CHAPTER -1

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CHAPTER-1

INTRODUCTION

Retailing consists of those business activities involved in the sale of goods and services to

consumers for their personal, family or household use. It is the final stage in a channel of

distribution, which comprises all of the businesses and people involved in the physical

movement and transfer of ownership of goods and services from producer to consumer.

Retailing involves

Interpreting needs of the consumers

Developing good assortments of merchandise

Presenting them in an effective manner so that consumers find it easy and

attractive to buy.

Retailing differs from marketing in the sense that it refers to only those activities, which

are related to marketing goods and/or services to final consumers for personal, family or

household use. Whereas marketing, according to American Marketing Association, refers

to ‘the process of planning and executing the conception, pricing, promotion and

distribution of ideas, goods and services to create exchanges that satisfy individual and

organizational objectives.”

Organizational buyers purchase in order to perform a task or sell a product effectively,

efficiently and at a profit. They could be industrial buyers or intermediary buyers.

Industrial buyers are those who purchase goods and services to be used in or to aid

manufacturing process. Intermediary buyers are those (i.e. wholesalers and retailers) who

buy merchandise for resale. Retailers include street vendors, local supermarkets,

department stores, restaurants, and hotels. Barbershops, airlines and even bike and car

showrooms. Still retailing may or may not involve the use of a physical location. Mail

and telephone orders, direct selling to consumers in their homes and offices and vending

machines - all fall within the purview of retailing. In addition to it, retailing mayor may

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not involve a “retailer.’ Manufacturers, importers, non-profit firms and wholesalers are

acting as retailers when they sell goods and/or services to final consumers.

Whatever the form of retailing, a retail marketing strategy defines the execution of the

marketing process and facilitation of customer satisfaction.

This retail marketing strategy involves selecting a retail target market (i.e. the

carefully/exactly identified group of final consumers that a retailer seeks to satisfy) and

then implementing the corresponding retail marketing mix (i.e. a combination of product.

price, promotion and distribution strategies that will satisfy the retail target market). The

elements of the marketing mix encompass the facets shown in the table below. The table

depicts consumer service as the crux of the whole activity.

The choice of a store location has a profound effect on the entire business life of a retail

operation. A bad choice may all but guarantee failure, a good choice success. This aid

takes up site selection criteria, such as retail compatibility and zoning, which the small

storeowner manager must consider after making basic economic, demographic, and

traffic analyses. It offers questions the retailer must ask (and find answers to) before

making the all important choice of store location. The first step in choosing a retail

business location takes place in your head. Before you do anything else, define your type

of business in the broadest terms and determine your long-term objectives. Write them

down. This exercise will help you later in choosing a retail location. In picking a store

site, many storeowners believe that it's enough to learn about the demographics ("people

information" like age, income, family size, etc.) of the population, about the kind of

competition they'll be facing, and about traffic patterns in the area they're considering.

Beyond a doubt these factors are basic to all retail location analysis. Once you've spotted

a tentative location using these factors, however, you've only done half the job. Before

you make a commitment to moving in and setting up, you must carefully check several

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more aspects of the location to help insure your satisfaction with -- and most importantly

your success at - the site you've chosen.

BACKGROUND

The retail industry is continuously changing as the global and regional economies are

transforming worldwide. Our research team virtually traces every activity in the retail

industry and provides the latest update in retail industry blogs. Our industry experts study

these developments to give critical analysis alongwith their personal opinion. Our blogs

on retail industry encompasses retail industry aspects as diverse as organized retailing,

retail channels like supermarkets, convenience store, and retail products (food and non-

food).

Retail Sector is the most booming sector in the Indian economy. Some of the biggest

players of the world are going to enter into the industry soon. It is on the threshold of a

big revolution after the IT sector. Although organized retail market is not so strong as of

now, but it is expected to grow manifolds by the year 2010. The sector contributes 10%

of the GDP, and is estimated to show 20% annual growth rate by the end of the decade.

The current growth rate is estimated to be 8.5%, but CRISIL report says that the retail

market is most fragmented in the world and only 2% of the entire retailing business is in

the organized sector. There are about 300 new malls, 1500 supermarkets and 325

departmental stores being built in the cities very soon.

The retail boom will face a strong competition from the 12 million mom-and-pop stores,

which are easily accessible and approachable and provide services like free home

delivery and goods at credit. But buying from Malls, Supermarkets and Department

stores like Subhiksha, Marks & Spencers, etc gives a different feeling and the

environment of pick and choose from a variety of products. A number of retail giants are

also going to explore the market such as Reliance Retail Ltd and Wal-mart. The

revolution is driven by large expectations where both domestic and international players

will be channel through which other large stores in India are spreading themselves across

the country.

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NEED OF THE STUDY

The choice of a store location has a profound effect on the entire business life of a retail

operation. A bad choice may all but guarantee failure, a good choice success. This aid

takes up site selection criteria, such as retail compatibility and zoning, which the small

storeowner manager must consider after making basic economic, demographic, and

traffic analyses. It offers questions the retailer must ask (and find answers to) before

making the all important choice of store location. The first step in choosing a retail

business location takes place in your head. Before you do anything else, define your type

of business in the broadest terms and determine your long-term objectives. Write them

down. This exercise will help you later in choosing a retail location. In picking a store

site, many storeowners believe that it's enough to learn about the demographics ("people

information" like age, income, family size, etc.) of the population, about the kind of

competition they'll be facing, and about traffic patterns in the area they're considering.

Beyond a doubt these factors are basic to all retail location analysis. Once you've spotted

a tentative location using these factors, however, you've only done half the job. Before

you make a commitment to moving in and setting up, you must carefully check several

more aspects of the location to help insure your satisfaction with -- and most importantly

your success at - the site you've chosen.

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SCOPE OF THE STUDY

The study will help in understanding the Location strategy and site selection for new

retail outlet and what are the things you need to know about selecting a retail location and

the main factors which affect or influence the location of retail outlet. Study will reveal

which are important factors in customer’ point of view so that by adding new service

elements along with providing better quality in delivering current service, difference may

be created.

OBJECTIVE

To Formulate the Location strategy and site selection for New Retail outlet.

What are the things you need to know about selecting a Retail Location?

What are the LOCATIONAL FACTORS that influence the Location of Retail Stores?

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CHAPTER-2

LITERATURE REVIEW

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CHAPTER-2

LITERATURE REVIEW

Retailing in India is receiving global recognition and attention and this emerging

market is witnessing a significant change in its growth and investment pattern. It is

not just the global players like Wal-Mart, Tesco and Metro group are eying to

capture a pie of this market but also the domestic corporate behemoths like Reliance,

KK Modi , Aditya Birla group, and Bharti group too are at some stage of retail

development. Reliance, announced that it will invest $3.4 billion to become the

country's largest modern retailer by establishing a chain of 1,575 stores by March

2007. The last couple of years have been rosy for real estate developers and the

retailers are finding suitable retail space in prominent locations. The industry is

buoyant about growth and the early starters are in expansion mood. There is

increased sophistication in the shopping pattern of consumers, which has resulted in

big retail chains coming up in most metros; mini metros and towns being the next

target. Consumer taste and preferences are changing leading to radical alteration in

lifestyles and spending patterns which in turn is giving rise to new business

opportunities. Companies need to be dynamic and proactive while responding to the

ever-changing trends in consumer lifestyle and behavior.

Retailing in India is currently estimated to be a USD 200 billion industry, of which

organised retailing makes up 3 percent or USD 6.4 billion. By 2010, organised retail

is projected to reach USD 23 billion and in terms of market share it is expected to

rise by 20 to 25 per cent. The report also predicts a stronger retailer growth than that

of GDP in the coming five years.

The generic growth is likely to be driven by changing lifestyles and by strong surge

in income, which in turn will be supported by favorable demographic patterns. Rapid

growth in international quality retail space brings joy to shoppers and shopping malls

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are becoming increasingly common in large cities, and announced development

plans project at least 150 new shopping malls by 2008. The number of department

stores is growing at a much faster pace than overall retail, at 24 per cent annually.

Supermarkets have been taking an increasing share of general food and grocery trade

over the last two decades.

Development of mega malls in India is adding new dimensions to the booming retail

sector. Shopping experience in the nation of shopkeepers is changing and changing

very fast. There is significant development in retail landscape not only in the metros

but also in the smaller cities. Even ITC went one step ahead to revolutionize rural

retail by developing ‘Choupal Sagar’ a rural mall. On one hand there are groups of

visionary corporate working constantly to improve upon urban shopping experience

and on the other hand some companies are trying to infuse innovative retail

experience into the rural set up.

The Larger Picture Indian economy has shown an impressive growth of over 6 per cent for last five

years and continues to surge ahead. GDP growth rate in 2003-04 recorded a fifteen

year high of 8.5% and subsequently maintained a steady growth for the next two

years. Real GDP growth accelerated from 7.5 per cent during 2004-05 to 8.4 per cent

during 2005-06 on the back of buoyant manufacturing and services activity

supported by a recovery in the agricultural sector. The central bank forecasts similar

growth of 7.5-8 percent during 2006-07. With strong economic growth consumerism

is increasing in the country and India is the fourth largest economy as far as

purchasing power parity is concerned, just behind USA, Japan and China.

Consumer Trend India is currently having the largest young population in the world and 54 per cent of

India’s population is below 25 years of age and 80 per cent are below 45 years. As

per India’s Marketing Whitebook (2006) by Businessworld, India has around 192

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million households. Of these only a little over six million are ‘affluent’ – that is, with

household income in excess of INR215, 000. Another 75 million households are in

the category of ‘well off’ immediately below the affluent, earning between

INR45,000 and INR215,000. This is a sizable proportion which offers excellent

opportunity for organized retailers to serve.

AC Nielsen’s Retail and Shopper Trends 2004 Report made the following

observations on shopper’s behaviour in India:

(1) Indian shoppers spend an average of INR2500 on food, groceries and personal

care items every month and

(2) convenience stores are booming in most markets, as the number of such stores

exceeds 80,000.

According to the report, 48 per cent of shoppers in India admit that they ‘love to try

new things’, making them the most novelty seeking shoppers around the region and

total average monthly expenditure is only $50, of this, $21 is spent on fresh food,

comprising 42 per cent of the entire monthly spend. Indians also appear to spend

more on groceries and personal care items.

Business communities believe that sizable disposable income in India is concentrated

in the urban areas and well off and affluent classes; income distribution is unequal

compared to other Asian economies. In fact, the 20 million middle class home in

rural India equal the number in urban India and thus have the same purchasing

power. Therefore, there is significant and considerable opportunity for organized

retailers in the rural areas. There is no denying that the rural market holds immense

promise for the organized retail but companies ponder over how to serve that market

profitably.

Unlike the urban market, it is less developed in terms of infrastructure and facilities.

More than any thing else, the larger issue is to find out a suitable business model and

retail format to fit local taste and preference. Of course cost of doing business in

rural market would be lesser compared to urban market but reaching out to the mass

is a concern. It is not impossible but a bit more difficult. For example the most

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successful and the largest incorporation Wal-Mart started in the rural market where

as competition started in the urban market. This retailer has proved that it is

important to understand how do you operate your business model rather than where

you do it.

Given the increasing urban exposure of rural India, the urban and the rural upper-

income groups can form an interesting continuum market, giving it a scale of 23

million households, or 115 million consumers. In 2006-07, the consuming class

would be about 60 million households, or 300 million consumers.

NCAER data shows that for 1998-99, for a basket of 22 FMCG products it tracks, a

total of over Rs 91,500 crore was spent. Of this, 37% was spent by the two lowest-

income groups in rural India, and only about 20% by the top two income groups in

urban areas. This is, perhaps, the best and only statement of the structure and

potential of the Indian market. Hence, marketers have to worry about purchasing

power of consumer not where he is living. For example there are nearly 42,000 rural

haats, average number of sales outlets per haat is 300 and average sales per outlet is

INR 900 and average foot fall in a haat is about 4,500. In rural India there are 50

million Kisan Credit Card (KCC) holders and in 2002-03, LIC sold 50 percent of its

policies in rural India. These are some of the indicators how rural India is

performing.

Drivers of Retail On one hand favorable demographic and psychographic changes in the Indian

consumer class, rising income, international exposure, availability of quality retail

space, wider brand choice and better marketing communication are some of the

factors driving Indian retail. On the other side a lot depends on the preparedness of

Indian retailers in terms of having suitable formats, scalable business model,

appropriate technology and relevant organization capability for the success.

Currently the country has a population of over one billion, 60% of which is under 30

years of age. This means majority of the population is young and working class with

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higher purchasing power. The low median age of population means a higher current

consumption rate which augurs well for the retail sector. Consumer spending in India

has grown at over 12 percent since mid-1990s and 64 per cent of Indian GDP is

accounted for by private consumption. Over the last decade, the average Indian

spending has gone up from INR 5,745 in 1992-93 to INR 16,457 in 2003-04 and is

expected to grow around its trend rate of 12 per cent

There are fundamental but significant changes underway in this country. In January

2006, the government announced that foreign companies can own up to 51 percent of

a single-brand retail company, such as Nike or Adidas. This decision would certainly

encourage retailers such as Zara and Gap to enter this market. Tesco is planning to

enter the market through a partnership with Home Care Retail Mart Pvt Ltd and

expects to open 50 stores by 2010.

Retail Space Development Through the 1990s, organised retail in India added just 1 million sq. ft of space a

year. Then, from 2001, the pace quickened dramatically. In 2003 alone, 10 million

sq. ft was added by this fledgling industry. Now the story is completely different and

the mall boom is all set to alter the competitive dynamics. Over 130 to 180 million sq

ft of new mall space are estimated to come up in the country in the next 3-5 years.

Nearly 70% of the total new mall space coming up in FY07 and FY08 will be in the

major cities reducing catchment areas for existing retailers. Key retail location like

Mumbai (up 203% to 15mn), Delhi (up 527% to 23.2mn), Bangalore (up 128% to

4.1mn), Hyderabad (up 163% to 5.3mn), and Pune (up 188% to 23.2mn) are all

seeing a mall construction boom and this space availability shall lower the barriers to

entry. A state like Punjab is in the midst of mall boom. By the end of 2005 one single

mall was operational with GRA of 1.2 lakh sq ft and by the end of 2008 there will be

37 malls operating with gross leasable area (GLA) of 15.2 million sq ft. Ludhiana is

leading the way with 11 malls and GLA of 5 million sq ft..

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Development of Retail Formats It is difficult to fit a successful international format directly and expect a similar

performance in India. The lessons from multinationals expanding to new geographies

too point to this. For example, Wal-Mart is highly successful in USA but the story is

different in Asian countries like China. Therefore, it is important for retailer to look

at local conditions and insights into the local buying behaviour before shaping the

format choice. Considering the diversity in terms of taste and preferences existing in

India the Leading Spanish fashion retail chain operates the eight store formats –

Zara, Berschka, Massimo Dutti, Pull & Bear, Stradivarius, Kiddy's Class, Oysho and

Zara Home. By the end of November 2005 it had a total of 2,643 stores in 60

countries.

