Location Strategy:

Site Selection

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Questions

■ What types of locations are available to retailers?

■ What are the relative advantages and disadvantages of each location type?

■ What criteria are used to evaluate the attractiveness of a specific site?

■ What are the different types and terms of a retail lease?

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Steps in the Location Planning Process

Evaluate Alternative Trading Areas

Determine the Type of Location Desired

Select the Specific Site within the Desired Location

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Determining the Type of Location Desired

■ Central Business District

■ Shopping Centers Neighborhood / Community

Shopping Centers Power Centers Enclosed Malls Lifestyle Centers

■ Freestanding Site

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Tradeoff Between Location Types

Rent

Traffic

There are relative advantages and disadvantages to consider with each location.

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Types of Locations

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Central Business District (CBD)

The traditional downtown area of a city or town

■ Draws people into areas during business hours■ Pedestrian traffic■ Hub of public transportation■ Residents

■ Potential urban decay■ Higher security costs■ Parking is poor■ Evenings and weekends are slow

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Spike Mafford/Getty Images

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Freestanding Site

■ Location for individual store unconnected to other retailer

■ Advantages: Convenience High traffic and visibility Separation from competition Fewer restrictions

■ Disadvantages: Lack of synergy with other

stores Little pedestrian traffic Can have higher occupancy costs

The McGraw-Hill Companies, Inc./Andrew Resek, photographer

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Shopping Centers

A group of retail and other commercial establishments that are planned, developed, owned, and managedas a single property..

Advantages:•Located where the people are•Synergy with other stores•Shared operating costs

Disadvantages:•High rent•Limited flexibility•Competition intense The McGraw-Hill Companies, Inc./Andrew Resek, photographer

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Types of Shopping Centers

■ Neighborhood and Community Centers (Strip Centers)

■ Power Centers■ Enclosed Malls■ Lifestyle Centers

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Neighborhood and Community Centers

Attached row of stores

Managed as a unit

Onsite parking

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Usually anchored by a supermarket or discountStore.

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Power Centers

Shopping centers that consist primarily of collections of big-box retail stores such as discount stores (Target), off-price stores (Marshall’s), warehouse clubs (Costco), and category specialists (Lowe’s, Best Buy, Dick’s)

■ Open air set up■ Limited small specialty stores■ Many located near enclosed malls

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Shopping Malls

■ Enclosed climate controlled, shopping centers with retail stores on both sides of an enclosed walkway.

■ Parking provided around

perimeter. ■ Anchored by major

department stores■ Have seen decline in

popularity in recent

years. Why? The South China Mall in Dongguan, China

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Challenge to Malls

■ Time pressured society makes it impractical to wander malls■ Fashion apparel sold in malls experiencing limited growth■ Malls are getting old and rundown – unappealing to shop■ Strategies?

Make shopping more enjoyable (e.g., sofas, children’s playing areas) Great food destination (fast food and full-service restaurants) Tailor make its offering to cater to changing demographics (e.g.,

repositioning older shopping centers for Hispanic markets) Mall renovation and redevelopment

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Lifestyle Centers

■ Usually located in affluent residential neighborhoods

■ Includes upscale chain specialty stores

■ Open-air configuration

■ Design ambience and amenities

■ Designed to resemble the main streets in small town

■ Restaurants and often a cinema or other entertainment

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Stores and Restaurants at Lifestyle Centers

Starbucks

Panera BreadBed Bath & Beyond

Ann Taylor

Victoria’s Secret

Eddie Bauer

Coldwater Creek

Banana RepublicThe Gap

Restoration Hardware

Williams-Sonoma

Pottery Barn

Barnes & Noble/Borders

Dick’s Sporting Goods

AeropostaleHallmark

Johnny Rockets

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Selecting a Specific Site: Criteria

Accessibility

The degree of ease with which a customer may get into and out of the site

Visibility

Store sites ability to be seen by pedestrian and vehicular traffic

Store Composition

Evaluate the number and size of stores in the area, as well as their affinity

Parking facilities

Size and shape of the site

Age and condition of the site

Occupancy costs and terms of the lease

Maintenance costs

Zoning compatibility

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Traffic Flow and Accessibility

When traffic is greater, more customers shop

Good for convenience retailers

Not necessary for destination retailers

Too much can impede access to store

Accessibility to store is as important as traffic flow

PhotoLink/Getty Images

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Selecting a Specific Site:

Additional Considerations for Shopping Centers

• What is the trading area of the shopping center?

• Is the type of center appropriate for the store?

• What is the occupancy rate?

• Is the site adjacent to the anchor tenants?

• Will adjacent stores complement or compete with your store?

• What are the restrictions on the retailer’s strategy?

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Adjacent Tenants

■ Complementary (also competing) adjacent retailers build traffic

■ What other retailers would Save-a-Lot want to be located near?

Big Lot, Family Dollar, or even Wal-Mart All target price-sensitive consumers

■ In an enclosed mall, what retailers would Abercrombie & Fitch want to be located near?

American Eagle Outfitter, Ann Taylor, Body Shop, Electronic Boutique?

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Types of Leases: Percentage Lease

Percentage leases – lease based on a % of sales.

Retailers also typically pay a maintenance fee based on a percentage of their square footage of leased space.

Most malls use some form of percentage lease.

May have a maximum or minimum threshold

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Types of Leases: Fixed Rate Leases

Fixed Rate Leases - used by community and neighborhood centers.

-Retailer pays a fixed amount per month over the life of the lease.

-Not as popular as percentage leases

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Terms of the Lease

■ Prohibited Use Clause

Limits the landlord from leasing to certain tenants.

Some tenants take up parking spaces and don’t bring in shoppers: bowling alley, skating rink, meeting hall, dentist, or real estate office

Some tenants could harm the shopping center’s wholesome image: bars, pool halls, game parlors, off-track betting establishments, massage parlors and pornography retailers

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■ Exclusive Use Clause

Prohibits the landlord from leasing to retailers selling competing merchandise

Specify no outparcels Specify if certain retailer leaves center, they can terminate lease

■ Escape Clause

Allows the retailer to terminate its lease if sales don’treach a certain level after a specified number of years, or if a specific co-tenant in the center terminates its lease

Terms of the Lease