Retail Management

1. Retail Management Dr. Parveen Nagpal

2. Retail Location • Location is one of the most influential considerations in a customer’s store-choice decision. • Location decisions have strategic importance because they can be used to develop a sustainable competitive advantage. If a retailer has the best location i.e. the location that is most attractive to its customers, competitors cannot easily copy this advantage. • Location decisions are risky. When retailers select a location, they either must make a substantial investment to buy and develop the real estate or must commit to a long-term lease with developers. Retailers often commit to leases for 5 to 15 years.

3. Types of Retail Location • There are several types of location choices available for retail stores, each type with its own strengths and weaknesses. • The basic types of location are: • Freestanding (unplanned) • City or Town business district (unplanned) • Shopping Center or • Nontraditional location such as in an airport or within another store. • Choosing a particular location type requires evaluating a series of trade-offs, such as the size of trade area, occupancy cost of location, pedestrian and vehicle customer traffic generated, restrictions placed on store operations by the property managers, customer convenience etc.

4. Types of Retail Location I. Isolated Store/ Free Standing Location (Unplanned) • Retail locations for an individual, isolated store unconnected to other retailers; however, they might be near other freestanding retailers or a shopping center. • The advantages of freestanding locations are: • Convenience for customers (easy access and parking) • High vehicular traffic and visibility to attract customers driving by • Modest occupancy costs • Fewer restrictions on number of hours, or merchandise, as are imposed in shopping centers. • Low rents • Ample parking

5. Types of Retail Location • These locations are popular for gas stations, hotels on highways, fast-food restaurants, such as McDonald’s etc. • However, freestanding locations have a limited trade area. There are no other nearby retailers to attract customers interested in shopping at multiple outlets on one trip. • Freestanding locations may have higher occupancy costs because they do not have other retailers to share the cost of outside lighting, parking lot maintenance, or trash collection. • Freestanding locations may have little pedestrian traffic, limiting the number of customers who might drop in because they are walking by. • Outparcels enable retailers to have a drive-through window, dedicated parking, and clear visibility from the street. (Outparcels are stores that are not connected to other stores in a shopping center but are located on the premises, may be in a parking area.)

6. Types of Retail Location II. City or Town Locations (Unplanned) • Urban locations have lower occupancy costs than enclosed malls and often have high pedestrian traffic. • However, vehicular traffic is limited due to congestion in urban areas, and parking problems reduce consumer convenience. • Unlike freestanding locations, store signage can be restricted in these locations. • Young professionals and retired empty-nesters are moving into these areas to enjoy the convenience of shopping, restaurants, and entertainment near their residence. • Many urban areas are going through a process of Gentrification - the renewal and rebuilding of offices, housing, and retailers in deteriorating areas, coupled with an influx of more affluent people that displaces the former, poorer residents.

7. Types of Retail Location a. Central Business District (CBD) • Main center of commerce and trade in the city. • A hub for public transportation, high level of pedestrian traffic • Good accessibility in terms of transport from all parts of the city. • Large number of residents living in the area. • Limited parking and longer driving times can discourage suburban shoppers from patronizing stores in a CBD. • Shoplifting is a concern, requiring increased security costs. • Lack of planning (One block may contain upscale boutiques, next may have low-income housing. Consumers may not have access to enough retailers that they can visit in one shopping trip)

8. Types of Retail Location b. Main Street (called High Streets in the United Kingdom) • Traditional shopping area in smaller towns within a larger city • Main Streets share most of the characteristics of a CBD, but their occupancy costs are generally lower. • Main Street locations do not draw as many people as CBD because fewer people work in the area and the fewer stores generally mean a smaller overall selection. • Main Streets do not offer the range of entertainment and recreational activities available in CBDs.

9. Types of Retail Location c. Inner City • The term ‘inner city’ in the United States refers to a high density urban area that has higher unemployment and lower income than the surrounding metropolitan area. • Generally retailers avoid opening stores here because it is riskier and achieves lower returns than other areas. As a result, inner-city consumers have to travel to the suburbs to shop, even for food items. • Retailing can play an important role in inner-city redevelopment activities by providing needed services and jobs for inner-city residents, as well as property taxes to support the redevelopment. • Because of the potential of this untapped market and incentives from local governments, developers are increasing their focus on opportunities in the inner city.

