Retail marketing mix: Location Lecture 3

1. Retail marketing mix: Location Lecture 3 Dr Iftakar Haji i.haji@aston.ac.uk

2. Last week we discussed • Retail market strategy • Environment analysis • Retail mix • How to sustain a competitive advantage • Porter’s five forces • Types of market strategy

3. Today’s session • Retail location • Why is it important? • What types of locations are available? • What are the advantages of particular location types? • How retailers select certain location types and sites? • Summary For additional reading around this – see the Levy and Weitz textbook (Chapters 7-8 in the 8th international edition)

4. Link to Retail Mix

5. Case • Trevor’s sites were cheap, and they were cheap for two very good reasons. The first was that he had chosen the wrong towns. When I’d originally been asked where we should look for our new sites, I’d replied ‘wherever the Tory Voters are’. It may have seemed a peculiar reply… but the point I was making was that you should go where your customer is, and not be guided solely by the rental of your shop. … (Davies and Davies, 1989:67)

6. Most important criteria for success in retail …. • Location • Locationand…. • Location Why ?...

7. Why location… • One of the 4 ps • Place • Important part of the retail mix • How sites can be chosen • How trading areas (or catchments can be defined) Location can be examined at various levels… • Range from micro level – store • Meso level - operational decisions – catchment decision • Strategic decisions – store network – macro level

8. Location is even important in the digital world.. • From the humblest barrow on a street market to grandest department store – major function of location is to access customers and provide then with the right goods. • Most retailers • Single shop • Organic growth • Or acquired competing business • ‘Click and collect’ • Catalogue retailer planning to open retail stores

9. Why is location important for a retailer? • Typically prime consideration in customer’s store choice • Difficult for competitors to imitate • Location decisions are risky and long-term commitments Location! Location! Location!

10. Internet and mobile are changing retailing Source: Euromonitor • Online retailing adds to customer convenience

11. Case Argos: Digitalising physical stores • Argos’ vision is to become a “digital retail leader” • It has recently been piloting a new digital store concept • the new layout replaces catalogues with iPads, streamlines queuing process and displays marketing messages on screens • customer orders are recorded through the Argos website • For smaller stores, a range of SKUs with a click-and-collect option almost doubled • eBay collection points tested at Argos outlets in 2013 • Argos also actively develops its mobile commerce facilities, which accounted 21% of total sales in June 2014 (internet sales: 42%) • These concepts help Argos’ competitive position

12. Range of locations decisions • Relate to the entire physical structure of retail outlets • Main types of decisions include • opening of new stores • extension of floor space of existing stores • relocation or movement of a store from one place to another • rationalisation decisions, e.g. the closure of a store • repositioning of locations, e.g. altering of store image • refurbishment such as improving or updating the physical environment of an existing outlet Source: Hernández and Bennison 2000

13. Selecting type of location

14. Selecting a particular location type • The size of the trade area • The occupancy cost of the location • The pedestrian and vehicle customer traffic • The restrictions placed on store operations • The convenience of the location for customers • The retailer’s strategy

15. Unplanned retail locations Freestanding sites • Advantages • Convenience • High traffic and visibility • Modest occupancy cost • Fewer restrictions • Disadvantages • Limited trade area • Little pedestrian traffic City or town locations • Central business district, High street, inner city • Gentrification • Advantages • Low occupancy costs • High pedestrian traffic (day) • Public transportation hub • Disadvantages • Low vehicle traffic • Restrictions • Less convenience

16. Case IKEA: Toward smaller store formats • IKEA is planning to open city-centre stores in Paris and Hamburg • Also, it plans setting up pick-up points for goods ordered online • Why? It seeks to respond to changing shopping habits, particularly among younger consumers • This consumer segment • value convenience • is less interested in car ownership than their older peers • Although young consumers are not yet big purchasers of home furnishings, they will be in the future → if IKEA fails to adapt to their demands, it risks losing relevance

17. In pairs discuss the following… • How does location affect your customer experience? • Location-wise, what kinds of retailers go well together? • For what kind of a retailer you would not mind having to cover the distance to get there? • What would be the equivalent to physical distance in online environment? • When would you prefer buying online? For what kinds of purchases brick-and-mortar is your choice?

18. Costs associated with location • Location management options • Closing stores – rationalisation • Cost of opening a shop – significant • Location research • Legal and agent fees • Stocking the unit • Rise of alternative channels – offline and online • Choosing the right unit in the right location - lease commitments

19. Asses the location • Existing retailer – where do you preform well and where do you wish you had never opened • Create a portfolio risk analysis • Existing location and which locations are not preforming well • How are existing and target locations changing E.g. Vacancy rates, persistence of vacancy, competitors activity • Competitors analysis • Proximity of opening and closing retail

20. Shopping malls Advantages Disadvantages Occupancy costs are high Tenants may not like mall management controls Competition can be intense • High pedestrian traffic • Never worry about the weather • Consistency for tenants, e.g., uniform opening hours

21. Other location opportunities • Store within a store • E.g., Costa coffee in Waterstones • Airports • Merchandise kiosks • Temporary (pop-up) stores • Create buzz, test new concepts, evaluate a new city • Take advantage of holiday seasons and events

22. Matching location type to retail strategy • Location type must reinforce retailer’s strategy and be in line with • shopping behavior of the target market • Convenience shopping • Comparison shopping • Specialty shopping • size (density) of the target market • retailer’s position in its target market • uniqueness of retail offering

23. Selecting store area and specific site

24. Evaluating specific areas for store location Strategic fit with target market Economic conditions Long-term profitability Operating costs Competition

25. Strategic fit with target market • Area needs to have sufficient amount of consumers with right • demographics • lifestyle profile

26. Economic conditions • The growth of population and employment • Diversity of businesses • For how long will the trends continue? What are the effects on demand?

27. Competition and operating costs • The nature and extent of competition in the area • Demand and margins suffer from intense competition • Costs of operating stores can vary dramatically across areas • Operating costs depend on • location (rents) • population of the area • proximity of the area to retailer’s other operations

28. How many stores in an area? Economies of scale Cannibalization Diminishing return on stores Open stores as long as profits increase (i.e., marginal revenues greater than marginal costs)! Franchise retail operations may result in conflict of interest • Shared promotional costs • Divided distribution center costs • Sales per store may increase • Better management control

29. Evaluating a site for locating a retail store • When evaluating and selecting a specific site, retailers consider • Characteristics of the site • Characteristics of the trading area • Estimated potential sales that can be generated • The first two considerations result in an initial screening of potential sites, the last is more complex and analytical approach

30. Trade area • A contiguous geographic area that accounts for the majority of a store’s sales and customers • Primary zone (50-70 % of customers) • Secondary zone (20-30 % of customers) • Tertiary zone (occasional customers) • Factors that affect the size of trade area include • The store’s accessibility • Type of shopping area or store • Level of competition

31. Measuring the trade area for a retail site • Customer spotting – for existing stores • technique to locate customers’ residences • Information about existing trade areas are often used as to estimate trade areas for new stores • For analyzing attractiveness of a site, information is needed on • Residents (e.g., Office for National Statistics; geographic information system suppliers, such as Esri) • Competitors (e.g., trade associations)

32. To read…

33. Summary • Retail locations matter • Prime considerations in customer’s store choice • Difficult for competitors to imitate • Retailers need to consider many location-related issues, such as • Different types of locations • Evaluating specific areas for store location • Evaluating specific sites for a store