Gap Inc. is one of the world's largest specialty retailers, with more than 3,000 stores

and fiscal 2005 revenues of $16 billion. The retailer offers clothing, accessories and

personal care products for men, women, children and babies under the Gap, Banana

Republic, Old Navy and Forth & Towne brand names. Gap brand includes Gap,

GapKids, babyGap and GapBody. The company also operates Gap Outlet, Banana

Republic Factory Outlet and Old Navy Outlet stores.

Retailers may go for experimentation to identify the winning format suited to

different geographies and segments. For example, the taste in south is different from

that in north and this brings challenges to the retailers. Therefore, most of grocery

retailers are region-centric at this point in time. Now a number of retailers are in a

mode of experimentation and trying several formats which are essentially

representation of retailing concepts to fit into the consumer mind space. Apart from

geography even rural and urban divide poses different kind of challenge to the

retailer. Pantaloon Retail India is experimenting with several retail formats to cater to

a wide segment of consumers in the market. Some of the new formats are Fashion

Station (popular fashion), Blue Sky (fashion accessories), aLL (fashion apparel for

plus-size individuals), Collection i (home furnishings), Depot (books & music) and

E-Zone (Consumer electronics). The retailer is trying to segment the market with the

help of format. The retailer developed another new format in the form of Wholesale

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Club to sell a segment of consumer who purchase on bulk and look out for discounts

and offers. The new format is going to be kind of wholesale club which is likely to

be located close to Food Bazaar. Consumers who are interested to purchase on bulk

can take benefit from this format. Similarly the Land mark group also operates

multiple formats such as hypermarket (Max), departmental store (Lifestyle),

Shoemart and Funcity etc. Such experimentation and identification of an appropriate

format for the local conditions would separate winners from losers in India, possibly

implying multiple formats could be the reality in the long run.

Malls

Mall development is phenomenal in India. The mall mania is spreading fast and

entering even the second tier cities in India. Real estate developers are jumping very

fast to take this further from Metro cities to smaller cities and corporate houses like

ITC and Sriram group are making steady progress to make this phenomena feasible

in rural market also. There is no denying that the top notch cities like Mumbai,

Delhi, Bangalore, Hyderabad, Kolkata, Chennai and Pune are leading the way but

the second tier cities like Ludhiana, Chandigarh, Nagapur and Surat are catching the

eye of all retailers. Retail developers are in such a mood that they may over ride the

requirement in a specific city.

Large format malls are increasingly getting prominent with adequate retail space

allocated to leisure and entertainment. Some states like Punjab have lifted

entertainment tax on multiplexes till 2009. This boosted the confidence of the mall

developers to accommodate entertainment players like PVR, Waves, Adlab and Fun

Republic in large malls. A study conducted by Knight Frank India indicates that by

2007, approximately 75 million sq ft of mall space would be available in India. Of

this, Mumbai, Pune, NCR (including Gurgaon, Noida, Greater Noida, Faridabad &

Ghaziabad), Bangalore & Hyderabad will have a 74% share. The balance 26% will

be made up by the cities like Kolkata, Chennai, Ahmedabad, Jaipur, Nagpur,

Lucknow, Indore, Ludhiana & Chandigarh. With such quantum of new format retail

space in the pipeline, innovation, striking the right tenant mix, effective mall

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management and provision of ample parking space are components that will decide

the future success of mall developments.

Department Store

A department store offers an extensive assortment (width and depth) of goods and

services that are organized into separate departments for the purpose of efficient

buying, assortment, promotion and above all ease of shopping for the consumer.

Such a format provides the greatest selection of any general merchandize and very

often serves as the anchor store in shopping mall or shopping centre. In India, the

number of department stores is less compared to other retail formats such as

supermarkets and discount stores. Shoppers' Stop is the first one to open a

department store in the early 1990s and currently operates 19 stores in 10 different

cities in India. The store strongly focuses on lifestyle retailing and mainly divides

into five departments such as apparel, accessories, home décor, gift ideas and other

services. Shopper’s Stop is getting stronger and stronger year after year. It attracts

more than 12 million shoppers every year with a conversion rate of 38 per cent. In

the end of FY2000 this retailer had 5 stores and is in the process of reaching 39

stores with retail space of 2,502,747 sq ft by FY08. Another operator Lifestyle India

began operations in 1998 with its first store in Chennai in 1999 and in March 2006 it

opened one of the largest department stores in the same city. The store spreads over

75,000 sq. ft and store provides customers a great shopping experience with three

floors of apparel, footwear, products for children, household furniture and decor,

health and beauty products.

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Hypermarket

Hypermarkets have emerged as the biggest crowd pullers due to the fact that regular

repeat purchases are a norm at such outlets. Hypermarkets not only offer consumers

the most extensive merchandise mix, product and brand choices under one roof, but

also create superior value for money advantages of hypermarket shopping. With

product categories on offer ranging from fresh produce and FMCG products to

electronics, value apparels, house ware, do it yourself (DIY) and outdoor products,

the hypermarkets are becoming popular formats in India.. Number of players

operating hypermarket format are increasing day by day.

One of the leading players in this format is Pantaloon Retail India Limited which

operates 32 Big Bazaars in twenty cities. In early 2006, the K. Raheja Corp (C.L.

Raheja Group) has introduced it’s value retail concept Hypercity which is the

country’s largest hypermarket at 118000 sq ft. Hypercity carries product range varies

from Foods, Homeware, Home Entertainment, Hi-Tech, Appliances, Furniture,

Sports, Toys & Clothing. Hypercity Retail plans to open 55 hypermarkets by 2015.

Reports in media indicate that Reliance is set to open its hyper market format called

‘Reliance Mart’ in Ahmedabad in December 2006 in 1.5 lakh sq ft of space.

As the market is expanding and consumers are in a mood to accept changes,

hypermarkets are getting overwhelming response from consumer. Currently there are

about 40 odd hypermarkets in India but this format holds a great potential for

growth. Hypermarkets can offer whole lot of benefits to consumer. As all

hypermarkets use food and grocery as crowd puller, the price plays major role. Apart

from price, other things retailers need to worry about are offering right product mix

at right price and right place. Ideally, a 40:60 mix of food to non-food should yield a

blended gross margin of around 18-19 per cent.

Hypermarkets will be successful if the retailers understand the shopper better and

design product offering tailor made for specific segment of consumer. Retailers have

to use efficient sourcing and merchandising process to bring down cost of operation.

The most important one is to phase out inefficiencies from the supply chain and pass

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on a part of that benefit to consumer. Another way of improving margin is to

increase percentage of private label or store brand.

Supermarket

Unlike western countries where supermarkets are prominently visible, in our country

this is lacking. The supermarkets largely concentrate on selling food related products

and are considerably smaller in size compared to hypermarkets. Their value

proposition is also different from the hypermarkets. The supermarkets offer

relatively less assortments but focus on specific product categories. They do not play

the game on price rather use convenience and affordability as their salient features.

In India this role is played by the provision stores and sweet shops. Interestingly the

fresh vegetables and fruits are sold on the foot path and in open markets.

Traditionally consumers feel conservative to buy fruits and vegetables from air

conditioned supermarkets. They prefer to buy either from the local mobile vegetable

sellers or from the nearest sabji market. Probably that works as deterrent factor for

the growth of supermarkets in India. But the situation is changing and slowly

supermarket operators are coming to their own.

A supermarket normally sells grocery, fresh, cut vegetables, fruits, frozen foods,

toiletries, cosmetics, small utensils, cutlery, stationery and Gift items. In India Food

World, Food Bazaar, Nilgiri (30 plus stores), and Adani are the leading super market

operators. One of the biggest super market operators in the western India is Adani

Retail Limited which operates Adani super market plans to continue its journey to

reach total 19 cities with the store strength of 60 plus in the state of Gujarat. ARL

also plans to expand its operation in the neighbouring states of Rajasthan, Madhya

Pradesh, Maharashtra and Chhattisgarh. Subhiksha is one of the leading super market

operators, who largely operates in the southern part of India is expanding to western

India. One more retailer Reliance Retail is on the move and this retailer opened its

Reliance Fresh-a super market chain with 11 stores in Hyderabad in November 2006

and is planning to enter 70 more cities within 2 years. Fabmall a part of Trinetra

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Super Retail Limited is also expanding. By June 2006 Fabmall had 28 super markets

in some cities and the retailer is planning to open 25 outlets in Kerala by March

2007.

Food Bazaar operates in major cities in India with a floor space ranging from 6,000

sq ft to 16,000 square feet and the format sells both food and non-food items. The

non-food items contribute about 22 per cent of total sales and rest is contributed by

the food related items. A Food Store stocks an average of 7,000 stock keeping units

(SKUs) and over 50,000 articles. The SKU's are divided into the broad categories -

staples, fresh produce and branded foods, home & personal care products. Staples

include groceries like rice, wheat, dal, spices and oils. Fresh produce comprise of

fruits and vegetables, which are sold loose through the concessionaire arrangement.

Along with national brands and local brands the store keeps private labels in some

product categories such as utensil cleaners, preservatives and bakery products. For

example in utensil cleaner category private label gives the highest margin about 25

per cent and commands a share of 50 per cent in the store. The private labels offer

flexibility to both the retailer and the consumer on price front. The objective of the

store is to offer variety at affordable price in each category. Food Bazaar is made the

transition from a just grocery retailer to developing emotional bonding with shoppers

by providing some value added services to the shoppers. Some of these initiatives

include:

Live chakki: which allows customers to buy fresh wheat and have it grinded there at

the store

Fresh Juice counter: This provides customer to have fresh juices.

Live dairy: This provides customers with fresh milk and milk products.

Live kitchen: Customers have the option of buying vegetables, getting them

chopped, cooked fully or partly. Soups, salads and sandwiches are also available

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Convenience Stores

A Convenience store offers location advantage for the shoppers and provides ease of

shopping and customized service to the shoppers. It charges average to above

average prices, depending on the product category and carries a moderate number of

stock keeping units (SKUs). Normally it remains open for long hours and shoppers

use it for buying fill-in merchandize and emergency purchases. In India,

Convenience stores occupied 23 thousand sq. meter of retail space with sales of

about Rs 1347 million in 2005 and are expected occupy 85 thousand square meter of

selling space by 2010 . During the same period, sales is expected to touch Rs 5271

million and number of outlets are likely to grow from 510 to 2434. Twenty Four

Seven a new format of convenience store is operational in Delhi from June 2005.

Twenty Four Seven's portfolio comprises 3,500 stock keeping units (SKUs) of

branded fast-moving consumer goods and another 3,500 SKUs of prescription and

over-the-counter drugs besides 300 private labels products across food, focusing on

staples such as pulses and rice. The promoter of this format, the Modi group, plans to

set up 500 convenience stores in Delhi and Mumbai by 2007.

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Discounters

Wal-Mart, the largest retailer in the world is a discounter. Practically the discounters

offer several advantages such as lower price, wider assortment and quality assurance.

The discounters like Wal-Mart and Aldi were able to quickly build scale and pass on

benefits to the consumer. However, in the long run success depends on the

operational efficiency and consistent value delivery to the consumer. The same

retailer Wal-Mart struggles in Asian countries like China but extremely successful in

USA. It is believed that the average Indian consumer is highly price-sensitive and

looks for savings in term of money in her grocery purchase. So price-value equation

is a critical component in most of the grocery purchases. Despite this, there is hardly

any national level discount chain operating in India. But retailers such as Aldi and

Lidl are extremely successful in Europe. Due to regulatory issues no such retailers

are allowed to sale their products directly to consumer. But they can sell in a cash

and carry format which is exclusively B2B context. If these retailers are allowed to

operate in India through their retailer stores they may find it extremely difficult in

the early stages because of lack of experience in the grocery retailing in this market.

Unlike the western markets where retailers largely depend on private labels to offer

price advantage, here the concept of private label is very early stage. Some of the

food retailers like Food-world and Adani sell private labels but they are not

discounters. Soft discounters are present in India, although their influence on grocery

retailing in 2005 was very minimal with a value share at less than half a percentage

point.

The absence of strong discounters and the lack of local retailer’s initiatives in

discounters have several reasons. Unlike most Western countries, Indian retailers are

mainly small stores and do not have much bargaining power with manufacturers in

order to negotiate terms. Due to low economies of scale, retailers are unable to offer

significant discounts on their own. Consequently, the presence of discounters is

much smaller than that of supermarkets. According to Euro-monitor (2006) report, in

India there are 410 discount stores with 63 thousand sq, meter selling space and by

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2010 that figure is going to be 555 discount retail outlets with 85 thousand selling

space. Subhiksha, the Chennai based discount retail chain is going national. By July

2006 the retail chain had around 150 stores and planning to open 350 more by March

2007. The National Capital Region (NCR) is going to get a fair share of 145 stores.

Apart from the NCR the retail chain is actively looking at markets in Maharastra,

Gujarat, Andhra Pradesh and Karnataka. The retail chain already started operation in

Ahmedabad but the stores are largely selling fruits and vegetables at this point of

time. They claim that they sell at a lower price compared to other places in the local

market.

Branded Store

The major apparel brands in India are Madura Garments, Zodiac, Raymonds, Colour

Plus and Arvind Mills. Some of branded apparel stores prominent in India are

Madura Garments (140 stores), Weekender (75 stores), Benetton (100 stores),

Grasim (110 exclusive showrooms), Madura Garments (40 stores), Wills Life style

(40 stores), Lee (59 stores), Newport (500 stores), Wrangler (37 stores), John Players

(80 stores) and Raymond. Raymond a nation wide retail chain has 260 Raymond

shops deals in fabrics, apparels and accessories. In addition to that its distribution

network includes 20 exclusive Park Avenue Parx stores, and 1,000 multi-brand

outlets. These specialty stores sell the well known brands like Park Avenue, Parx,

Manzoni and Be. Park Avenue is an up-market brand, while Parx and Manzoni are

targeted at the casual wear and the premium ranges respectively. 'Be:' is especially a

brand for women’s wear. Similarly BK Birla’s Century Textile plans to increase its

number of outlets from 60 currently to 100 by next year.

International brands like Tommy Hilfinger are also present in India through franchise

arrangements with Arvind Murjani Brand Private Limited (AMBPL) and its first

store was opened at Banjara Hills, Hyderabad. The 3,840 sq ft store retails wide

variety of products such as men’s denim wear & sports wear, women’s sportswear,

junior jeans and accessories like handbags, belts and watches. Apart from the new

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store in Hyderabad, Tommy Hilfinger is also available in its exclusive stores in New

Delhi, Gurgaon, Chandigarh, Bangalore and Mumbai.

There is no major Indian retailer in the sports and foot wear category. Reebok (85

stores) is the market leader here in India and there is no clear-cut winner in the

second place. In fact, this segment is dominated mainly by foreign labels – Levis,

Lee Cooper, United Colors of Benetton, Lacoste, Adidas (76 stores), Nike (62

stores), and Woodland (58 stores), etc. Indian labels are few and far between –

Proline is the best-known Indian brand and the other brands are more local in nature.

