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.
The Net Adequacy of Trading Area
In order to determine the net adequacy of trading area, a retailer was to find out gross adequacy of trading area. “Net adequacy” can be defined as the portion or the sales volume a retailer can be expected to receive from the total sales in a trading area, that is net adequacy is the percentage of gross adequacy or market share a retailer can expect to get. To determine the net adequacy, a retailer must consider the trading areas capacity to consume and its capacity to sell.
The capacity to consume is the gross adequacy measurement. Having got a gross estimate of the trading areas sales volume capabilities, the retailer’s problem is to find out a method of allocating the total sales volume to each of the trading areas existing and proposed competitors. This allocation process consists of two major issues namely, (1) analyzing the competitive environment and (2) estimating each retailer’s sales and market share. To determine net adequacy, a retailer must first identify the competitive environment. To analyse competitive environment, the retailer must examine the types of competition, the number and size of competitors and the marketing mix of the competitors. To get a clearer picture of the competitive environment, a retailer can use two very reliable and useful methods namely, competitive audit and an out-shopper analysis.