It is very clear that not all the consumers who are within the trading area shop exclusively from that area. A group of consumers known as “out-shoppers” frequently and regularly shop outside their local trading area. These consumers spend a considerable amount of time, money and effort making inter-trading area shopping trips. Some out-shoppers look for economic gains arising from lover prices in larger trading centers where assortments are better and the level of competition is more intense. Some shoppers simply seek the diversity of unfamiliar or more stimulating surroundings. Demographically out-shoppers are younger and are relatively well educated and their relative income is high; psychologically, out-shoppers are active and are on the “go”, urban-oriented who are neither time conscious nor store loyal shoppers. They tend to manifest a distaste for local shopping and, hence, a strong preference for out of town shopping areas.
To obtain an accurate estimate of total expected sales, the retailer has to undertake this out-shopper analysis, subtracting out-shopping sales, normally called as “sales leakage”, from the trading areas gross sales to arrive at a more realistic sales volume for the trading area. To estimate “sales leakage” that results from out-shopping behavior a retailer can conduct consumer surveys or use standard adjustment. Consumers survey help in getting information on how much the consumers spend locally on a particular class of goods as a percentage of their total expenditure for those goods. Here, retailer can use this percentage to adjust the gross sales figure for the trading area.… Read the rest
Most of the retail site evaluation procedures use the concepts of “trading area adequacy” and the “trading area potential” to predict the total trading area business and the share of business a particular retailer can expect.
Read More: Trading Area Adequacy
Trading area potential, it is something, which is predicted ability of a trading area to provide acceptable support levels for a retailer in future. The two important concepts in trading area potential are residential support levels and non-residential support levels.
Residential Support Levels
A retailer is to concentrate on the most important source of business, namely the area’s residents, after sufficiently identifying the gross trading area. To measure a trading area’s potential consumers, the retailer is expected to analyse population or demographic and household or residential variables.
- Population or Demographic Analysis. A trading areas total capacity to consume is partly a function of the total number of population and partly the demographic features such as age, sex, income, occupation, family status, rate of literacy. Evaluating gross adequacy is a matter of identifying demographic features that best indicate the consumers’ need, willingness and ability to buy. For this census reports provide the necessary information.
- Household or Residential Analysis. In case of some retailing operations, a trading area’s capacity to consume is more directly related to the number of households or residential units than the number of people in the area. This is particularly in case of consumer durable goods. This relationship simply reflect the fact that the household unit purchases many goods and the consumer’s home is the prime determinant of the need for a particular product line.
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Trading area adequacy is the ability of a trading area to support proposed and the existing retail operations. The support capability may be viewed in a “Gross” as well as “Net” form. Here Gross adequacy is the ability of a trading area to support a retail operation without any consideration of retail competition. That is, the gross adequacy measures the total amount of business available to all the competing retailers within a defined trading area. Contrary to this, “net adequacy” is the ability of a trading area to provide support for a retailer after competition has been taken into account.
The Gross Adequacy of Trading Area
Measurement of gross adequacy determines the trading area’s total capacity to consume. The capacity of a retail market to consume is the function of the total number of consumers within a trading area at a given time and their need, willingness and the ability to purchase a particular class of goods. Infact, it is not a child’s play to determine the consumers’ need, willingness and the ability to purchase a certain class of goods.
To determine the gross adequacy, the retailer must first consider the appropriate consumption units such as people homes, business and the like to count for a general class of goods. Secondly, the retailer must find an appropriate measure of a consumption unit’s need, willingness and the ability to buy. This also warrants use of one or more indicators of potential buyers behavior because to develop confidence in the analysis. Finally, the support capabilities of a trading area depend to some extent on sources outside the gross trading area. … Read the rest
A critical element in determining a retailer’s success is the ability to assess and acquire a good location. To achieve this objective, the retailer is expected to identify, evaluate and select trading areas to segment his consumer markets further. After identifying and evaluating local markets, the retailer must then segment them into trading areas. A “retail trading area” is the area from which a store attracts its customers or obtains its business. After this, the terminal point in location decision is that of selection of proper site.
Before the trading area identification process, it is essential to know the dimensions to describe a retail trading area. These trading areas dimensions are – area size, area shape and area structure.
The Trading Area Size
Trading areas range in size from a few square meters to’ a radius of many kilometers. The size of the trading area is a function of the cumulative effects of several operational and environmental factors. The two major operational factors are type and size. The type of operation stands for the kind of goods and services offered. Those retailers who offer the specialty and shopping goods are to draw consumers from a wider geographic area than those retailers who are offering convenience goods because the consumers are willing to exert greater effort and to travel greater distances to buy specialty and shopping goods than to buy convenience goods. The second operational factor is directly related to the retailer’s trading area size namely, size of the store.… Read the rest
Customer spotting techniques include several methods by which the retailer attempts to “spot” customer origins on a map. By carefully observing me magnitude and arrangement of these origins the retailer can identify the dimensions of the trading area. Retailers normally define customer origins by home addresses, although customers place of employment are also important. Some of the more common customer spotting techniques include surveys of customers’ license plates, customer surveys, analysis of customer records and studies of customer activities.
- License Plate Surveys. By recording the license plate numbers of automobiles in the store’s parking area, retailers can obtain customer home addresses. Sampling normally includes the checking of licence plates at different times of the day, different days of the week and different weeks of the month to ensure a representative sample. The major advantage of this technique is it is relatively in expensive method. However, the advantages are; (1) It is not possible as to who drove? Was he a customer? (2) There is no revealing of information on the shopping behavior as what they bought ? How much they bought ? Where they bought ? why they bought ? or not bought anything? (3) The number of purchases and purchasers in each car cannot be determined. Still it is alternative method as they cost least in terms of cost and time as they provide general information.
- Customer Surveys. Either a personal interview, mail questionnaire or telephone survey can be conducted to provide information on who lives or works in a given area and who either current or potential customers are.
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Retail Site Evaluation Methods
Experts and analysts have at their disposal several methods to evaluate retail site alternatives. These are broadly classified as subjective and objective. Again some are quite simple and some are sophisticated. It suffices to take two most commonly used methods namely, checklist method and quantitative methods.
1. Checklist Method
It provides a retail site evaluator with a set of procedural steps for arriving at a subjective yet quantitative expression of a sites value. First, the evaluator enumerates the general factors that are usually considered in any site evaluation. A typical list of factors includes all or most of the site-evaluation principles~ interruption, cumulative attraction, compatibility and accessibility. Secondly, for each general factor, the evaluator identifies several attribute measurements that reflect the location needs of the proposed operation. For instance, interception which is a key location attribute for most convenience retailers, can be divided into the volume and quality of vehicular and pedestrian traffic. Thirdly, each location attribute receives a subjective weight based on its relative importance to a particular type of retailer. A common weightage system assigns ‘3’ to very important, ‘2’ to moderately important and ‘1’ to slightly important and ‘0’ to unimportant attributes. Fourthly, the evaluator is to go ahead with rating of each alternative in terms of such each location attribute. Any number of rating scales can be constructed; one possible scale might be ranging from say 01 to 10, with 01 as very poor and 10 as highly superior. To illustrate, a site alternative located on a major thoroughfare with a high volume of traffic throughout the day be rated a 09 or 10 ; another site alternative located on a traffic artery featured by high volumes of traffic only during morning and evening rush hours could be rated as a 05 or 06.… Read the rest