The other Indian retailer which is making some sort of impact is Wills Sports with 29

stores across different cities in India.

Category Killer

The category killer concept originated in the U.S. due to abundance of cheap land

and the dominant car culture. Category Killer is a kind of discount specialty store

that offers less variety but deep assortment of merchandise. By offering a deep

assortment in a category at comparative low prices, category specialist can be able to

“kill’ that specific category of merchandize for other retailers. Generally such kind of

retailers uses a self service approach. They use their buying power to negotiate low

prices, excellent terms and assured supply when items are scarce. In India this kind

of retail stores are not prevalent at this point of time. But there is scope for such kind

of format. In India, Mega-Mart is one sort of category killer which sells apparel

products.

Dollar Stores

Dollar stores have their roots in America's homey five-and- dimes, the general stores

that offered a range of products at low prices. But modern dollar-store retailers are

having more sophisticated operations; leveraging their growing buying power to

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strike special deals with vendors and continuously striving for unique advantage of

both convenience and price. Some chains sell all their goods at $1 or less. Others

offer selected items at higher prices. Most sell a combination of paper products,

health and beauty supplies, cleaning products, paper and stationery, household

goods, toys, food and sometimes clothing. Both private-label and brand-name goods

fill the shelves. They are looking for employing technology to manage large

distribution networks. US based My Dollar Store started operation in Mumbai

through master franchise arrangements with Sankalp Retail Value. The store opened

with a floor space of about 4,000 sq ft of space in Nirmal Lifestyle and offers wide

range of products ranging from shampoos-to-juice-toys16. In September 2005,

Mallz99 chain of dollar stores has also started operation in Malviya Nagar, South

Delhi and the retailer has a plan to open 200 stores (both franchised & company

owned) in India by 2009. The store offers over 1000 imported products that are

priced at INR 99. Major product categories sold at the store are cleaning, health &

beauty, hardware, plastic ware, kitchenware, candles, flowers, household items,

home-décor, automobile, stationary, disposables, party supplies, fashion jewelry,

glassware, chocolate & confectionary, gifts, toys, products for pets, melamine ware,

novelties, socks and fashion accessories. For keeping the store attractive for shoppers

the store adds new products on a weekly basis. Mulund boasts of three dollar shops

on SL Road, and one in Mulund (E) near the station. Royal Shoppe on SL Road

offers everything from crockery to towels, shoes, curios, lamps, etc. Royal Shoppe

now offers goods ranging from Rs 29 to over Rs 1,699.

Internet Retailing The importance of internet retailing is growing all over the world. Some internet

retailers such as ebay and rediff.com are providing a platform to vendors to sell their

products online and they do not take the responsibility of delivering the product to

buyer. They provide virtual shopping space to the vendors. On the other hand online

retailers like amazon.com and walmart.com have to maintain their warehouse to

stock products and take the responsibility of delivering products to the buyer. So,

most of the brick and mortar stores are entering into online retailing as they have

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physical infrastructure and they can use that to capture additional consumer wallet.

All the big retailers like Target, Sears and Kmart are operating online shop and some

manufactures also operate online. For example Apple Inc. operates through

apple.com and Dell Inc. sells its products online through dell.com.

In India internet retailing is growing by 29% CAGR and Euromonitor report

estimates that the a CAGR 48 per cent and in value term it going to touch INR 27

billion by 2010 from INR 4 billion in 2005. The report also predicts that the

contribution of internet retailing to non-store retailing to is likely to be 46 per cent by

2010. In 2005 LG Ezbuy was the major internet retailer in value terms with a

commanding share of close to 23 per cent. Other major players in terms of value

share are Times Internet (indiatimes.com), Yahoo Web services (yahoo.com), India

Online (Rediff.com), Fabmall and Sify.com. Fabmall online store offers about three

million stock keeping units and attracts about 10,000 visitors per day and on average

ships over 20,000 orders per month. Fabmall sells major product categories

jewellery, Electronics, Books, Movies, Music and Gifts.

Beyond Format Retailers need to think about shoppers not just about formats as understanding the

shoppers’ dynamic holds key to such a business. Retailers must understand what

value shopper is looking for and how the retailers can deliver that desired value to

the customer. However, most retailers look for what they are offering and how

shoppers can fit into retailer’s scheme of offerings. In the long run such strategies

may not be viable. Sam Walton and Jack Welch share a same line of thinking that

consumer is the source of competitive advantage and one of leading UK based

retailers Tesco Inc. has shown how understanding consumer can be a source of

redefining business and gaining sustainable advantage. The retailer operates four

different retail formats namely Express (546), Super store (446), Metro (160) and

Extra (100) to cater consumer need. The Group also has an additional 527 stores

under the One Stop fascia. All the formats are profitable and each format is tailor

made to fulfill customer need. It is the value offering which makes Tesco so popular

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and profitable. Similarly in India Pantaloon Retail runs several formats and for value

retailing Big Bazaar is receiving exceptional response from the consumer.

Retailing in India is completely different from western countries for that matter even

from Asian counter parts. Studies show that upgraded Kirana stores are growing at

the same rate as organized retailers. Even though the format remains the same, the

value delivery has changed. In the changing retailing environment understanding the

psyche of consumer is critical to business. Aggregate level picture may mislead, so

individual level understanding is desirable. Finally, it is not the format gives business

sustainability rather it is one of the vehicles to deliver value to the consumer. Some

of the Kirana store owner view there is no competition from the big retailers because

they know their customer better. Even some Kirana stores go one step ahead to

define their target segment by residents of the nearest society or colony.

Challenges Ahead

Infrastructure Even though there is huge investment coming especially in the area of retail space

development in the form of mall development, the challenges remain same from a

retailer’s view point as the cost to acquire retail space in mall is increasing.

Researchers from Knight Frank India, a real estate consultancy, cipher that rentals in

established malls in top metros have jumped by 20-30 % in the last six months.

Generally retailers work out a rent-to-revenue ratio with developers at which they

feel they can sustain their business. Normally, this figure varies between 4% for a

hypermarket (that is, rent will constitute 4% of revenues) and 10% for a department

store, to nearly 20% for very niche retailers. But, at a monthly rate of Rs 200 per sq

ft, a department store might have to make Rs 2,000 per sq ft per month just to break

even. In such a scenario the reality of retail business could change and sustaining

profitable business could pose the highest threat of its kind.

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Technology Technology is going to play a major role in retail development in India. Retailers are

going to experience the impact of technology in retail. Currently most of the retailers

are operating almost everything manually. A country where almost 97 percent of

retailing is in the hand of unorganized retailers it is predictable that the retailers are

going have operational inefficiency. They face several challenges like maintaining

inventory, ordering and above all keeping track of customer by maintaining

consumer data base. Technology can be useful in this aspect. Most of the organized

retailers are using available and affordable technology to capture consumer

information. Modern retailers are using scanner data to figure out answer to lot of

questions. Through technology retailers can capture a whole lot of segmentation

variables and subsequently use them for shopper segmentation. Technology helps to

take better decision in some critical areas such as new product introduction, suitable

product offering, quicker ordering and assortment planning. Retailers use shopper’s

loyalty data to design customized promotional offering for different set of customers.

Supply chain Till now most retailers in India have invested majorly into the front end but

relatively little on the back end and supply chain. Even in countries like the USA,

Germany and England where organized retail is highly developed supply chain

efficiency is a concern. The nature of retail sector in India is different from other

countries around the world. The biggest retailer in India, Pantaloon Retail is yet to

open stores in each & every major city in India. Probably that is an indication of how

the retail concentration is happening mainly in big cities. The sector is highly

fragmented and organized retail contributes hardly 3-4 percent of total retailing pie.

There are huge inefficiencies in the supply chain. For example Indian supply chain

for food products is characterized by extensive wastage and poor handling. The

wastage occurs because of multiple points of manual handling, poor packaging, and

lack of availability of temperature controlled vans. The most important part of

retailing business is to find a balance between investing in front-end and back-end

operations. The channel dynamics is going to change over next couple of years as the

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retailers start growing in size and their bargaining power is likely to increase.

Probably that would bring some kind of mutual understanding between manufactures

and retailers to develop strong supply chain network. In such a scenario, both the

existing operators and new operators must put collaborative efforts to phase out

inefficiencies in the supply chain network. In a special lecture series at Indian

Institute of Management, Ahmedabad, honorable minister for Railway, Mr. Laloo

Prasad Yadav raised his concern over safe transportation of food. The minister is

looking forward to use railway infrastructure to carry fresh fruits and vegetables in

temperature controlled containers from various nodal points essentially opened in

railway stations to different parts in India. Probably that would help a lot in reducing

wastage in the supply chain and retailers would be happy to use railway

infrastructure rather than spending huge amount of money in developing

infrastructure. New entrants like Reliance Retail is believed to be investing

substantially in the supply chain especially cold chain as it is set to start its venture

by opening ‘Reliance Fresh’ stores. Size of the store is likely to be around 4000 sq.

ft. and expected to sell fruits and vegetables. Fresh Plus, another format is likely to

have size between 4000 sq. ft and 10000 sq. ft.

Human resource Even though AT Kearny places India as most attractive retail market for the second

consecutive year in a row but it is lagging behind in the retail labor index and

positioned in the 8th place. At this point of time talent is in short supply and

employee churn has been high for all players. It is very difficult to get experienced

store managers to run stores. For example, currently Pantaloon Retail India is

operating around 48 Food Bazaars across the county and planning to increase the

number to over 80 stores by the end of 2006. The retailer is ready with retail space in

different malls and high traffic retail location but availability of qualified and

experienced personnel is still a big concern for the retailer. Almost all retailers are

indulged in poaching which is not a permanent solution. There is absolutely no issue

in getting retailing space in prime locations but the bigger concern is to find

additional store managers. The way the sector is growing in terms of opening stores

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it is very predictable that there is going to be huge scarcity of professionals to

manage stores. Reliance Retail is planning to employ half a million work force in

various levels in next five years. Currently the sector is facing a shortage of human

resources. It is very difficult to develop human capital in a short time span of five

years. If we look at the human resources employed by global retailers like Wal-Mart,

Carrefour, Tesco, Home Depot and Ahold, we find that none other than Wal-Mart

exceeds half a million. Considering our robust policies for retaining and developing

workforce, retailers should not worry about shortage of talent pool in the long run.

The country also possesses a rapidly growing cadre of promising professional

managers, a large educational system, and there is a cultural willingness among

employees to work cooperatively with management. If, we use these resources

properly we can develop a large talent pool to fulfill the growing demand for various

positions in the retail organization.

Foreign Direct Investment

Though talk of opening up the retail sector for FDI has been making the rounds for

quite some time now, no major breakthrough has happened yet. The country is

expecting a strong economic growth of about 8-10% per year and this can be

achieved by raising the rate of investments as well as by generating demand for the

increased goods and services produced. Retail contributes about 10% to the national

GDP and is expected to increase over the next decade or so. PricewaterhouseCoopers

estimates that Indian retail will get USD 412 by 2011and majority of investment will

be directed toward the two most popular retail formats: hyper markets and

supermarkets.

Growth of this sector holds paramount importance to the Indian economy, so any

augmentation of this sector will have a resultant growth effect on the economy.

Although at this point in time FDI in retailing is receiving mixed reaction, but our

feeling is that FDI would bring a lot of positive changes both for the operators and

the consumer. The infusion of much-needed foreign investment would result in:

(1) Retail consolidation and increase in the share of the organised retail sector,

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(2) increase in employment in retail

(3) Increase supply chain efficiency which would lead to lower prices, superior

quality for consumers,

(4) Enhanced opportunity for domestic operators to join hand with global retail

players to bring in technical know how and global practices,

(5) Making shoppers feel international shopping experience.

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Emerging Trends in Modern Retail

Formats & Customer Shopping

Behavior in Indian Scenario

India has witnessed a frenetic pace of retail development over the past five years.

Goldman Sachs has estimated that the Indian Economic growth could actually exceed

that of China by 2015. It is believed that the Country has potential to deliver the faster

growth over the next 50 years.

As we all know that India has been a nation of Dukandars, having –approximately 12

million retailers. Obviously retailing is in our blood –either as a shopkeeper or as a

shopper. The Indian Retail market is estimated to grow from the current US $ 330 billion

to US $ 427 billion by 2010 & U. S. $ 637 by 2015. Retail which contributes 10% of our

GDP is the largest source of employment after agriculture.

In the year 2004, ratio of organized-Unorganized retail was 3:97 which is expected to be

9:91 by 2010. It is not just the global players like Wal-Mart, Tesco and Metro group are

eying to capture a pie of this galloping market but also the domestic corporate behemoths

like Reliance, NeelKamal, KK Modi, Aditya Birla group, and Bharti group too are at the

same stage of retail development...

There is increased sophistication in the shopping pattern of customers, which has resulted

to the emergence of big retail chains in most metros; mini metros and towns being the

next target. Customer taste and preferences are changing leading to radical transformation

in lifestyles and spending patterns which in turn is giving rise to new business

opportunities.

The generic growth is likely to be driven by changing lifestyles and by strong surge in

income, which in turn will be supported by favorable demographic patterns.

Development of mega malls in India is adding new dimensions to the booming retail

sector. There is significant development in retail landscape not only in the metros but also

in the smaller cities. Even ITC went one step ahead to revolutionize rural retail by

developing ‘Choupal Sagar’; a rural mall, for the Rural India. On one hand there are

30

groups of visionary corporate working constantly to improve upon urban shopping

experience and on the other hand some companies are trying to infuse innovative retail

experience into the rural Set up. Given the situation we can say that Indian Retailing is at

boom.

The Macro Picture:

Retailer inspired by the wall-mart story of growth in small town America, are tempted to

focus on smaller towns and villages in India. However, a careful analysis of the town

strata-wise population, population growth, migration trends of customer spending

analysis reveals a very different picture of India

As per the NCAER estimates the share of the 35 towns with a present population of

greater than 1 million in India’s total population would grow much faster than their

smaller counterparts, from 10.2 % today to reach 14.4 % by 2025.

Simultaneously, the share of these towns in retail market would grow from 21 % today to

40 % by 2025. Within these top 35 towns, an estimated 70 to 80 % of retail trade would

be in the organized sector. This is similar to the experience in China where in cities like

Sanghai and Beijing, the organized sector accounts for 70 to 80 % of overall retails trade

in certain categories. Retailers should therefore focus on top 37 towns in the next decade,

as the opportunity in smaller towns and rural India would be smaller and more

fragmented as compared to the larger towns. But again this is the one side of the coin.

only.

Classification of India (Customers) on the basis of Research: Research Conducted by

Future Group future group2 research classifies Indian Customers into three sets and

provides a base to the retailers in segmenting the Indian market. The research shows that

serving class consists of approximately 55% of the population, the major one & only 14%

are in the upper middle class, regarded as consuming class.

