Trading Area Potential in Retail Site Evaluation

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.

  1. 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.
  2. 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. In this context, ‘households’ are private dwelling units that include all persons occupying a particular house or apartment, whereas a ‘residential’ unit is a housing unit occupied as separate living quarters, such as an apartment building. A count of households world produce a more dependable estimate of the existing capacity to consume and a count of residential units might better reflect the potential consumption capacity at least in terms of existing residential facilities.

Non-residential Support Levels

All consumption support does not come from residential trading area. The consumers who reside outside the trading area contribute significantly to that areas capacity to consume.

The characteristics of most trading areas are the daily inward, outward and through migration of consumers who are attracted into the trading area for work, recreation and other reasons say need for professional services. Though these consumers are living many kilo-meters away, they do represent a significant position of trade customers who visit the area. It is quite possible that some of these might be visiting frequently and regularly or others infrequently and irregularly. Nonetheless, it accounts for gross adequacy which one can not forget. Though it is very difficult to calculate accurately the number of such consumers capacity, at the numbers can be ascertained. As all non-residential units do not have equal consumption generating abilities, the system of weightage can be used. However, at any cost non-residential consumers cannot be forgotten.

About Abey Francis

Abey Francis is the founder of MBAKnol - A Blog about Management Theories and Practices - and he's always happy to share his passion for innovative management practices. You can found him on Google+ and Facebook. If you’d like to reach him, send him an email to: [email protected]

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