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Trading-Area

Analysis RETAILMANAGEMENT:A ST RAT EGIC

APPROACH 11th Edition

BERM N EV NS

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Chapter ObjectivesTo demonstrate the importance of store location for aretailer and to outline the process of choosing a store

locationTo discuss the concept of a trading-area and its relatedcomponentsTo show how trading-areas may be delineated for

existing and new storesTo examine three major factors: populationcharacteristics, economic base characteristics, andcompetition/level of saturation

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Location, Location, LocationCriteria to consider include

population size and traits

competitiontransportation accessparking availabilitynature of nearby storesproperty costslength of agreementlegal 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 3: Select the location type

Step 2: Determine whether to locate as anisolated store or in a planned shopping center

Step 4: Analyze alternate sites contained in thespecific retail location type

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Trading-Area Analysis

A trading-area is a geographicarea containing the customersof a particular firm or groupof firms for specific goods or

services.

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Benefits of Trading-Area Analysis

Discovery of consumerdemographics and

socioeconomiccharacteristicsOpportunity todetermine focus ofpromotional activitiesOpportunity to viewmedia coveragepatterns

Assessment of effects oftrading area overlap

Ascertain whether chainscompetitors will opennearbyDiscovery of ideal

number of outlets,geographic weaknessesReview of other issues(e.g. transportation)

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Figure 9-2: The Trading-Areas of Current andProposed Outlets

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GIS Software

Geographic Information SystemsDigitized mapping with key location-specific

data used to graphically depict trading-areacharacteristics such as

population demographicsdata on customer purchases

listings of current, proposed, and competitorlocations

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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 stores customersSecondary trading-area15-25% of a stores customers

Fringe trading-area all remaining customers

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Destination Versus Parasite Stores

Destination stores have a better

assortment,promotion, andimage.They generatetrading-areas muchlarger thancompetitors.Dunkin Donuts: Its worth the trip!

Parasite stores do notcreate their own traffic

and have no realtrading-area of theirown.These stores depend onpeople who are drawnto area for otherreasons.

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Trading Areas and Store Types

Largest

TRADINGAREAS

Smallest

Department stores

Supermarkets

Apparel stores

Gift stores

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 thancurrent patronage and traffic patterns:Trend analysisConsumer 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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Reillys Law

Reillys law of retail gravitationatraditional means of trading-area

delineationestablishes a point ofindifference between two cities or

communities so that the trading-area ofeach can be determined.

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Limitations of Reillys Law

Distance is only measured by majorthoroughfares; some people will travel shorterdistances along cross streets.Travel time does not reflect distance traveled.Many people are more concerned with timetraveled than with distance.

Actual distance may not correspond withperceptions of distance.

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Huffs Law

Huffs law of shopper attraction

delineates trading-areas on the basis ofproduct assortment at various shoppinglocations, travel times from the

shoppers home to alternative locations,

and the sensitivity of the kind ofshopping to travel time.

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Table 9-1a: Chief Factors to Consider in Evaluating

Retail Trading-Areas

Total size and density Age distribution Average educationallevelPercentage ofresidents owninghomes

Total disposableincomePer-capita disposableincome

OccupationdistributionTrends

Population Size and Characteristics

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Table 9-1b: Chief Factors to Consider in Evaluating

Retail Trading-Areas

ManagementManagement traineesClerical

Availability of Labor

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Table 9-1c: Chief Factors to Consider in Evaluating

Retail Trading-Areas

Delivery costsTimelinessNumber ofmanufacturers

Number of wholesalers Availability of productlinesReliability of product

lines

Closeness to Sources of Supply

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Table 9-1d: Chief Factors to Consider in Evaluating

Retail Trading-Areas

Dominant industryExtent ofdiversificationGrowth projections

Freedom fromeconomic andseasonal fluctuations Availability of creditand financial facilities

Economic Base

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Table 9-1e: Chief Factors to Consider in Evaluating

Retail Trading-Areas

Number and size ofexisting competitionEvaluation ofcompetitor strengthsand weaknesses

Short- and long-runoutlookLevel of saturation

Competit ive Situation

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Table 9-1f: Chief Factors to Consider in Evaluating

Retail Trading-Areas

Number and type ofstore locations Access totransportation

Owning versus leasingopportunitiesZoning restrictionsCosts

Availability of Store Locations

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Table 9-1g: Chief Factors to Consider in Evaluating

Retail Trading-Areas

TaxesLicensingOperations

Minimum wagesZoning

Regulations

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Elements in Trading-Area Selection

PopulationCharacteristics

Economic BaseCharacteristics

Nature and Saturationof 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 forTrading Areas A and B

Characteristics Area A Area B

Total population, 2000 13,732 15,499

Population change, 1990-2000 +8.2 +2.5

College graduates, 25 +, 2000 (%) 41.4 39.2

Median household income, 2000 $61,236 $61,242

Managerial and professionaloccupations (%), 2000 45.3 45.0

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