Retailing MKTG 3346

Retail Location and Site Retail Location and Site Selection Selection
Professor Edward Fox
Cox School of Business/SMU

Retail Site Selection When Are these Decisions Made?

Openings Expansions Closings

What are the effects of proposed changes in retail sites on the revenues of new and existing stores?

Retail Site Selection Why Does It Matter?

Access to consumers
Number Characteristics Growth

Locations of other stores

Cannibalization own stores Agglomeration Competition Complementarity According to Wal-Marts Real Estate group, the difference between good and bad locations exceed $25 million in gross profit

Retail Site Selection How Is It Done?

Select: Geographic market Site within the geographic market If an opening or expansion, the format/size of the store to be opened

Retail Site Selection Agglomeration

Agglomeration captures the countervailing effects of complementarity and competition among retailers Intra-type - Stores of the same type locating near one another
Facilitates consumer search Examples: motor miles and restaurant rows

Inter-type - Stores of different types locating near one another

Facilitates multi-purpose shopping, virtual one-stopshopping, and offers a wider variety of goods to choose from Examples: shopping centers and shopping malls

Recognizes that consumers may use multiple stores to meet their needs - shopping strategically!!

Retail Site Selection Agglomeration

Trip chaining Make unrelated purchases on the same trip Price search Search until you find an attractive price Cherry picking Visit multiple stores for their bargain prices

Retail Agglomeration Trip Chains

Trip chains reflect the routing problem faced by shoppers Consumers minimize shopping costs by reducing travel, subject to fulfilling diverse product/service needs Price search Our research incorporates price uncertainty, allowing shoppers to terminate or continue a shopping trip (unplanned) Data limitations require that we: Consider visits only to selected store formats Assume that shopping trips begin from the consumers home

Retail Site Selection Agglomeration

How does retail location affect multi-store shopping? (research with Steve Postrel and Amanda McLaughlin)
RETAIL LOCATION RETAIL LOCATION

Relative to customers Relative to customers

Relative to other stores Relative to other stores

Retail Retail Competition Competition

Destination Destination Effect Effect

Specifically, how are retailer revenues affected by nearby supermarkets, drug stores, mass merchandisers and supercenters, dollar stores and warehouse clubs?

Retail Site Selection Where Do Consumers Work?

Another consideration in retail site selection is where consumers work Do shopping trips begin from home? From work?

Retail Site Selection How Is It Done? RFRS

Location information of stores and consumer panelists, along with demographics, trends and seasonality, are used to analyze consumer spending across retail chains to assess the revenue impact of potential store sites
Panel Data Store Location and Size Data Block-Group Demo and Pop Data

Revenue Forecasting for Retail Sites

Retaile r4 Retailer 3 Retailer 2 Retaile r1 Reven ues

RFRS Data Inputs

Panel data Including demographics Currently available in 21 major markets Sources are IRI and AC Nielsen Store and shopper locations We can use straight-line distances, road distances, or traffic-adjusted travel times for shoppers to stores Store square footage A wide variety of competing retailers can be incorporated into the model

RFRS Model

For every household in the panel, our models predict: (1) Number of visits quarterly (2) Spending per visit Predictors (1) Travel times/distances (2) Store sizes (3) Retail agglomeration (4) Trends (5) Seasonality (6) Demographics

RFRS Forecasting
Model estimates form the basis for forecasting and sensitivity analysis whenever new sites or scenarios are considered Potential/actual new stores Potential/actual store closings Future periods Population changes

RFRS An Example
What is the impact of the closing of Montgomery Wards stores in Chicago? Which Montgomery Wards locations would offer the most advantageous sites?

RFRS An Example
Montgomery Wards store locations and sample of shoppers providing expenditure data

RFRS An Example
Where will Montgomery Wards sales go?

7.7 7% 7.7 7% 9 % .9 .9 9 % 9% .9

Target Sam's Club

Wal-Mart Other

Kmart

RFRS An Example
What if Kmart opened a store at any current MW site?

RFRS An Example
What if Target opened a store at any current MW site?

RFRS An Example
What if WalMart opened a store at any current MW site?