31

It indicates that retailers should target this segment (India 2) rather than focusing on India

one only, and should formulate their strategies according to the needs and expectations of

serving class, to flourish in the market

Classification of Customers

India 1 India 2 India 3Consuming Class Serving Class Struggling class

Constitutes only 14 % of the country’s population

Most of these customers have a substantial disposable income and they form part of usually called as the upper middle and the lower middle class

Includes people like drivers, house hold helpers, office peons, liftmen, washer man etc.

These people make life easier and more comfortable for the consuming class or India 1.

Research indicates that for every India one at least three India Twos are there, making up approx. 55 % of the population but due to low income they have a very little disposable income to spend on buying aspirational goods & services .

It lives hand-to-mouth existence, so can not afford to even aspire for good living.

Unfortunately this segment will continue to be on the peripheries of the consumption cycle in India, in years to come.

Source: Future Group Research, Published in the Book “It Happened in India” by Kishore Biyani, 2007 issue.

Emerging Trends in Consumers’ Income & Consumption Pattern: NCAER study and some other data published by different research & consulting sources indicate the following trend in Consumer income and put the following projections about the Indian retailing:

1) Growing Prosperity: Making Indian Consumers Great: As

per India’s Marketing White book (2006)3 by Business world,

India has around 192 million households. Of these, only a little

over six million are ‘affluent’ – that is, with household income in

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excess of INR215, 000. Another 75 million households are in the

category of ‘well off’ immediately below the affluent, earning

between INR45, 000 and INR 2, 15,000.

2) Increase in the Sizable Disposable Income: Business communities believe that

sizable disposable income in India is concentrated in the urban areas and well off and

affluent classes; income distribution in India is unequal compared to other Asian

economies. In fact, the 20 million middle class home in rural India equals the number in

urban India4 and thus have the same purchasing power.

Therefore, there is significant and considerable opportunity for organized retailers in the

rural areas as well. There is no denying that the rural market holds immense promise for

the organized retail but companies ponder over, how to serve that market profitably.

Unlike the urban market, it is less developed in terms of infrastructural facilities.

3) Place is no more important: The Major issue is to find out a suitable business model

and retail format to fit local taste and preferences. Of course, cost of doing business in

rural market would be lesser, as compared to urban market but reaching out to the mass is

a concern. For example the most successful and the largest incorporation, Wal-Mart

started in the rural market where as competition started in the urban market. This retailer

has proved that it is important to understand how do you operate your business model

rather than where you do it. Given the increasing urban exposure of rural India, the urban

and the rural upper-income groups can form an interesting continuum market, giving it a

scale of 23 million households, or 115 million consumers.

4) Increasing Potential in Rural Markets: NCAER data shows that for 1998-99, for a

basket of 22 FMCG products it tracks, a total of over Rs 91,500 crore was spent. Of this,

37% was spent by the two lowest-income groups in rural India, and only about 20% by

the top two income groups in urban areas.

This is, perhaps, the best and only statement of the structure and potential of the Indian

market. Hence, marketers have to worry about purchasing power of consumers not where

do they reside. For example there are nearly 42,000 rural haats, average number of sales

33

outlets per haat is 300 and average sales per outlet is INR 900 and average foot fall in a

haat is about 4,500. In rural India there are 50 million Kisan Credit Card (KCC) holders.

These are some of the indicators how rural India is performing well & coming up.

5) As per NCAER data no. of Household having income of < 90,000 per annum in

2005-06 was 1,32,249 ( 000) is projected to come down to 1,14,394 by 2009-10 which

indicates that middle class is growing and they are emerging as real customers.

( Annexure:1,2,3,4)

6) Higher Proportionate Rural Expenditure: While an average City-dweller may be

spending almost twice than his counter-part in rural areas but in terms of allocation of his

budget to key segments, the villager has sprung a few surprises. According to the latest

data on household Consumption expenditure, rural India is allocating almost 10% of the

monthly household Budget for fuel & Lighting while an average urban household spends

9% under the same head. (Annexure: 11) .Still it remains attractive because of intense

competition in Urban India.

In value terms, however there is a sharp difference with rural Indian households

earmarking Rs. 60 a month as consumption expenditure, compared to Rs.110 in cities and

towns. After all, at Rs.19 a day or Rs. 625 a month, the average consumption spending

too is low in rural areas, compared to Rs. 39 a day or Rs.1171 a month in urban India.

The rapid rise in incomes will lead to an even faster increase in demand for consumer

durables and expendables. Result by; the ownership of goods will also go up significantly

by getting empowered through rise in the size of the great Indian middle class.

7) Young Population: By 2010 almost half of our citizens will be in the working age

group of 20-24 years. A youthful, exuberant generation, bred on success will not drive

the productivity but also set a spiraling effect on consumption & generation of income.

Currently the country has a population of over one billion, 60% of which is under 30

years of age. This means majority of the population is young and working class with

higher purchasing power. The low median age of population means a higher current

consumption rate which augurs well for the retail sector. Consumer spending in India has

34

grown at over 12 percent since mid-1990s and 64 per cent of Indian GDP is accounted for

by private consumption. Over the last decade, the average Indian spending has gone up

from INR 5,745 in 1992-93 to INR 16,457 in 2003-04 and is expected to grow around its

trend rate of 12 per cent per annum.

8) Fundamental Changes in Indian Economy: There are fundamental but significant

changes underway in our economy. In January 2006, the government announced that

foreign companies can own up to 51 percent of a single brand retail company, such as

Nike or Adidas. This decision would certainly encourage retailers such as Zara5 and Gap6

to enter this market. Tesco is planning to enter the market through a partnership with

Home Care Retail Mart Pvt Ltd and expects to open 50 stores by 2010.7

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CHAPTER – 3

RESEARCH METHODOLOGY

CHAPTER-336

RESEARCH METHODOLOGY

Most sciences have their own specific scientific methods, which are supported by

methodologies (i.e., rationale that support the method's validity).

The social sciences are methodologically diverse using qualitative, quantitative, and mixed-

methods approaches. Qualitative methods include the case study, phenomenology, grounded

theory, and ethnography, among others. Quantitative methods include hypothesis testing,

power analysis, met analysis, observational studies, re sampling, randomized controlled trials,

regression analysis, multilevel modeling, and high-dimensional data analysis, among others.

Types of Research

The research study under consideration is exploratory type.

Basically there are two broad kinds of researches

Exploratory Research : This seeks to discover new relationships.

Conclusive Research : It is designed to help executive choose the various

Course of action.

As research design applicable to exploratory studies are different from objectives firmly in

mind while designing the research. Which searching for hypothesis, exploratory designs are

37

appropriate; when hypothesis have been established and are to be listed, conclusive designs are

needed. It should be noted however, that the research process tends to become circular over a

period of time. Exploratory research may define hypothesis, which are then tested by

conclusive research; but a by product of the conclusive research may be a suggestion of a new

opportunity or a new difficulty.

Other characteristics of exploratory research are flexibility and ingenuity, which characterize

the investigation. As we proceed with the investigating it must be on the alert to recognize new

ideas, as it can then swing the research in the new direction until they have exhausted it or have

found a better idea. Thus they may be constantly changing the focus of invest as new

possibilities come to attention.

It should be added here that formal design in the researcher is the key factor.

Study of secondary sources of information.

The reason for selecting this mode of research for this type is that it’s a probably quickest and

most economical way for research to find possible hypothesis and to take advantage of the

work of to others and utilize their own earlier efforts. Most large companies that have

maintained marketing research programs over a number of years have accumulated significant

libraries of research organizations furnishing continuing data.

DATA SOURCE

38

Sources of information for the purpose of this project study, primary secondary data was

collected & observation study was made.

PRIMARY DATA – Data original, collected form investigation are known as primary data.

The primary data in this study was collected from the retailers for this purpose questionnaires

were framed for consumer.

SECONDARY DATA

Secondary data means data that are already available i.e. they refer to the data which have

already been collected and analyzed by someone else. When the researcher utilizes secondary

data, then he has to look into various sources from where he can obtain them. In this scale he is

certainly not confronted with the problems that are usually associated with the collection of

original data. Secondary data may either be published or unpublished. Usually published data

are available in various publications of the central, state, and local bodies. In technical and

trade journals, books magazines, newspaper, reports and publication of various associations

connected with business and industry, banks, stock exchanges etc.

Procedure

The research to be conducted to achieve the objectives is both exploratory and descriptive in

nature and involved responses collected through secondary data.

Types of Data :

Secondary: Websites, Annual reports of the companies, Magazines, CMIE data base etc.

As it is a secondary research, all the data is selected after rigorous analysis of articles from

newspapers, magazines and internet.

All the research collected is done by marketing analyst across the world and is compiled in this

project to understand this term “Study of factors that influence the location of a retail store”

more effectively.

39

CHAPTER - 4

DESCRIPTION OF ANALYTIC FRAMEWORK/ MODEL USED

40

CHAPTER-4

DESCRITIVE WORK

Retail Revolution is a strategic marketing firm with expertise in and passion for place-based

marketing - helping dynamic retailers get the best results from their location. Our site selection

service includes:

Market Analysis . Complete overview of the demographic and competitive environment

of your business, including trade area analyses and customer targeting

Location Strategy . Using the information gathered in the market analysis, a

comprehensive location strategy will be developed, including key spatial factors, square

footage ratio calculations, and .ideal. site descriptions .

Site Specific Analyses . Once the location strategy has been determined and shared

with a commercial realtor, Retail Revolution will conduct on-site investigations of

proposed outlets, exploring things like signage site lines, pedestrian and auto traffic

counts, access, and how the site fits into the surrounding retail environment

We are dedicated to making your business work; however we will not hesitate to recommend

changes, delays, or even outright cancellation of the retail project if we feel your time or

money will be wasted.

The majority of retail locations fail . but that.s because the majority do not ever take the time to

methodically and thoughtfully explore the relationships between their product, location, and

customers. By coming to Retail Revolution you.ve already put yourself ahead of the pack.

41

CHOOSING A RETAIL LOCATION

The choice of a store location has a profound effect on the entire business life of a retail

operation. A bad choice may all but guarantee failure, a good choice success.

This aid takes up site selection criteria, such as retail compatibility and zoning, which the

small storeowner manager must consider after making basic economic, demographic, and

traffic analyses. It offers questions the retailer must ask (and find answers to) before making

the all important choice of store location.

The first step in choosing a retail business location takes place in your head. Before you do

anything else, define your type of business in the broadest terms and determine your long-term

objectives. Write them down. This exercise will help you later in choosing a retail location.

In picking a store site, many storeowners believe that it's enough to learn about the

demographics ("people information" like age, income, family size, etc.) of the population,

about the kind of competition they'll be facing, and about traffic patterns in the area they're

considering. Beyond a doubt these factors are basic to all retail location analysis.

Once you've spotted a tentative location using these factors, however, you've only done half the

job. Before you make a commitment to moving in and setting up, you must carefully check

several more aspects of the location to help insure your satisfaction with -- and most

importantly your success at - the site you've chosen.

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LOCATION STRATEGY & SITE SELECTION FOR

NEW RETAIL OUTLETS

Retail Revolution is a strategic marketing firm with expertise in and passion for place-based

marketing - helping dynamic retailers get the best results from their location. Our site selection

service includes:

! Market Analysis . Complete overview of the demographic and competitive environment of

your business, including trade area analyses and customer targeting.

! Location Strategy . Using the information gathered in the market analysis, a comprehensive

location strategy will be developed, including key spatial factors, square footage ratio

calculations, and .ideal. site descriptions.

! Site Specific Analyses . Once the location strategy has been determined and shared with a

commercial realtor, Retail Revolution will conduct on-site investigations of proposed outlets,

exploring things like signage site lines, pedestrian and auto traffic counts, access, and how the

site fits into the surrounding retail environment.

We are dedicated to making your business work; however we will not hesitate to recommend

changes, delays, or even outright cancellation of the retail project if we feel your time or

money will be wasted.

The majority of retail locations fail .but that.s because the majority do not ever take the time to methodically and thoughtfully explore the relationships between their product, location, and customers.

By coming to Retail Revolution you.ve already put yourself ahead of the pack.

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The Challenge

Opening a new retail location isn.t easy . whether it.s it is your 1st, 5th, or 125th. Independent

retailers often do not have to resources to consider the very basic needs of an outlet, such as:

! The store must be situated at a location which optimizes exposure to target consumers and is

accessible . on foot, by car, or by transit.

! The store must generate enough revenue per square foot to cover the cost of rent; insurance;

any applicable parking fees; any applicable sprinkler, trash or sewage fees; any applicable

taxes; any heating, ventilating and air conditioning (HVAC) costs; any common area

maintenance (CAM) costs; and the wages of employees. Issues

! In addition to covering costs, it is necessary for the store to turn a profit within a reasonable

amount of time in order to make the venture worthwhile and to justify the tremendous

investment made by owners and managers. A thorough marketing analysis and solid location

strategy will position your new outlet for success, both financially/logistically as well as in

relation to competitors.

Three important factors determine a retailer.s success:

Location, Location, Location.

Marketing Analysis

Before a successful location strategy can be developed, a full assessment of the market

conditions must be carried out. We accomplish this by analyzing three sets of information:

1. Strategic Context

This is determined through 1-2 in-person meetings with the client, as well as continual

communication over the course of the project. This process gives us direction by determining:

a. Vision/mission of the store . What do you want it to be and do?

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b. Your strengths and weaknesses

c. The opportunities and threats that you face.

2. Environmental/Situational Context

This analysis is done through external secondary research and provides an overview of larger

forces that will affect your business, including:

a. Legal/regulatory issues

b. Economic/political/social issues

c. Cultural and Vancouver-specific trends

3. Market Research

The most important step: determining the nature of your industry, customers, and competition.

This includes:

a. The location strategy of other thrift stores . where they are, what populations do they serve,

how big are their sales?

b. The market segments that would shop at your store . who are they and what are their spatial

characteristics?

c. An industry-specific trade area analysis, mapping the size and nature of the existing thrift

store market in Vancouver.

Once the marketplace is understood, a detailed and precise location

strategy is possible.

Location Strategy

This is when tough decisions must be made. Where do we want the store? How big will it be?

And most importantly: Is this a viable project? Using the data from the marketing analysis as

well as further consultation with the client, the location strategy outlines:

! Key Factors

What are the main geographic and real estate .related criterion for the success of the new store?

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! Square Footage Ratios

There is a well-defined and extremely important relationship between your inventory, your

costs and the square footage of your store. We help you find the best balance for your specific

situation. The best store size is the one that finds an equilibrium between sales/sq.ft and costs

per sq.ft. (and eventually, a profit/sq.ft).

FIGURE NO 1

! .Ideal. Site List

Given the key factors and revenue/cost/square footage calculations, we provide a description of

your model location; including specific areas, neighbourhoods and streets in Vancouver where

it would be located. This is meant to give the client points of reference to evaluate the strategy.

It is also meant to help the commercial realtor in the search for a site.

With a Location Strategy in place, we being work with a commercial realtor to

find existing sites for lease that best match the defined criteria.

