Location is the most important ingredient for any business that relies on customers. It is also one of the most difficult to plan for completely. Location decisions can be complex, costs can be quite high, there is often little flexibility once a location has been chosen and the attributes of location have a strong impact on a retailer’s overall strategy. In India, most retailers prefer to own the property rather than avail of the desired property through lease or rental. This makes the location decision even more critical. Choosing the wrong site can lead to poor results and in some cases insolvency and closure.
Importance of Location Decision in retail Business
The importance of the location decision is due to the following factors. Location is a major cost factor because it
- Involves large capital investment
- Affects transportation costs
- Affects human resources cost, e.g., salaries
Location is a major revenue factor in retail business because it
- Affects the amount of customer traffic
- Affects the volume of business
The terms ‘location’ and ‘site’ are often used interchangeably but there is a distinct difference between the two. ‘Location’ is a broader concept, which denotes the store and its trading area from where a majority of its customers originate, while a site refers to the specific building or part of the building where a store is located. Location and site characteristics should interact in a positive and synergistic way with a store’s merchandising, operations and customer service characteristics. For example, a designer men’s store located in an up market shopping centre or a mall near posh residential colonies, housed in an attractive building with adequate parking facilities.
Levels of Location Decisions and its Determining Factors
A retailer has to take the location decision, basing on three aspects:
- Selection of a city
- Selection of an area or type of location within a city
- Identification of a specific site
The factors which influence these decisions are discussed below:
1. Selection of a City
The following factors play a significant role in the selection of a particular city for starting or relocating an existing retail business:
- Size of the city’s trading area: A city’s trading area is the geographic region from which customers come to the city for shopping. A city’s trading area would comprise its suburbs as well as neighboring cities and towns. Cities like Mumbai and Delhi have a large trading area as they draw customers from far off cities and towns.
- Population of population growth in the trading area: The larger the population of the trading area, the greater the potential of the city as a shopping location. A high growth n population in the trading area can also increase the retail potential.
- Total purchasing power and its distribution: The retail potential of a city also depends on the purchasing power of the customers and its distribution networks in its trading area. Cities with a large population of affluent and upper middle-class customers can be an attractive location for stores selling high-priced products such as designer men’s wear. The fast growth in purchasing power and its distribution among a large base of middle class is contribution to a retailing boom around major cities in India.
- Total retail trade potential for different lines of trade: A city may b become specialized in certain lines of trade and attract customers from other cities. Moradabad has become an important retail location for brassware products while Mysore is famous for silk saris.
- Number, size and quality of competition: The retailer also considers the number, size and quality of competition before selecting a city.
- Development cost: The cost of land, rental value and other related cost.
2. Selection of an Area or Type of Location within a City
In the selection of a particular area or type of location within a city, evaluation of the following factors is required.
- Customer attraction power of a shopping district or a particular store: Major shopping centres like Chandni Chowk in Delhi, Colaba in Mumbai and Commercial Street in Bangalore attract customers from far off, while small shopping centres located in colonies attract customers from immediate neighborhood.
- Quantitative and qualitative nature of competitive stores: Retailers would like to evaluate the product lines carried by other sores, number of stores in the area, etc. before selecting the area.
- Availability of access routes: The area or shopping centre should provide easy access routes.
- Nature of zoning regulations: The retailer should also consider the zoning regulations in the city.
- Direction of spread of the city: The retailer should consider the direction in which the city is developing while selection the location.
3. Selection of a Specific Site
The choice of a specific site is particularly important. In central and secondary shopping centre, non-anchor sores depend on customers coming to the market and the traffic generated by anchor stores. The large stores in turn depend on attracting customers from the existing flow of traffic. Where sales depend on nearby settlements, selecting the trading area is even more important than picking the specific site.