10. Types of Retail Location III. Shopping Centers (Planned) • A group of retail and other commercial establishments that are planned, developed, owned, and managed as a single property. • By combining many stores at one location, the development attracts more consumers to the shopping center than would be the case if the stores were at separate locations. • The developer and shopping center management carefully select a set of retailers that are complementary to provide consumers with a comprehensive shopping experience, including a well-thought-out assortment of retailers. • The shopping center management maintains the common facilities such as the parking area - an arrangement referred to as common area maintenance (CAM) - and is responsible for providing security, parking lot lighting, outdoor signage for the center, advertising and special events to attract customers etc.

11. Types of Retail Location • Retailers in the center pay a portion of the CAM costs for the center according to the size of their store’s space. • Shopping center management generally place restrictions on the operating hours, signage, and even the type of merchandise sold in the stores. • Most shopping centers have at least one or two major retailers, referred to as anchors, that are specially called by the center’s developer because they attract a significant number of consumers and make the center more appealing for other retailers. • To get these anchor retailers to locate in a center, developers give them special deals, such as reduced lease amount.

12. Types of Retail Location • Neighborhood and Community Shopping Centers • Also called strip shopping centers, are attached rows of non-enclosed stores, with on-site parking usually located in front of the stores. • Smaller centers (neighborhood centers) are anchored by a supermarket or a drugstore and designed for day-to-day convenience shopping.

13. Types of Retail Location • The larger centers (community centers) are anchored by at least one big-box store such as a discount department store or an off-price retailer. • The main advantages are that they offer the customers, convenient locations and easy parking and have relatively low occupancy costs. • Disadvantage is that smaller centers have a limited trade area due to their size, and they lack entertainment and restaurants. • There is no protection from the weather. As a result, neighborhood and community centers do not attract as many customers as larger, enclosed malls do.

14. Types of Retail Location b. Power Centers • ‘Retail Park’ (U.K., Ireland) or ‘Power Center’ (North America) are the terms used among retailers to describe a shopping complex, generally 250,000 to 600,000 sq. ft in area, that primarily consists of collections of big-box retail stores, such as full-line discount stores, off-price stores, warehouse clubs, and specialty store. • Although these centers are “open-air,” unlike traditional strip centers, power centers often include several unconnected anchors and only a minimum number of small specialty store tenants. • Power centers may be larger than some regional malls and have trade areas as large as regional malls. • Power centers offer low occupancy costs and modest levels of consumer convenience and vehicular and pedestrian traffic.

15. Types of Retail Location Vertical power center with big box Retail Park in France stores on multiple floors in Toronto

16. Types of Retail Location c. Shopping Malls • Enclosed, climate-controlled, lighted shopping centers with retail stores on one or both sides of an enclosed walkway. • Parking is usually provided around the perimeter of the mall. • Shopping malls are classified as either regional malls (less than 800,000 square feet) or superregional malls (more than 800,000 square feet). • Super-regional centers are similar to regional centers, but because of their larger size, they have more anchors, specialty stores, and recreational opportunities and draw from a larger geographic area, and are considered tourist attractions.

17. Types of Retail Location Advantages of Shopping Malls • Attract many shoppers and have a large trade area because of large number of stores and the opportunity to combine shopping with entertainment. • Provide an inexpensive form of entertainment. • People can socialize • Since they are enclosed, customers can conveniently shop during all seasons. • Mall management ensures a level of consistency that benefits all the tenants. For instance, most major malls enforce uniform hours of operation

18. Types of Retail Location Disadvantages of Shopping Malls • Shopping mall occupancy costs are higher than those of strip centers, freestanding sites, and most central business districts. • Some retailers may not like mall management’s control of their operations, such as strict rules governing hours of operations, window displays and signage. • Competition within shopping centers can be intense. Several specialty and department stores might sell similar merchandise and be located in close proximity. • Freestanding locations, strip centers, lifestyle centers, and power centers have convenient parking facilities.