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Specific Site Analysis

For each site found by the commercial realtor, Retail Revolution carries out a full onsite

evaluation of the following:

! Site lines for signage

! Pedestrian and auto traffic counts

! Access points, including parking lots, transit routes, sidewalks, etc.

! The neighbourhood retail environment, including an analysis of generative stores and non

industry competition

At the end of the site analysis we answer the question:

Does this site fit enough of the key factors to make it viable, and are its physical and

demographic characteristics good enough to make the store a success?

If yes, we recommend the client take the location. If not, we keep looking. The length of time

spent searching for a suitable site is at the discretion of the client, however if we feel that the

current real estate environment is not suitable for your project at this point in time, we will

recommend delaying until there are more favorable conditions.

We do not believe in settling for a mediocre location. Opening a store

without careful deliberation is a wa

ste of everyone.s time and money .

especially yours.

We are dedicated to defining and subsequently finding the best possible site

for your business.

7 Things You Need To Know About Selecting a Retail Location

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Selecting a location for your retail store is one of the most important decisions you will make

as a small business owner. Picking the right location can lead to success and profits – choosing

the wrong spot for your retail operation could put you out of business.

1. Type of Business.

Well before hitting the streets to look for a location, take a hard look at the type of business

you will be operating. For example, how many different kinds of products will you be selling?

Your product mix will have an impact on such things as the amount of square footage and

storage space required at the location. If you are a service provider, factors such as office

space will be an important consideration.

Start brainstorming or "white-boarding" ideas of what your target audience might expect when

they enter your store - make a list of all the factors you can think of including display space, #

aisles, aisle width, shipping/receiving area, storage space, office space, in-store traffic flow,

etc. Once you visualize what the shopping experience looks like for your customer, you will

gain a better idea of what will be required in a location.

2. Demographics.

Another critical component of retail location selection is understanding your target market,

both in terms of your target shopper and the geographic area surrounding your proposed

location. Once you have established your target market i.e. gender, age, income level. etc. start

researching some of the following information:

* What neighborhoods are home to your target market?

* How far will prospective customers travel to shop at your location?

* What are the statistical trends in a proposed location i.e. population growth; income growth;

aging trends, etc? How might this affect your store 5 or 10 years after locating?

* What are the employee demographics in particular areas? With labour shortages becoming an

ongoing challenge for retailers, does your proposed location have access to potential full time

and part-time employees?

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3. Competition.

Make sure that you have thorough knowledge of all the competitors in a proposed location,

good and bad.

Bad competitors are those that will have a negative effect on your business. Some examples

might include retail stores that might be selling the exact same products (at a discount) or

stores that attract the opposite target audience as your retail operation.

Good competitors are retail stores that compliment your business by drawing a similar target

audience to your store's surrounding area. A good example are retail "pockets" that exist in

many cities - shopping destinations that attract larger numbers of consumers by offering

complimentary stores in close proximity to one and other i.e. fashion districts, areas with a

high concentration of art galleries, auto malls, etc.

4. Traffic Patterns.

It's also important to know how vehicle and pedestrian traffic patterns might affect business at

a proposed location. Some things to look for include:

Access to the store by traffic moving in both directions (both by car and on foot).

* Number of cars passing the store location.

* Number of pedestrians walking by the location.

* Proximity to public transit.

David Gray, Principal of DIG360, a retail consulting firm in Vancouver, BC,

shares some suggestions about scoping out store locations in a recent article in

BC Business. “If you’re savvy about it, you do a whole lot of looking. You’d be

in a car and do it, and then you’d be on foot. And you’d go weekends and

weekdays, just to make sure there’s not a big traffic difference. Find out which

side is the busy side of the street, and check out where the parking is."

5. Merchant Associations.

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An often overlooked factor when considering a location is the presence and strength of a local

merchant association. According to the The BC Women's Enterprise Centre, merchant

associations can offer a number of benefits to your retail operation:

* A strong merchant's association can promote and maintain business in a given area.

* The presence of an effective merchants' association can strengthen your business and save

you money through group advertising programs, group insurance plans, and collective security

measures.

* A strong merchants association can accomplish through group strength what an individual

store owner couldn't even dream of. Some associations have induced city planners to add

highway exits near their shopping center. Other have lobbied for -- and received -- funds from

cities to remodel their shopping centers, including extension of parking lots, refacing of

buildings, and installation of better lighting.

* Merchants' associations can be particularly effective in promoting of stores using common

themes or events and during holiday seasons. The collective draw from these promotions is

usually several times that which a single retailer could have mustered.

6. City By-Laws, Zoning and Planning.

Understanding all the "rules" and plans your municipality has laid out is very important when it

comes to selecting a location - your retail store's long term success could depend on it. Some

things to consider are:

* Zoning - Are there any restrictions that might prevent you from doing specific renovations or

leasehold improvements?

* By-Laws - What are some of the laws that might have an affect of your retail operation? For

example, are you able to use the space in front of your store for promotions...are you restricted

from operating during certain hours, etc?

* Planning - Are there any major development plans that could impact your retail operation? Is

there any major road construction planned close to your store?

7. Don't Rush - Be Patient.

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It's very tempting to jump at a location you fall in love with - but just like in residential real

estate, "head over heart" is the best approach when it comes to picking a retail location.

David Gray cautions those who want to act on impulse. "You could just destroy your business

being in a bad location. A bad spot might well be (a real trendy area); it might be that you

can’t take a left turn or there’s no parking, so don’t rush into anything until you know it's

perfect, or close to it."

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LOCATIONAL FACTORS

Where you choose to locate your retail business will have a major impact on everything your

shop does. The difference between selecting the wrong location and the right site could be the

difference between business failure and success.

Before choosing a retail store location, define how you see your business, both now and in the

future.

What do your customers look like?

Can you visualize your building?

Do you know what you want to sell and what you want your business to be known

for?

Have you determined how much retail space, storage area, or the size of the office

you need?

Without the answers to these basic questions, it will be hard to find the perfect location for

generating the maximum amount of profit for your retail store.

Type of Goods

Examine what kind of products you sell, as some goods will require certain types of locations.

Would your store be considered a convenience store, a specialty shop or a shopping store?

Convenience goods require easy access, allowing the customer to quickly make a purchase. A

mall would not be a good location for convenience goods. This product type is lower priced

and purchased by a wide range of customers.

Specialty goods are more unique than most products and customers generally won't mind

traveling out of the way to purchase this type of product. This type of store may also do well

near other shopping stores.

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A shopping store usually sells items at a higher price which are bought infrequently by the

customer. Furniture, cars and upscale clothing are examples of goods found at a shopping

store. Because the prices of theses items are higher, this type of customer will want to compare

prices before making a purchase. Therefore, retailers will do well to locate their store near like

stores.

Population and Your Customer

If you are choosing a city or state to locate your retail store, research the area thoroughly

before making a final decision. Read local papers and speak to other small businesses in the

area. Obtain location demographics from the local library, chamber of commerce or the Census

Bureau. Any of these sources should have information on the area's population, income and

age. You know who your customers are, so make sure you find a location where your

customers live, work and shop.

Accessibility, Visibility and Traffic

Don't confuse a lot of traffic for a lot of customers. Retailers want to be located where there are

many shoppers but only if that shopper meets the definition of their target market. Small retail

stores may benefit from the traffic of nearby larger stores.

How many people walk or drive past the location.

Is the area served by public transportation?

Can customers and delivery trucks easily get in and out of the parking lot?

Is there adequate parking?

Depending on the type of business, it would be wise to have somewhere between 5 to 8

parking spaces per 1,000 square feet of retail space.

When considering visibility, look at the location from the customer's view point. Can the store

be seen from the main flow of traffic? Will your sign be easily seen? In many cases, the better

visibility your retail store has, the less advertising needed. A specialty retail store located six

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miles out of town in a free standing building will need more marketing than a shopping store

located in a mall.

Signage, Zoning and Planning

Before signing a lease, be sure you understand all the rules, policies and procedures related to

your retail store location. Contact the local city hall and zoning commission for information on

regulations regarding signage. Ask about any restrictions that may affect your retail operation

and any future planning that could change traffic, such as highway construction.

Competition and Neighbors

Other area businesses in your prospective location can actually help or hurt your retail shop.

Determine if the types of businesses nearby are compatible you're your store. For example, a

high-end fashion boutique may not be successful next door to a discount variety store. Place it

next to a nail or hair salon and it may do much more business.

Location Costs

Besides the base rent, consider all costs involved when choosing a retail store location.

Who pays for lawn care, building maintenance, utilities and security?

Who pays for the upkeep and repair of the heating/air units?

If the location is remote, how much additional marketing will it take for customers

to find you?

How much is the average utility bill?

Will you need to make any repairs, do any painting or remodeling to have the

location fit your needs?

Will the retailer be responsible for property taxes?

The location you can afford now and what you can afford in the future should vary. It is

difficult to create sales projects on a new business, but one way to get help in determining how

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much rent you can pay is to find out what sales similar retail businesses are making and how

much rent they're paying.

Personal Factors

If you plan to work in your store, think about your personality, the distance from the shop to

home and other personal considerations. If you spend much of your time traveling to and from

work, the commute may overshadow the exhilaration of being your own boss. Also, many

restrictions placed on a tenant by a landlord, management company or community can hamper

a retailer's independence.

Special Considerations

Your retail shop may require special considerations. Make a list of any unique characteristic of

your business that may need to be addressed.

Will the store require special lighting, fixtures or other hardware installed?

Are restrooms for staff and customers available?

Is there adequate fire and police protection for the area?

Is there sanitation service available?

Does the parking lot and building exterior have adequate lighting?

Does the building have a canopy that provides shelter if raining?

What is the crime rate in the area?

Are there (blue laws) restrictions on Sunday sales?

Don't feel rushed into making a decision on where to put your retail store. Take your time,

research the area and have patience. If you have to change your schedule and push back the

date of the store's opening, than do so. Waiting to find the perfect store location is better than

just settling for the first place that comes along. The wrong location choice could be

devastating to your retail business.

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What are the factors that influence business and job growth, and what

is there relative importance?

Advantages to businesses in a region derive primarily from that region ís ability to provide

some factors or attributes at a better value than competing regions. It is not just the cost of

these factors that matters, but their quality as well. Greater expenses for some factors are

justified if they are more productive. Factors such as labor, land, and infrastructure (e.g.,

transportation, electricity) directly influence production costs. Other factors, such as

environmental and cultural amenities, have indirect effects that can help maintain a skilled

labor pool and other direct inputs.

The remainder of this appendix summarizes findings regarding the type and relative

importance of factors that firms consider when they choose where to locate or expand.

WHAT FACTORS MATTER?

Why do firms locate where they do? There is no single answeródifferent firms choose their

locations for different reasons. Key determinates of a location decision are a firm ís factors of

production. For example, a firm that spends a large portion of total costs on unskilled labor will

be drawn to locations where labor is relatively inexpensive. A firm with large energy demands

will give more weight to locations where energy is relatively inexpensive. In general, firms

choose locations they believe will allow them to maximize net revenues: if demand for goods

and services is held roughly constant, then revenue maximization is approximated by cost

minimization.

The typical categories that economists use to describe a firmís production function are:

1. Labor. Labor is often and increasingly

The most important factor of production. Other things equal, firms want productivity, in other

words, labor output per dollar. Productivity can decrease if certain types of labor are in short

supply, which increases the costs by requiring either more pay to acquire the labor that is

available, the recruiting of labor from other areas, or the use of the less productive labor that is

available locally.

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2. Land.

Demand for land depends on the type of firm. Manufacturing firms need more space and tend

to prefer suburban locations where land is relatively less expensive and less difficult to

develop. Warehousing and distribution firms need to locate close to interstate highways.

3• Local Infrastructure.

An important role of government is to increase economic capacity by improving quality and

efficiency of infrastructure and facilities, such as roads, bridges, water and sewer systems,

airport and cargo facilities, energy systems, and telecommunications.

4• Access to Markets.

Though part of infrastructure, transportation merits special attention. Firms need to move their

product, either goods or services, to the market, and they rely on access to different modes of

transportation to do this. While transportation has become relatively inexpensive compared to

other inputs, and transportation costs have become a less important location factor, access to

transportation is still critical. That long-run trend, however, could shift because of decreasing

funds to highway construction, increasing congestion, and increasing energy prices.

5• Materials.

Firms producing goods, and even firms producing services, need various materials to develop

products that they can sell. Some firms need natural resources: a manufacturing sector like

lumber needs trees. Or, farther down the line, firms may need intermediate materials: for

example, dimensioned lumber.

6• Entrepreneurship.

This input to production may be thought of as good management, or even more broadly as a

spirit of innovation, optimism, and ambition that distinguishes one firm from another even

though most of their other factor inputs may be quite similar. The supply, cost, and quality of

any of these factors obviously depend on market factors: on conditions of supply and demand

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locally, nationally, and even globally. But they also depend on public policy. In general, public

policy can affect them through:

7•Regulation.

Regulations protect the health and safety of a community, and help maintain the quality of life.

However, simplified bureaucracies and straightforward regulations can help firms react quickly

in a competitive marketplace.

8•Taxes.

Firms tend to seek locations where they can optimize their after-tax profits. But tax rates are

not a primary location factor, they matter only after corporations have made decisions on labor,

transportation, raw materials, and capital costs. Within a region, production factors are likely to

be similar, so differences in tax levels across communities are more important in the location

decision than are differences in tax levels between regions.

9• Financial incentives.

Governments offer firms incentives to encourage growth. Generally, economic research has

shown that most types of incentives have had little significant effect on firm location between

regions. However, for manufacturing industries with significant equipment costs, property or

investment tax credit or abatement incentives can play a significant role in location decisions.

Incentives are more effective at redirecting growth within a region than they are at providing a

competitive advantage between regions. Economists have shown that firms locate in a city

because of the presence of factors other than direct factors of production. These indirect factors

include agglomerative economies, also known industry clusters, location amenities, and

innovative capacity.

10• Industry Clusters.

Firms tend to locate in areas where there is already a concentration of firms like their own. The

theory works in practice because firms realize operational savings and have access to a large

pool of skilled labor when they congregate in a single location.

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11• Quality of Life

A region that features many quality amenities, such as good weather, recreational

opportunities, culture, low crime, good schools, and a clean environment attracts people simply

because it is a nice place to be. A regionís quality of life attracts skilled workers, and if the

amenities lure enough potential workers to the region, the excess labor supply pushes their

wages down so that firms can find skilled labor for a relatively low cost.

12• Innovative capacity.

Increasing evidence suggests that a culture promoting innovation, creativity, flexibility, and

adaptability will be essential to keeping U.S. cities economically vital and internationally

competitive. Innovation is particularly important in industries that require an educated

workforce. High-tech companies need to have access to new ideas typically associated with a

university or research institute. Government can be a key part of a communityís innovative

culture, through the provision of services and regulation of development and business activities

that are responsive to the changing needs of business.

To understand how changes in public policies affect local job growth, economists have

attempted to identify the importance for firms of different locational factors. They have used

statistical models, surveys, and case studies to examine detailed data on the key factors that

enter the business location decision.

