Site Selection Analysis in Retail

With the advent of new retail formats in India such as planned shopping centers and malls, emergence of free-standing department stores, hypermarkets, etc., and further development of traditional business districts and other unplanned shopping locations, a retailer is presented with a wider choice of locations. Consideration of all the options keeping in view the product mix, customer profile and overall business model presents an enormous challenge. A retailer has to consider the following factors while selecting a site:

  1. Kind of products sold
  2. Cost factor
  3. Competitor’s location
  4. Ease of traffic flow and accessibility
  5. Parking and major thoroughfares
  6. Market trends
  7. Visibility

1. Kind of Products Sold

For stores dealing in convenience goods, the quantity of traffic is most important. The corner of an intersection, which offers two distinct traffic streams and a large window display area, is usually a better site than the middle of a block. Convenience goods are often purchased on impulse from easily accessible stores. For stores dealing in shopping goods, the quality of the traffic is more important.

2. Cost Factor in Location Decision

Location decision on cost considerations alone is risky. Space cost is a combination of rent or mortgage payment, utilities, leasehold improvements, general decoration, security, insurance and all related costs having a place to conduct business operations. Traditionally, the retail community placed great importance on owning the place since this was considered prestigious in the business community. However, there are many periodic retail markets in Indian which operate on particular days of the week. The retailers operating in these periodic markets keep shifting from place to place and do not own any property; instead they pay a small rental for their set-up in each market. This supports their model of selling goods at very low margins.

3. Competitor’s Location

The type and number of competitors is another important factor. The presence of major retail centres, industrial parks, franchisee chains and department stores should be noted. Intense competition in the area shows that new businesses will have to divide the market with existing businesses. If one is not able to offer better quality and competitively priced products, one might reconsider that particular location. An excellent location may be next or close to parallel or complementary businesses that will help to attract customers.

4. Ease of Traffic Flow and Accessibility

These two factors are more important to some businesses than others. Consider the nature of the business you are planning to open and your potential customers. Retailers selling convenience goods must attract business from the existing flow of traffic. Studying the flow of traffic, noting one-way streets, street widths and parking lots, is hence important. The following factors have to be considered: parking availability, distance from residential areas or other business areas, traffic congestion, side of street, width of street, part of the block and neighbors. Evaluate how accessible the site is for walk-in or drive-by traffic as well as the amount of pedestrian traffic and automobile traffic that goes by the proposed location.

5. Parking and Major Thoroughfares

Parking is another site characteristic that is especially a cause for concern in densely populated areas. When evaluating the parking that exists at a retail site, there are two considerations: parking capacity (the number of cars that can be parked), and parking configuration (the way the parking lot is laid out, the direction of the travel lanes and spaces, landscaping, etc.). There are several ratios that are generally used to determine the adequacy of a parking lot. While different ratios exist for different types of retailers or service providers, the ideal ratio for food stores is in the magnitude of 7-8 cars per 1,000 square feet of food store.

6. Market Trends

Evaluate the community from a broad, futuristic perspective. Local newspapers are a good source of information. Discussions with business owners and officials in the area can also help.

7. Visibility

Visibility has a varied impact on a store’s sales potential. It is important when a shopper is trying to find the sore for the first or second time. Once the shopper has become a regular customer, visibility no longer matters. But consider this fact: one in five families’ moves every year, which means that some part of a community’s population may be ‘shopping’ in a new store.