19. Types of Retail Location d. Lifestyle Centers • Shopping centers that have an open-air configuration of specialty stores, entertainment, and restaurants, with design ambience and amenities such as fountains and street furniture. • They resemble the main streets in small towns, where people stroll from store to store, have lunch, and sit for a while on a bench talking to friends. Thus, they cater to the “lifestyles” of consumers in their trade areas. • Lifestyle centers are particularly attractive to specialty retailers and can be anchored by department stores. • People are attracted to lifestyle centers not only because of their shops and restaurants but also because of their outdoor attractions such as a pop-up fountain, ice cream carts, balloon artists, magicians, face painters etc.

20. Types of Retail Location • Due to the ease of parking, lifestyle centers are very convenient for shoppers, and the occupancy costs, like those of all open-air developments, are considerably lower than those for enclosed malls. • They have less retail space than enclosed malls and thus may attract fewer customers than enclosed malls. • Many lifestyle centers are located near higher-income areas, so the higher purchases per visit compensate for the fewer number of shoppers.

21. Types of Retail Location e. Mixed-use developments (MXDs) • Mixed-use zoning allows for horizontal and vertical combination of land uses in a given area, combining two or more uses within a building, site or block that can be organized vertically, horizontally, or a combination of the two. • Shops or other commercial premises at ground floor with apartments or offices above are a common example of a vertical mixed use development. • MXDs combine several different uses into one complex including retail, office, residential, hotel, recreation, or other functions. • They are pedestrian - oriented and therefore people can live, work and play.

22. Types of Retail Location • MXDs provide a pleasant, pedestrian environment and are an efficient use of space. • MXDs make use of space productively. For instance, land costs the same whether a developer builds a shopping mall by itself or an office tower on top of the mall or parking structure.

23. Types of Retail Location f. Outlet Centers • Shopping centers that contain mostly manufacturers’ and retailers’ outlet stores. • Outlet center rent rates are lower than those at shopping malls. • Some outlet centers have a strong entertainment component, including movie theaters and restaurants to keep customers on the premises for a longer period of time. • Tourism represents 50 percent of the traffic generated for many outlet centers. Thus, many are located with convenient interstate access and close to popular tourist attractions.

24. Types of Retail Location g. Theme/ Festival Centers • Shopping centers that employ a unifying theme carried by the individual shops in their architectural design and, to an extent, in their merchandise. • Shopping centers are very appealing to the tourists. • These centers are generally located in urban areas or in a place of historical interest, or may simply replicate a historical place, or create a unique shopping environment. • The centers do not have large specialty stores or department stores. • Theme/festival centers can be anchored by restaurants and entertainment facilities.

25. Types of Retail Location h. Larger, Multiformat Developments - Omnicenters • New shopping center developments are combining enclosed malls, lifestyle centers, and power centers. Such places are commonly referred to as ‘omnicenters’ • They represent a response to several trends in retailing such as: • including the desire of tenants to lower common area maintenance charges • spreading the costs among more tenants • function inside larger developments that generate more pedestrian traffic and longer shopping trips. • Facilitate the growing tendency of consumers to cross-shop.

26. Types of Retail Location IV. Other Non Traditional Location • Pop-up Stores • Stores in temporary locations that focus on new products or a limited group of products to create a long term, lasting impression with potential customers. • Retailers and manufacturers are using these spaces to create buzz or test new concepts, connect with customers and increase sales. • Pop up stores may stock merchandise related to fashion to tech gadgets and food items. • Such stores are even popping-up on college campuses. For instance, Kiehl’s pop-up store at the University of Colorado, is the fashion brands’ latest attempt at developing brand loyalty among college students.

27. Types of Retail Location b. Stores within a Store (Shop - in - Shop) • Here the retailer acts as a host, allowing one or more other brands to operate independently within the store. • Retailers, particularly department stores, have traditionally leased space to other retailers, such as sellers of fine jewelry, or high-end designer brands. • Grocery stores have store-within-a-store concept with service providers like coffee bars, bank ATMs etc. • Store-within-a-store retail gives brands the power to manage their own inventory, determine the prices of their products, and independently develop their own marketing campaigns. • Shoppers enjoy the store-within-a-store model because it maximizes convenience, encourages variety and enhances their shopping experience.

28. Types of Retail Location • This model also helps brands save money by removing much of the overhead it costs to run an independent store. If the host retailer generates a lot of foot traffic, brands within their store also end up selling more. • The versatility of this model gives retail stores and storekeepers the opportunity to service different market segments, create a more comfortable shopping experience, and introduce new and exclusive products.