Economic theory says that firms locate where they can reduce the costs of their factors of

production (assuming demand for products and any other factors are held constant). Firms

locate in regions where they have access to inputs that meet their quality standards, at a

relatively low cost. Because firms are different, the relative importance of different factors of

production varies both across industry and, even more importantly, across type of firm.

No empirical analysis can completely quantify firm location factors because numerous

methodological problems make any analysis difficult. For example, some would argue

simplistically that firms will prefer locating in a region with a low tax rate to reduce tax

expenses. However, the real issue is the value provided by the community for the taxes collect.

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Because taxes fund public infrastructure that firms need, such as roads, water, and sewer

systems, regions with low tax rates may end up with poor infrastructure.

Thus, the area is less attractive to firms. When competing jurisdictions have roughly

comparable public services (type, cost, and quality) and quality of life, then tax rates (and tax

breaks) can make a difference.

Further complicating any analysis is the fact that many researchers have used public

expenditures as a proxy for infrastructure quality. But large expenditures on roads do not

necessarily equal a quality road system. It is possible that the money has been spent

ineffectively and the road system is in poor condition. Although empirical analyses face many

such methodological difficulties, the studies provide much information about why firms locate

where they do.

Economists have improved their statistical techniques and use a variety of data sources to

quantify input factors. They have supplemented empirical analyses with theoretical models of

firm behavior and surveys of business managers. Governments can most easily affect tax rates,

public services, and regulatory policies. Economists generally agree that these factors do affect

economic development. The effects, however, are modest and the effects will vary since

different firms have different needs. Governments need to keep in mind that their most direct

tools do not address factors that are primary to business location decisionsóand therefore their

expectations for affecting change should be set accordingly.

An important aspect of the discussion is that firm function can matter more than the firmís

industry. A single company may have offices spread across cities, with headquarters located in

a cosmopolitan metropolitan area, the research and development divisions located near a

concentration of universities, the back office in a suburban location, and manufacturing and

distribution located where land is cheap and interstate access is good. The remainder of this

appendix discusses the factors of production, public policy, and indirect factors that influence

where firms locate. Given our conclusion that different types of operations and different

industrial sectors use different factors in different proportions, the summary that follows is

obviously generalized.

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LABOR FORCE

The single most important factor to most firms deciding where to locate is laboróits cost and its

quality. For most firms, labor is the largest operating cost. Statistical models generally support

the economic theory that higher wages, for comparable skills or jobs, depress a regionís job

growth. A review of the literature suggests that a 10 percent reduction in local wages induces

between a 2 percent and 10 percent increase in local business activity. However, economists

generally believe that the models understate the importance of wages because they can not

precisely account for the cost of labor for specific industries or the quality of the labor

supplied. Prevailing wages are only part of the labor story; labor skills are equally important. A

well-educated work force is at the core of developing economies. Computers and other high

tech equipment have brought about a shift in occupations across the country. As the U.S.

evolves into a more knowledge-based economy, virtually every company requires technical

literacy at all skill levels. Firms need high-skilled workers to operate equipment at all levels,

from technician to managers. An educated workforce has become the primary location factor

for growing companies. New plants are more likely to locate where a skilled workforce exists

and then compare wage rates among those locations. As more routine production functions are

shifted to lower cost

LAND

Land requirements depend on industry and firm type. Research and development firms often

want suburban campus locations. Manufacturing and distribution firms need to be close to

major interstate highways. High-tech manufacturing firms are more likely to be found in

suburban industrial parks than in the central city. Suburban land and buildings are generally

available at a lower cost per square foot and there is room to expand due to the higher land

assembly in suburban areas and redevelopment cost within the city core.

Research has shown that the number of employees per square foot varies widely by industry.

Offices have higher employee per square foot ratios than factories, and factories have higher

ratios than warehouses. The employee per square foot ratio in manufacturing is expected to

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decrease (lowering job density) as factories become more automated, and rely less on human

labor. Conversely, the ratio is expected to increase for office space (rising job density) due to

increased use of computers and shared office space. Several themes are prevalent in recent

literature about industrial land demand. One is that warehousing and distribution patterns are

changing due to ìjust-in-timeî production, the advent of internet commerce, and the increasing

importance of high value-to-weight goods. Warehousing is no longer about ìstoring stuffî: it is

the ìscience of moving product, storing the bare minimum.î Flexibility, in addition to proximity

to interstate roadways, is key.

LOCAL INFRASTRUCTURE

To stay competitive, cities must have modern and efficient physical infrastructure, including

roads, bridges, water and sewer systems, airport and cargo facilities, energy systems, and

telecommunications. The economic literature shows a strong correlation for economic growth

and transportation facilities, especially highways. The empirical analysis of the industrial

sectors identified in this study, show a positive correlation between highway expenditures and

employment growth, in every sector except Sustainable Industries.

The availability of fiber optic and other high capacity telecommunications systems are growing

in importance. Its importance depends on business function, for example, a back office relies

heavily on telecommunications. An important role of government is to increase economic

capacity by improving quality and efficiency of public infrastructure and utilities necessary to

business operation. While businesses prefer localities that offer low tax rates, they will be less

likely to choose an area if low taxes are reflected in poorly-maintained infrastructure, low

quality schools, and a substandard communications network. Locations with relatively higher

taxes but with infrastructure and public services levels comparable to low tax locations are

even less attractive to businesses. The perceived value between tax rates (costs) and quality

infrastructure (services) is a key element of a locationís competitiveness. The economic

literature suggests that if a locality ìpaysî for its tax breaks by cutting back on essential public

services, the net effect on employment will be zero or negative.

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ACCESS TO MARKETS

Firms need to transport their product to the market. The type of transportation requirements

depend on firm type and industry. For example, a firmís headquarters will look for a region

with good airport access, while it ís manufacturing operations to have access to transportation

systems that can cheaply carry large volumes. Transportation costs have declined over the last

few decades. It used to be that firms had to balance costs by minimizing their raw materials

costs and their transportation costs. But because domestic transport costs have declined as the

road system has became vast, and large container ships have decreased international shipping

costs, transportation costs have become a less important input factor.

MATERIALS

As transportation costs have declined, fewer firms need to locate close to the source of their

raw materials. Other than for some very specialized industries, proximity to raw materials is no

longer an important location factor.

REGULATIONS

Regulations exist to maintain the health, welfare, and safety of a community. They are

designed to make buildings safer, the air cleaner, and a variety of other protections. However,

firms must work with local bureaucracies to meet regulatory requirements, and some

regulations and processes can be quite onerous.

Shorter product life cycles have put pressure on companies to bring new products to market

quickly. Simplified bureaucracies and a short and predictable permitting process can help firms

react quickly in a competitive marketplaceóa factor of particular significance between

municipalities within a metropolitan area. Researchers have found that managers consider the

main problem with regulations is the difficulty of getting permits. Managers reported that they

would rather have strict regulations that were clearly specified than unclear regulations that

were less restrictive. The requirements can then be incorporated in the design of the new

facility, thereby raising costs somewhat, but not delaying the project. The attitude behind the

implementation of the local regulatory and permit system is equally important. Locations that

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work to assist development within the context of meeting the communityís regulatory

mandates fare better than locations that use their regulatory and permit system to ìkeep

undesired things from happeningî. It is the difference between viewing businesses as part of the

community or an adversary to protect the community from.

Although environmental regulations receive much attention for raising the cost of doing

business, there is little evidence that more stringent regulations negatively impact employment

growth. Environmental regulatory costs are generally a small portion of total business costs.

However, if the regulatory climate is unstable, with frequent revised or added regulations, the

costs of keeping up with the shifting ìcurrentî requirements can become a significant costóeven

if the costs of complying with the individual regulations are not significant. It is important to

note that regulations have an impact on other factors of firm location. Environmental

regulations help maintain a clean environment, and a clean environment is an important

amenity.

TAXES

Economic theory generally supports the notion that firms will locate where they can optimize

their after-tax profits. Consistent with this theory, most recent studies indicate that, over time, a

decrease in taxes will generate an increase in local employment. The empirical analysis shows

the increased taxation discourages economic growth. But tax rates matter only at the margin,

after corporations have made decisions on labor, transportation, raw materials, and capital

costs. Within a region where production factors are likely to be similar, differences in tax

levels across communities become more important in the location decision.

Recent studies indicate that for intra-regional business location decisions, differences in tax

rates are five to ten times as important as they are for inter-regional location decisions, where

differences in tax rates do not appear to be a significant factor. It appears executives typically

choose a region first and then explore favorable tax policies. Researchers have found that

manufacturing location decisions appeared more sensitive to taxes than did non-manufacturing

location decisions.

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FINANCIAL INCENTIVES

Governments offer firms financial incentives to encourage growth or to achieve other public

goals. Generally economic research has shown that most types of incentives have had little

significant effect on firm location between regions. Incentives are more effective at redirecting

growth within a region than they are at providing a competitive advantage between regions.

Not withstanding the above, the existence of financial incentive programs does play a

significant role in competition among regions. While the monetary value of incentives may not

be a significant factor in location decisions among regions, merely having financial incentive

programs tends to keep a region ìin the runningî long enough for firms to evaluate and weigh

the value of the location factors which are significant to the location decision.

Having no incentive programs results in regions being dropped from consideration early in the

analysis since in many cases information on incentives is one of the first items gathered. In the

same way individuals make purchase decisions, companies frequently look at costs before they

evaluate value. The intended purpose and actual effect of incentives needs to be considered

closely. Enterprise zones provide incentives to firms that locate in a specified zone, often in the

central city, with the intent of creating job opportunities (by stimulating investment) for zone

residents and thereby reducing poverty. However, poor households in central cities may not

have the skills required for jobs made available through these programs. As a result, policies

that attempt to foster central city investment and job creation are unlikely to reduce poverty

without companion policies and programs designed to address resident education and skill

levels.

Many incentives that cities offer target capital, which will appeal to and attract more capital

intensive production functions. By itself, this is an ineffective way to encourage overall job

growth, since it provides no incentive for non capital-intensive functions or firms. Washington

stateís Department of Revenue analyzed three tax incentivesósales tax deferrals, job tax credits,

and manufacturing sales tax deferrals. The researchers reported that there was little correlation

between the amount of tax benefit received and the growth in employment which resulted.

They concluded that the tax incentives may not be a major factor in influencing the location

process for business. They also found that declining companies tended to take advantage of

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programs targeted toward distressed areas, whereas growth companies tended to locate in

nondistressed areas.

INDUSTRY CLUSTERS

A key characteristic that economists consistently deem important in the location decision is so

called ìagglomerative economiesî or industry clusters. The agglomeration theory states that

executives tend to locate their firms in areas where there is already a concentration of firms

like their own. The theory works in practice because firms realize operational savings when

they congregate in a single location. Researchers have shown that new firm births are more

likely in an area where a cluster already exists. Industry clusters occur for three reasons:

benefits of a pooled labor supply, access to specialized inputs, and information flows between

people and firms.

• Firms that require a specially skilled labor force locate where that labor force already exists.

An easy way for firms to identify the presence of that labor pool is the presence of similar

firms. The new firm draws from the same labor pool that the pre-existing firms helped to train.

The cluster of similar firms also attracts skilled workers. An individual with the necessary

skills will find it advantageous to relocate to that area because the chances of employment rise

with the number of firms that need his or her skills. The two forces work together to create a

large skilled labor force and many firms to employ them.

• As similar firms cluster together, firms that supply specialized products and services to these

firms are also likely to locate in the cluster. Industry clusters save transport costs by proximity

to these input suppliers.

• Industry clusters encourage knowledge spillovers. The exchange of information occurs in the

work place, such as when suppliers work with their buyers to develop more efficient products,

but it also occurs informally. As workers in one firm socialize with their counterparts from

other firms, they talk shop. They exchange knowledge and ideas, and new ideas take shape.

Economists have shown that knowledge spillovers are particularly important in innovative

industries and industries that employ college graduates. Industry clusters are a network of

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interdependent firms, and the clusters cannot be neatly defined. Many different types of firms

make up a cluster.

The complexity of clusters makes it difficult to describe but provides an important lesson to

policy makers. Many communities are actively pursuing clusters as an economic development

method. As communities work to establish and encourage clusters, they should recognize that a

cluster does not necessarily mean a single industry. A cluster is many different industries

interacting with each other, some firms compete, others complement.

QUALITY OF LIFE

The factors that impact an areaís quality of life, such as good schools, low crime rate, a clean

environment, and recreational opportunities draw workers to the region, and firms follow the

workers. Households are attracted to regions by amenities that wages cannot provide. If

amenities lure a large number of households to an area, the excess labor supply can exert

downward pressure on wages. Firms benefit by saving on labor costs.

Many high-skilled technical workers can choose where they want to live, they can apply their

skills to a variety of industries or have the ability to telecommute. Because they can pick and

choose their locations, they choose those with quality amenities. Researchers have found that

high-tech plants located in communities that rank low on a livability scales have difficulty

attracting technical and managerial personnel. Cities can build their economic base by focusing

on whatís desirable to technology workers. Factors that matter to high-skilled technical

workers include good elementary and secondary schools, recreational activities, safety, and

natural amenities. Natural amenities appear to be important for firms that employ high-skilled

technical workers, such as engineers and computer scientists who place a high value on good

weather and a clean environment. Amenities matter to firms as more than a way to cash in on

their depressive effect on wages. People manage firms, and managers like to live in nice places

just as much as workers do. In the survey literature, executives consistently rank both labor

supply and quality of life as top location factors. Despite its damp climate, Oregon rates well in

terms of amenities. Surveys of adults whoíve recently moved to Oregon indicate that about 44

percent did so primarily to take advantage of its quality of life. Furthermore, these new

residents tended to have higher levels of education than current residents and they often were

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willing to accept reduced earnings to live in the Pacific Northwest. One study estimated that

workers in this region generally would not relocate elsewhere in the U.S. unless they received

an increase in wages around 10ñ15 percent.

INNOVATION

Increasing evidence suggests that a culture promoting innovation, creativity, flexibility, and

adaptability will be essential to keeping U.S. cities economically vital and internationally

competitive. Innovation is particularly important in industries that require an educated

workforce. High-tech companies need to have access to new ideas typically associated with a

university or research institute. Government can be a key part of a communityís innovative

culture, through the provision of services and regulation of development and business activities

that are responsive to the changing needs of business.

Entrepreneurs channel innovative ideas into new firms. Numerous studies have shown that new

firms locate where the founder lives. The entrepreneur who establishes a new business already

has roots in a community, and is likely to want to stay there.

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LOCAL FACTORS

We have grouped the local factors that influence the location and expansion of firms into six

categories. In this section, we organize the location factors described in this appendix into the

six local factors. We have organized the section by the six local factors, and discuss the

location factors as they fit into each category.

1. BUILDING SPACE

Land. Firms needs land for buildings and associated uses, and the built space itself. Location,

cost, and quality of the space matter to all firms, but needs vary widely by industry.

2. WORKFORCE

Labor. For most firms, labor is the largest operating cost, and the single most important factor

to most firms deciding where to locate is the cost and quality of the local labor force.

