
Retail Trading-Areas
Closeness to Sources of Supply
Delivery costs
Number of wholesalers
Timeliness
Availability of product
Number of
lines
Reliability of product
lines
manufacturers
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Table 9-1d: Chief Factors to Consider in Evaluating
Retail Trading-Areas
Economic Base
Dominant industry
Freedom from
Extent of
economic and
seasonal fluctuations
Availability of credit
and financial facilities
diversification
Growth projections
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Table 9-1e: Chief Factors to Consider in Evaluating
Retail Trading-Areas
Competitive Situation
Number and size of
Short- and long-run
existing competition
Evaluation of
competitor strengths
and weaknesses
outlook
Level of saturation
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Table 9-1f: Chief Factors to Consider in Evaluating
Retail Trading-Areas
Availability of Store Locations
Number and type of
Owning versus leasing
store locations
Access to
transportation
opportunities
Zoning restrictions
Costs
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Table 9-1g: Chief Factors to Consider in Evaluating
Retail Trading-Areas
Regulations
Taxes
Minimum wages
Licensing
Zoning
Operations
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Elements in Trading-Area Selection
Population
Characteristics
Economic Base
Characteristics
Nature and Saturation
of Competition
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Figure 9-9: The Census Tracts of
Long Beach, NY
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Table 9-3: Selected Population Statistics for
Trading Areas A and B
Characteristics
Area A
Area B
13,732
15,499
Population change, 1990-2000
+8.2
+2.5
College graduates, 25 +, 2000 (%)
41.4
39.2
$61,236
$61,242
45.3
45.0
Total population, 2000
Median household income, 2000
Managerial and professional
occupations (%), 2000
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