29. Types of Retail Location c. Merchandise Kiosks • Small selling spaces, located in the walkways of enclosed malls, airports, college campuses, or office building lobbies. • They are 'mini-stores' and are also known as Mall Kiosk, Island Retail Unit, Shop-in-shop, Vending Kiosk and so on. • Some merchandise kiosks are staffed and resemble a miniature store or cart that could be easily moved, others are 21st century versions of vending machines, such as the Apple kiosks that sell iPods and other high-volume Apple products. • For mall operators, kiosks are an opportunity to generate rental income in otherwise vacant space and offer a broad assortment of merchandise for visitors.

30. Types of Retail Location • Mall kiosks can be changed quickly to match seasonal demand. • When planning the location of kiosks in a mall, operators are sensitive to their regular mall tenants’ needs. They are careful to avoid kiosks that block any storefronts, create an incompatible image, or actually compete directly with permanent tenants by selling similar merchandise.

31. Types of Retail Location d. Airport Location • A high-pedestrian area that has become popular with national retail chains is airports. • Passengers arrive earlier for their flights than they did in the past, leaving them more time to shop. • Sales per square foot at airport may be higher than at regular mall stores. • However, rents are higher, costs can be higher - hours are longer, and because the location is often inconvenient for workers, the retailers may have to pay higher wages to employees. • The best airport locations tend to be ones where there are many connecting flights (Atlanta and Frankfurt) and international flights (New York’s Kennedy and London’s Heathrow), because customers have downtime to browse through stores.

32. Types of Retail Location • The Centre for Asia-Pacific Aviation (CAPA) estimates that the duty-free spend at Indian airports will reach $1.6 billion by 2021 - an eight-fold increase, spread across a decade. • A spokesperson from Mumbai International Airport highlighted, “Today’s millennial generation is not only travelling further and more frequently, it is also exploring more of the world and as a result more informed and conscious of reputed brands even when it comes to making impulse purchases. With the upgradation and privatization of airports across the country, travel retail has been growing at a fast rate and we expect the growth to further accelerate in the coming years. The Mumbai International Airport has witnessed a double digit growth year-on-year in travel retail.”

33. Trading Area • A trade area is the adjacent geographic area that accounts for the majority of a store’s sales and customers. • Knowing the boundaries of trading area helps a retailer to estimate the potential customers who may patronize the retail store. • Accordingly the retailer can gather information about the demographics and lifestyle of people and estimate sales. • Understanding the trade area also helps retailers formulate suitable promotional and communication strategies. • Thus defining the trade area is one of the most important steps in market analysis.

34. Trading Area Trade areas can be divided into three zones:

35. Trading Area • Primary Trading Area It is the geographic area from which the shopping center or store site derives 50 to 70 percent of its customers. 2. Secondary Trading Area It is the geographic area of secondary importance in terms of customer sales, generating about 20 to 30 percent of the site’s customers. 3. Tertiary/ Fringe Trading Area It includes the remaining customers who shop at the site but come from widely dispersed areas. These customers might travel an unusually long distance because they do not have comparable retail facilities closer to home, or they may drive near the store or center on their way to or from work.

36. Trading Area • In USA, most retailers define the three zones based on driving time rather than distance. • In smaller cities, the primary trading area might be defined as customers within 5 minutes’ driving time of the site; the secondary trading area, as customers with a 10-minute drive; and the tertiary zone, as customers more than 15 minutes away from the site by car. • In bigger cities where driving times are lengthy, such as Los Angeles, the primary trading area may be 15 minutes; the secondary trading area, 40 minutes; and the tertiary trading area, more than 1 hour. • However, it is much easier to collect information about the number of people and their characteristics in the different zones by geographic distance than by driving time. • Some other retailers may also define the zones by distance - such as 3, 5, and 10 miles from the site - rather than driving time.

37. References 1. Michael Levy & Barton A Weitz, “Retailing Management”, 8th Edition, Tata Mc Graw Hill 2. Swapna Pradhan, “Retailing Management – Text and Cases”, 4th Edition, Tata Mc Graw Hill.