3. ACCESS TO MARKETS

Access to Markets. Companies access their markets by moving people and goods via

transportation systems. Excellent transportation systems can overcome physical distance to

markets. Telecommunications systems are also important. Local Infrastructure. Cities must

have modern and efficient physical infrastructure, including roads, bridges, airport and cargo

facilities, and telecommunications. An important role of government in economic development

is to maintain and improve the quality and efficiency of public infrastructure. Materials.

Companies not only need to access the market for their products, but the market for their inputs

or aw materials and the labor pool.

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4. BUSINESS ENVIRONMENT

Regulation. Permitting procedures and environmental regulations have an impact on the

monetary cost of doing business and on the amount of time it takes to brings a product to

market. Taxes. Tax rates for businesses and individuals, as well as unemployment insurance

and worker compensation costs, affect the cost of doing business in a given location. Financial

Incentives. Governments offer firms financial incentives to encourage growth or other public

goals. Incentives are typically tax breaks for firms that locate in a specific area. Local

Infrastructure. The cost of transportation and telecommunications systems is important to

firms, as is the cost of utilities like water, sewer, and energy systems.

5. BUSINESS FORMATION AND ACCELERATION

Industry Clusters. New firms tend to locate in areas where there is already a concentration of

firms like their own. Innovative Capacity. Economic research has shown that a business culture

promoting innovation, creativity, flexibility, and adaptability leads to economic growth.

Entrepreneurship. Entrepreneurs channel innovative ideas into new firms, and new firms tend

to locate where the founder lives. If existing residents have entrepreneurial skills, they are

likely to create new businesses.

6. QUALITY OF LIFE

Quality of Life. All the factors that contribute to an areaís quality of life, such as educational

quality, crime rate, and the environment, can affect the ability of the business to attract

qualified labor. Workers want to live in a stable, pleasant community, and will be attracted to

jobs in regions with a high quality of life.

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FACTORS TO BE CONSIDERED

Three factors confront you as an owner-manager in choosing a location: selection of a city;

choice of an area or type of location within a city; and identification of a specific site.

If you are going to relocate in another city, naturally you consider the following factors:

1. Size of the city's trading area.

2. Population and population trends in the trading area.

3. Total purchasing power and the distribution of the purchasing power.

4. Total retail trade potential for different lines of trade.

5. Number, size, and quality of competition.

6. Progressiveness of competition.

In choosing an area or type of location within a city you evaluate factors such as:

1. Customer attraction power of the particular store and the shopping district.

2. Quantitative and qualitative nature of competitive stores.

3. Availability of access routes to the stores.

4. Nature of zoning regulations.

5. Direction of the area expansion.

·6. General appearance of the area.

Pinpointing the specific site is particularly important. In central and secondary business

districts, small stores depend upon the traffic created by large stores. Large stores in turn

depend on attracting customers from the existing flow of traffic. (However, where sales depend

on nearby residents, selecting the trading area is more important than picking the specific site.)

Obviously, you want to know about the following factors when choosing a specific site:

· Adequacy and potential of traffic passing the site.

· Ability of the site to intercept traffic en route from one place to another.

· Complementary nature of the adjacent stores.

· Adequacy of parking.

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· Vulnerability of the site to unfriendly competition.

· Cost of the site.

TYPES OF CONSUMER GOODS

Another factor that affects site selection is the customers' view of the goods sold by a

store.Consumers tend to group products into three major categories: convenience, shopping,

and specialty goods. Convenience goods usually mean low unit price, purchased frequently,

little selling effort, bought by habit, and sold in numerous outlets. Examples: candy bars,

cigarettes, and milk.

For stores handling 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. Downtown convenience goods stores, such as

low-priced, ready-to-wear stores and drugstores, have a limited ability to generate their own

traffic. In merchandising convenience goods, it is easier to build the store within the traffic

than the traffic within the store. Convenience goods are often purchased on impulse in easily

accessible stores.

In addition, the greater the automobile traffic, the greater the sales of convenience goods for

catering to the drive-in traffic. For the drive-in store selling low-priced convenience goods, the

volume of traffic passing the site is a most important factor in making a site decision. The

consumer purchases these goods frequently and wants them to be readily available. Consumers

are reminded when passing a convenience goods store that he or she needs a particular item.

If consumers must make a special trip to purchase such convenience staple goods as food and

drug items, they want the store to be close to home. One study of food store purchases in the

central city area revealed that nearly 70 percent of the women patronized stores within one to

five blocks of their homes. Another study of food stores indicated that for suburban locations

the majority of customers lived within three miles of the stores, while the maximum trading

area was five miles. For rural locations, the majority of consumers lived within a ten-minute

drive to the store, with the maximum trading area within a twenty-minute drive.

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Shopping goods usually mean high unit price, purchased infrequently, more intensive selling

effort usually required on the part of the storeowner, price and features compared, and sold in

selectively franchised outlets. Examples: men's suits, automobiles, and furniture.

For stores handling shopping goods, the quality of the traffic is more important. While

convenience goods are purchased by nearly everyone, certain kinds of shopping goods are

purchased by only certain segments of shoppers. Moreover, it is sometimes the character of the

retail establishment rather than its type of goods that governs the selection of a site. For

example, a conventional men's wear store should be in a downtown location close to a traffic

generator like a department store. On the other hand, a discount store handling men's wear

would prefer an accessible highway location.

In many cases, buyers of shopping goods like to compare the items in several stores by

traveling only a minimum distance. As a result stores offering complementary items tend to

locate close to one another. An excellent site for a shopping goods store is next to a department

store or between two large department stores where traffic flows between them. Another good

site is one between a major parking area and a department store.

A retailer dealing in shopping goods can have a much wider trading area. Without a heavily

trafficked location -- but with the help of adequate promotion -- this more expensive type of

store can generate its own traffic. In this case, a location with low traffic density but easy

accessibility from a residential area is a satisfactory site. The consumer buys these goods

infrequently and deliberately plans these purchases. Consumers are willing to travel some

distance to make shopping comparisons.

If you offer shopping goods, however, you should not locate too far away from your potential

customers. One study of a discount department store showed that 79.6 percent of the shoppers

lived within five miles of the store and another 16.1 percent lived within a ten-mile radius. A

customer survey, automobile license checks, sales slips, charge account records, store

deliveries, and the extent of local newspaper circulation can determine the magnitude of the

trading area for a shopping goods store.

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Specialty goods usually mean high unit price, although price is not a purchase consideration,

bought infrequently, requires a special effort on the part of the customer to make the purchase,

no substitutes considered, and sold in exclusively franchised outlets. Examples: precious

jewelry, expensive perfume, fine furs, and so on, of specific brands or name labels.

Consumers who are already “sold” on the product, brand, or both often seek specialty goods.

Stores catering to this type of consumer may use isolated locations because they generate their

own consumer traffic. Stores carrying specialty goods that are complementary to certain other

kinds of shopping goods may desire to locate close to the shopping goods stores. In general,

the specialty goods retailer should locate in the type of neighborhood where the adjacent stores

and other establishments are compatible with his or her operation.

RETAIL COMPATIBILITY

How important is retail compatibility? For a small retail store in its first year of operation, with

limited funds for advertising and promoting, retail compatibility can be the most important

factor in the survival of the store.

Will you be located next to businesses that will generate traffic for your store? Or will you be

located near businesses that may clash with yours?

For example, if you offer shopping goods, the best location is near other stores carrying

shopping goods. Conversely, locating your shopping goods store in a convenience goods area

or center is not recommended.

Take a look at shopping centers in your area. Invariably, you'll find a clothing or shoe store –

in trouble – in an otherwise convenience goods shopping center.

On the other hand, with the advent of the mall and regional shopping center, shopping goods

and convenience goods outlets may now be found co-existing easily under the same roof. In

this situation, it is still important to be located in a section of the shopping complex that is

conducive to what you're selling. For example, a pet store should not be located immediately

adjacent to a restaurant, dress shop, or salon. You would want to locate a gift shop near places

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like department stores, theaters, restaurants -- in short, any place where lines of patrons may

form, giving potential customers several minutes to look in the gift shop's display windows.

MERCHANTS' ASSOCIATIONS

Most first time business owners have no idea how effective a strong merchant's association can

be in promoting and maintaining the business in a given area. Always find out about the

merchant's association. The presence of an effective merchants' association can strengthen

your business and save you money through group advertising programs, group insurance plans,

and collective security measures.

A strong merchants association can accomplish through group strength what an individual

store owner couldn't even dream of. Some associations have induced city planners to add

highway exits near their shopping center. Other have lobbied for -- and received -- funds from

cities to remodel their shopping centers, including extension of parking lots, refacing of

buildings, and installation of better lighting.

Merchants' associations can be particularly effective in promoting of stores using common

themes or events and during holiday seasons. The collective draw from these promotions is

usually several times that which a single retailer could have mustered.

How can you determine if the retail location you're considering has the benefit of an effective

merchants' association? Ask other storeowners in the area. Find out:

· How many members the association has

· Who the officers are;

· How often the group meets

· What the yearly dues are; and

· What specifically, it has accomplished in the last 12 months.

Ask to see a copy of the last meeting's minutes. Determine what percentage of the members

was in attendance.

What if there is no merchants' association? Generally (though not always) a shopping area or

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center with no merchants' association, or an ineffective one, is on the decline. You'll probably

see extensive litter or debris in the area, vacant stores, a parking lot in need of repair, and

similar symptoms. You should shun locations with these warning signs. With a little on-site

investigation, they're easy to avoid.

RESPONSIVENESS OF THE LANDLORD

Directly related to the appearance of a retail location is the responsiveness of the landlord to

the individual merchant's needs. Unfortunately, some landlords of retail business properties

actually hinder the operation of their tenants' businesses. They are often, in fact, responsible for

the demise of their properties.

By restricting the placement and size of signs, by foregoing or ignoring needed maintenance

and repairs, by renting adjacent retail spaces to incompatible -- or worse, directly competing --

businesses, landlords may cripple a retailer's attempts to increase business.

Sometimes landlords lack the funds to maintain their properties. Rather than continuing to

"invest" in their holdings by maintaining a proper appearance for their buildings and

supporting their tenants, they try to "squeeze" the property for whatever they can get.

To find out if a landlord is responsive to the needs of the retail tenants talk to the tenants

before you commit to moving in yourself. Ask them:

1) Does the landlord return calls in a reasonable period and send service people quickly?

2) Is it necessary to nag the landlord just to get routine maintenance taken care of?

3) Does the landlord just collect the rent and disappear, or is he or she sympathetic to the needs

of the tenants?

4) Does the landlord have any policies that hamper marketing innovations?

In addition to speaking with current tenants, talk to previous tenants of the location you have in

mind. You'll probably come up with a lot of helpful information. Find out what businesses they

were in and why they left. Did they fail or just move? What support or hindrances did the

landlord provide? If the opportunity presented itself, would they be retail tenants of this

landlord again?

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ZONING AND PLANNING

Your town's zoning commission will be happy to provide you with the latest "mapping" of the

retail location and surrounding areas that you are considering. Here are some questions to

consider:

· Are there restrictions that will limit or hamper your operations?

· Will construction or changes in city traffic or new highways present barriers to your store?

· Will any competitive advantages you currently find at the location you're considering be

diminished by zoning changes that will be advantageous for competitors or even allow new

competitors to enter your trade area?

Most zoning boards, along with economic/regional development committees, plan several

years in advance. They can probably provide you with valuable insights to help you decide

among tentative retail locations.

LEASES

Directly related to zoning is your intended length of stay and your lease agreement. Before you

enter into any rigid lease agreement, you must get information on future zoning plans and

decide how long you wish to remain at the location under consideration:

· Do you plan to operate the business in your first location indefinitely or have you set a given

number of years as a limit?

· If your business is successful, will you be able to expand at this location?

· Is your lease flexible, so that you have an option to renew after a specified number of years?

(On the other hand, is the lease of limited duration so, if need be, you may seek another

location?)

· Study the proposed lease agreement carefully. Get advice from your lawyer or other experts.

Does the agreement:

· Peg rent to sales volume (with a definite ceiling) or is rent merely fixed?

· Protect you as well as the property owner?

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· Put in writing the promises the property owner has made about repairs, construction and

reconstruction, decorating, alteration, and maintenance?

· Contain prohibitions against subleasing?

· Consider these factors before you settle on a location.

OTHER CONSIDERATIONS

A host of other considerations have varying importance in choosing a retail location,

depending on your line of business. The following questions, while they certainly don't exhaust

all possibilities, may help you decide on a retail location:

· How much retail, office, storage, or workroom space do you need?

· Is parking space available and adequate?

· Do you require special lighting, heating or cooling, or other installations?

· Will your advertising expenses be much higher if you choose a relatively remote location?

· Is the area served by public transportation?

· Can the area serve as a source of supply of employees?

· Is there adequate fire and police protection?

· Will sanitation or utility supply be a problem?

· Is exterior lighting in the area adequate to attract evening shoppers and make them feel safe?

· Are customer restroom facilities available?

· Is the store easily accessible?

· Does the store have awnings or decks to provide shelter during bad weather?

· Will crime insurance be prohibitively expensive?

· Do you plan to provide pick up or delivery?

· Is the trade area heavily dependent on seasonal business?

· Is the location convenient to where you live?

· Do the people you want for customers live nearby?

· Is the population density of the area sufficient?

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SHOPPING CENTERS

Shopping centers are distinctly different from the other two major locations -- that is,

downtown and local business strips. The shopping center building is pre-planned as a

merchandising unit for interplay among tenants. Its site is deliberately selected by the

developer for easy access to pull customers from a trade area. It has on-site parking as a

common feature of the layout. The amount of parking space is directly related to the retail area.

Customers like the shopping center's convenience. They drive in, park, and walk to their

destination in relative safety and speed. Some shopping centers also provide weather protection

and most provide an atmosphere created for shopping comfort. For the customer, the shopping

center has great appeal.

For the merchant making a decision whether or not to locate in a shopping center, these "plus"

characteristics must be related to the limitations placed upon you as a tenant. In a shopping

center, a tenant is part of a merchant team. As such, you must pay your pro rata share of the

budget for the team effort. You must keep store hours, light your windows, and place your

signs within established rules.

WHAT ARE YOUR CHANCES?

Whether or not a small retailer can get into a particular shopping center depends on the market

and management. A small shopping center may need only one children's shoe store, for

example, while a regional center may expect enough business for several. The management

aspect is simple to state: Developers and owners of shopping centers look for successful

retailers.

In finding tenants whose line of goods will meet the needs of the desired market, the

developerowner first signs on a prestige merchant as the lead tenant. Then, the developer

selects other types of stores that will complement each other. In this way, a "tenant mix" offers

a varied array of merchandise. Thus, the center's competitive strength is bolstered against other

centers as well as supplying the market area's needs.

