Geography/Planning 379 “Urban Growth & Development” Lecture 9: Retail Location

1. Geography/Planning 379 “Urban Growth & Development”Lecture 9: Retail Location Exam 1 Reprise Basic Concepts of Retail Geography Threshold of a Good Order of a Good Inner Range of a Good Ideal Outer Range of a Good Actual Outer Range of a Good Market Area for a Good Locational Advantage The Hotelling Problem: Ice Cream Vendors on a Beach READING Required: Textbook, Ch 3: 70-72 (Central Place Theory) Optional: Gladwell “Sometimes you get the bear, Sometimes the bear gets you.” -- Old Gypsy Saying

2. 1. Basic Concepts of Retail Geography • Classifying goods and services according to a number of criteria helps understand the locational patterns of establishments selling them • Threshold of a Good: • Definition – The minimum sales volume needed for an establishment selling the good to stay in business in the long run • Operational Definition: The minimum population needed to be served by an establishment selling the good to stay in business in the long run

3. 1. Basic Concepts of Retail Geography • Order of a Good: Its ranking according to its threshold • Higher order goods: infrequently purchased, high in price, high population thresholds… aka: “shopping goods” • Lower order goods: frequently purchased, low in price, low population thresholds… aka: “convenience goods”

4. Population thresholds for different goods…These are taken from a classic study by Berry & Garrison (1958) for Snohomish County, Washington… Business Type Threshold Population Undertaker 1214 Jewelry Store 827 Bank 610 Lawyer Office 528 Motel 430 Barber Shop 386 Tavern 282 Food Store (Mom & Pop) 254 Higher Order Lower Order

5. Ranges of goods… • Geographic counterpart of a threshold: Inner Range of a Good Definition: Distance from an establishment selling the good within which the threshold population of potential customers may be found (sometimes called “threshold range”) Tavern: within this radius there are 282 mouths waiting to be wetted Inner Range Undertaker:within this radius there are 1,214 souls waiting to be laid to rest Area containing threshold population

6. Ranges of goods… The Ideal Outer Range of a Good Definition – The maximum distancefrom an establishment selling the good for which any customer would potentially be willing to travel to purchase it. It demarcates the maximum potential Market Area for the establishment. • “I’d walk a mile for a Camel.” • Beyond this distance, transport costs are so high people do without the good. Instead of buying Hostess Twinkies at convenience store, maybe bake your own cupcakes. • In Pioneer days – people made many of their own products! • Today what do people in remote locations do? Order off the Internet!

7. The Market Area and Real Outer Range of a Good… • Today the more realistic concept than the ideal outer range is… The Real Outer Range of a Good • Definition – The maximum distance that lies within an establishment’s… Market Area • Definition – The area within which an establishment is the “cheapest” buying location with respect to dispersed consumers in comparison to all alternative establishments offering the good… • By “cheapest,” we mean including both the price of the good and the transportation costs to travel to the establishment • So, the Real Outer Range is the farthest distance any potential consumer would actually have to travel to purchase the good • It thus depends on such “real world” local considerations as the location of competing establishments, the density of residential development, the cost of transportation, price competition, etc. Ideal Outer Range MarketAreas Real Outer Range QUESTION: What would happen if the Real Outer Range is smaller than the inner range?

8. 3. Concepts of Locational Advantage • Why are Burger Kings right next to McDonalds? • Product differentiation • Drive-by traffic Everybody over here eats Whoppers? Everybody over here eats Big Macs? McD’s BK’s

9. 3. Locational Advantage • The order of the good often determines the nature of locational advantage • Low-order or convenience goods – no reason to drive long distances; transport cost minimization important • Market areas are clear and well-developed, examples: supermarkets, hardware stores • High-order or shopping goods – comparison shopping, style, brands may be important • Stores cluster… examples:jewelry, clothing, shoe stores in malls, auto-dealers in auto-dealer rows

10. 3. Locational Advantage Supermarkets (sell low-order goods) This one has a big locationaladvantage! Auto Dealers (high-order) This one has a big locational disadvantage! All these benefit from clustering!

11. The Hotelling Problem: Ice Cream Vendors on a Beach • Famous spatial retail location example • Named for Harold Hotelling • Assume a beach of length L • Assume bathers uniformly distributed along it L L / 4 L / 2 L / 4 L / 8 L / 4 L / 8 L / 2 L / 4

12. Pop Quiz Name _________ • Name that term:“The minimum population needed to be served by an establishment selling the good to stay in business in the long run.” • Inner range of a good • Market area of a good • Threshold of a good • Order of a good Just get me 282 regulars...