Trade Area Analysis

Types of Retail LocationsIsolated store/Free standing sitesCentral Business DistrictSecondary Business DistrictStrip Shopping Center(String)

Neighbourhood Business DistrictCommunity CentersPower centersTheme/festival centers

Free standing sites

Steps InvolvedMarket IdentificationDetermining the potential marketIdentify alternate site and select the site

Three levels of Spatial AnalysisRegional AnalysisTrade Area AnalysisSite Analysis

Defn: Trade area analysis

“ A geographical area containing the customers of a particular firm or group of firms for specific goods or services”

Factors affecting the demand for a trade area

Demographic and life style, socioeconomic characteristics

Promotional activitiesTrading area overlapGeographic weaknesses can be highlightedBusiness climate

CompetitionSaturated trade areaUnderstored trade areaOverstored• Span of Managerial control

Factors affecting the attractiveness of a siteAccessibilityMacro Analysis

Road patternNatural BarriersArtificial Barriers• Micro Analysis VisibilityTraffic FlowParking FacilityCongestion

Size and shape of trade areaPrimary Trading AreaSecondary Trading AreaFringe Trading Area

Eg. Destination StoreParasite store

Terms of Occupancy“Ownership Vs Leasing”

Straight leasePercentage leaseGraduated leaseMaintenance-increase-recouponment leaseNet lease

Methods to Evaluate A Trading areaAnalog modelRegression ModelGravity model

Reilly’s Law of Retail gravitationThe Herfindahl- Herschman IndexThe Index of Retail saturationCentral Place theoryHuff’s Model of Trading area analysis

The Herfindahl- Herschman IndexHHI-Market concentration

“It is found by adding squares of the competitors market shares within the relevant product and geographic market”

The Index of Retail saturationIRS=H* RE/RF where:IRS= Index of Retail saturationH=No. of Households in that areaRE= Annual retail expenditures for a

particular line of trade per household in that area

RT= the total square footage of that particular line of trade in that area including the proposed store

Reilly’s Law of Retail gravitation (Ba/Bb)=(Pa/Pb) (Db/Da)Where:Ba=the business which the city a draws from

the immediate placeBb=The business which city b draws from the

immediate placePa= population of city aPb= population of city bDa=Distance of city a to the immediate placeDb= Distance of city b to the immediate place

A jα Dij -β

Pij = ________ ,

∑ Ajα Dij –β

j ranges from 1 to n.

Where A j

- is a measure of attractiveness of store jDij - The distance from I to jα - Attractiveness parameterβ - Distance decay parametern - total number of stores including store j