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To finance a center, the developer needs major leases from companies with strong credit

ratings. The developer's own lenders favor tenant rosters that include the triple-A ratings of

national chains. However, local merchants with good business records and proven\

understanding of the local markets have a good chance of being considered by a shopping

center developer. But even so, a small independent retailer can sometimes play "hard to get."

When most spaces are filled, the developer may need YOU to help fill the rest of them. If you

are considering a shopping center for a first-store venture you may have trouble. Your financial

backing and merchandising experience may be unproved to the owner-developer. Your

problem is to convince the developer that the new store has a reasonable chance of success and

will help the "tenant mix."

WHAT CAN THE CENTER DO FOR YOU?

Suppose that the owner-developer of a shopping center asks you to be a tenant. In considering

the offer, you would need to make sure of what you can do in the center. What rules will there

be on your operation? In exchange for the rules, what will the center do for you?

Even more important, you must consider the trade area, the location of your competition, and

the location of your space in the center. These factors help to determine how much business

you can expect to do in the center.

In a Neighborhood Shopping Center, the leading tenant is a supermarket or drug store. The

typical leasable space is 50,000 square feet but may range from 30,000 to 100,000 square feet.

The typical site area is from 3 to 10 acres. The minimum trade population is 2,500 to 40,000.

In a Community Shopping Center, the leading tenant is a variety/junior department store or

discount department store. The typical leasable space is 150,000 square feet but may range

from 100,000 to 300,000 square feet. The typical site area is 10 to 30 acres. The minimum

trade population is 40,000 to 150,000.

In a Regional Shopping Center, the leading tenant is one or more full-line department stores.

The typical leasable space is 400,000 square feet with a range from 300,000 to more than

1,000,000 square feet. The typical site area is 30 to 50 acres. The minimum trade population is

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150,000 or more. When the regional center exceeds 750,000 square feet and includes three or

more department stores, it becomes a SUPERREGIONAL CENTER.

The Center's Location. In examining the center's location, look for answers to questions such as

these:

· Can you hold old customers and attract new ones?

· Would the center offer the best sales volume potential for your kind of merchandise?

· Can you benefit enough from the center's access to a market? If so, can you produce the

appeal that will make the center's customers come to your store?

· Can you deal with your logical competition?

To help answer such questions, you need to check out:

· the trade area and its growth prospects;

· the general income level in the trade area;

· the number of households; and

· the share of various age groups in the population. If your line were clothes for young women,

for example, you would not want to locate in a center whose market area contains a high

percentage of retired persons.

Make your own analysis of the market, which the developer expects to reach. In this respect,

money for professional help is well spent, especially when the research indicates that the center

is not right for your type of operation.

Your Space. Determine where your space will be. Your location in the center is important. Do

you need to be in the main flow of customers as they pass between the stores with the greatest

customer pull? Who will be your neighbors? What will be their effect on your sales?

How much space is also important. Using your experience, you can determine the amount of

space you will need to handle the sales volume you expect to have in the shopping center. And,

of course, the amount of space will determine your rent. Many merchants need to rethink their\

space requirements when locating in a shopping center. Rents are typically much higher and,

therefore, space must be used very efficiently.

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"Total Rent" -In most non-shopping center locations, rent is a fixed amount, which has no

relationship to sales volume. In shopping centers the "rent" is usually stated as a minimum

guaranteed rent per square foot of leased area against a percentage. Typically, while this is

between 5 and 7 percent of gross sales, it varies by type of business and other factors. This

means that if the rent as calculated by the percentage of sales ism higher than the guaranteed

rent, the higher amount is the rent. If it is lower than the guaranteed rent, then the guaranteed

rent is the amount paid. But this guarantee is not the end. In addition, you may have to pay

dues to the center's merchant association. You may have to pay for maintenance of common

areas.

Consider your rent, then, in terms of "total rent." If, and when, this "total rent" is more than

your present rent, your space in the center, of course, will have to draw sales enough to justify

the added cost.

Finishing Out. Generally, the owner furnishes the bare space. You do the "finishing out" at

your own expense. In completing your store to suit your needs, you pay for light fixtures,

counters, shelves, painting, and floor coverings. In addition, you may have to install your own

heating and cooling units. (Your lease should be long enough to pay out your "finishing out"

expense.)

An innovation is the "tenant allowance:" By this system, landlords provide a cost allowance

towards completion of space. It is for storefronts, ceiling treatment, and wall coverings. The

allowance is a percentage of their cost and is spelled out in a dollar amount in the lease.

Some developers help tenants plan storefronts, exterior signs, and interior color schemes. They

provide this service to insure storefronts that add to the center's image rather than subtracting

from it.

TYPES OF SHOPPING CENTERS

Because each planned shopping center is built around a major tenant, centers are classed, in

part, according to this leading tenant. According to tenant makeup and size, there are three

types: neighborhood, community, and regional.

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Neighborhood. The supermarket or the drugstore is the leading tenant in a neighborhood

center. This type is the smallest in size among shopping centers. It caters to the convenience

needs of a neighborhood.

Community. Variety, junior department stores, or discount department stores lead in the next

bigger type -- the community center. Here, you find room also for more specialty shops, need

for wider price ranges, for greater style assortments, and for more impulse-sale items. In recent

years the community center has also been designed around the home improvement department

store which combine hardware, lumber, electrical, plumbing, flooring, building materials,

garden supplies, and a variety of other goods under one roof. The shops that are grouped

around this type of anchor tend to be similar in character and may include custom kitchen and

bath shops, upholstery, bedding, drapery, and other such shops. While this type of center tends

to meet the Community Shopping Center definition as to floor area and site size, its market

may be more like a regional center.

Regional. The department store, with its prestige, is the leader in the regional center – the

largest type of shopping center. When you find that a second or third department store is also

locating in such a center, you will know the site has been selected to draw from the widest

possible market area. Super-Regional centers have been developed with as many as 5

department stores. You will find, too, that the smaller tenants are picked to offer a range of

goods and services approaching the appeal once found only downtown.

The latest development in regional shopping centers is the enclosed mall. This type of center is

designed to shut out the weather and to serve a larger trade area than other regional centers.

Customers enjoy the open storefronts, the easy entrance, and the "all-weather" shopping.

Tenants enjoy more center-wide promotions because of weather control.

An enclosed air-conditioned mall enables you to merchandise the full width of your store. The

whole store becomes a display area, eliminating window backing and expensive display

settings. You can rely on sliding doors or an overhead open drop grill for locking up the store.

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If you are considering a mall, you should weigh the benefits against costs. At the outset, it may

be difficult to measure savings, such as the elimination of storefronts, against costs, for

example the cost for heating and air-conditioning in the enclosed mall.

Specialty Theme Shopping Centers. In addition to the three major categories of shopping

centers new types of centers are evolving that have been called specialty or theme centers. In

general these centers do not have a major anchor tenant. There is a greater percentage of

restaurants and specialty food stores, the other stores tend to be highly specialized with more

imported goods, custom crafted goods, designer clothes etc. Also a greater number of the

merchants are independents. Unusual and interesting architectural design is a normal

characteristic and frequently a tourist market rather than a resident market exists.

HOW TO MAKE A TRAFFIC COUNT

First of all, be sure you need a traffic count. Although knowledge of the volume and character

of passing traffic is always useful, in certain cases a traffic survey may not really make any

difference. Other selection factors involved may be so significant that the outcome of a traffic

study will have relatively little bearing on your decision. When the other selection factors, such

as parking, operating costs, or location of competitors, become less important and data on

traffic flow becomes dominant, then a count is needed. Once you have determined that you

really need a traffic count, the general objective is to count the passing traffic – both pedestrian

and vehicular -- that would constitute potential customers who would probably be attracted into

your type of store. To evaluate the traffic available to competitors, you may desire to conduct

traffic counts at their sites, too.

Data from a traffic count should not only show how many people pass by but generally

indicate what kinds of people they are. Analysis of the characteristics of the passing traffic

often reveals patterns and variations not readily apparent from casual observation.

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For counting purposes, the passing traffic is divided into different classifications according to

the characteristics of the customers who would patronize your type of business. Whereas a

drugstore is interested in the total volume of passing traffic, a men's clothing store is obviously

more concerned with the amount of male traffic, especially men between the ages of sixteen

and sixty-five.

It is also important to classify passing traffic by its reasons for passing. A woman on the way to

a beauty salon is probably a poor prospect for a paint store, but she may be a good prospect for

a drugstore. The hours at which individuals go by are often an indication of their purpose. In

the early morning hours people are generally on their way to work. In the late afternoon these

same people are usually going home from work. When one chain organization estimates the

number of potential women customers, it considers women passing a site between 10 a.m. and

5 p.m. to be the serious shoppers.

Evaluation of the financial bracket of passersby is also significant. Out of 100 women passing

a prospective location for an exclusive dress shop, only ten may appear to have the income to

patronize the shop. Of course, the greater your experience in a particular retail trade, the more

accurately you can estimate the number of your potential customers. To determine what

proportion of the passing traffic represents your potential shoppers, some of the pedestrians

should be interviewed about the origin of their trip, their destination, and the stores in which

they plan to shop. This sort of information can provide you with a better estimate of the

number of potential customers.

In summary, the qualitative information gathered about the passing traffic should include

counting the individuals who seem to possess the characteristics appropriate to the desired

clientele, judging their reasons for using that route, and calculating their ability to buy.

PEDESTRIAN TRAFFIC COUNT

In making a pedestrian count you must decide: who is to be counted; where the count should

take place; and when the count should be made. In considering who is to be counted, determine

what types of people should be included. For example, the study might count all men presumed

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to be between sixteen and sixty-five. The directions should be completely clear as to the

individuals to be counted so the counters will be consistent and the total figure will reflect the

traffic flow.

As previously indicated, it is frequently desirable to divide the pedestrian traffic into classes.

Quite often separate counts of men and women and certain age categories are wanted. A trial

run will indicate if there are any difficulties in identifying those to be counted or in placing

them into various groupings.

You next determine the specific place where the count is to be taken. You decide whether all

the traffic near the site should be counted or only the traffic passing directly in front of the site.

Remember that if all the pedestrians passing through an area are counted, there is the

possibility of double counting. Since a person must both enter and leave an area, it is important

that each person be counted only once -- either when entering or when leaving. Therefore, it is

essential that the counter consistently counts at the same location.

When the count should be taken is influenced by the season, month, week, day, and hour. For

example, during the summer season there is generally an increased flow of traffic on the shady

side of the street. During a holiday period such as the month before Christmas or the week

before Easter, traffic is denser than it is regularly. The patronage of a store varies by day of the

week, too. Store traffic usually increased during the latter part of a week. In some

communities, on factory paydays and days when social security checks are received, certain

locations experience heavier than normal traffic.

The day of the week and the time of day should re~ resent a normal period for traffic flow.

Pedestrian flow accelerates around noon as office workers go out for lunch. Generally more

customers enter a downtown store between 10 a.m. and noon and between 1 p.m. and 3 p.m.

than at any other time. Local custom or other factors, however, may cause a variation in these

expected traffic patterns.

After you choose the day that has normal traffic flow, the day should be divided into half-hour

and hourly intervals. Traffic should be counted and recorded for each half-hour period of a

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store's customary operating hours. If it is not feasible to count the traffic for each half-hour

interval, the traffic flow can be sampled. Traffic in representative half-hour periods in the

morning, noon, afternoon, and evening can be counted.

ESTIMATE OF STORE SALES

Data from a pedestrian traffic survey can give you information on whether or not the site

would generate a profitable volume for your store. A retailer with some past experience in the

same merchandise line for which a store is planned can make a reasonable estimate of sales

volume if the following information is available (in lieu of past personal experience, the trade

association for your type of business may be of help):

· Characteristics of individuals who are most likely to be store customers (from pedestrian

interviews).

· Number of such individuals passing the site during store hours (from traffic counts).

· Proportion of passersby who will enter the store (from pedestrian interviews).

· Proportion of those entering who will become purchasers (from pedestrian interviews).

· Amount of the average transaction (from past experience, trade associations, and trade

publications).

One retailer divides the people who pass a given site into three categories: those who enter a

store; those who, after looking at the windows, may become customers; and those who pass

without entering or looking. Owing to prior experience, this retailer is able to estimate from the

percentage falling into each classification not only the number who will make purchases but

also how much the average purchase will be. If, out of 1,000 passersby each day, five percent

enter (fifty) and each spends an average of $8 ($400), a store at that site which operates 300

days a year will have an annual sales volume of $120,000.

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AUTOMOBILE TRAFFIC COUNT

A growing number of retail firms depend on drive-in traffic for their sales. Both the quantity

and quality of automotive traffic can be analyzed in the same way as pedestrian traffic. For the

major streets in urban areas, either the city engineer, the planning commission, the State

highway department, or an outdoor advertising company may be able to provide you with data

on traffic flows. However, you may need to modify this information to suit your special needs.

For example, you should supplement data relating to total count of vehicles passing the site

with actual observation in order to evaluate such influences on traffic as commercial vehicles,

changing of shifts at nearby factories, through highway traffic, and increased flow caused by

special events or activities.

HELP IN CHOOSING A LOCATION

Choosing a retail location is, at best, a risky undertaking. Considering the consequences of

choosing a location that proves to be unsuitable, it pays to get as much assistance as possible.

The local chamber of commerce in a city of more than 125,000 usually has a division devoted

primarily to assisting budding owner-managers in finding suitable locations for their\

businesses. This is a free service that surprisingly few people take advantage of.

The U.S. Small Business Administration (SBA) has field offices located throughout the

country. SBA field offices can provide free counseling assistance, literature, and information to

help you select a retail site. (See your local directory under "U.S. Government.")

You may wish to hire a consultant to analyze two or three locations that you have selected. It

costs less if you provide the consultant with pre selected potential locations than to have him or

her initiate an open-ended search for a location. The business school of a nearby college o

university may also be able to provide help.

Other sources of information on potential locations include bankers and lawyers, who may

have been in position to observe over an extended period of time many locations where other

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clients previously did business. Realtors can also provide information on location. Remember

though, their compensation is based upon commissions for renting property.

LOCATE IN HASTE, REPENT AT LEISURE

Selection of a retail location requires time and careful consideration. It should not be done in

haste just to coincide, say, with a loan approval. If you haven't found a suitable location, don't

plan to open until you're sure you've got what you want. Put your plans on hold; don't just

settle for a location you hope might work out. A few months' delay is only a minor setback

compared to the massive -- often fatal -- problems that occur from operating a retail business in

a poor location.

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CHAPTER – 5

CONCLUSIONS AND

RECOMMENDATIONS

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CHAPTER- 5

Conclusions & Implications:After conducting the Meta –Analysis for the Indian retailing market, it can be concluded

that:

1) Retailers need to think about shoppers not just about a format as understanding the

shoppers’ dynamics holds the key to such a business. Retailers would have to create new

delivery formats that can cater to the huge mass of consumers.

2) Retailers must understand what value shopper is looking for and how the retailers can

deliver that desired value to the customer. However, most retailers look for what they are

offering and how shoppers can fit into retailer’s scheme of offerings.

3) In the long run such strategies may not be viable. Sam Walton and Jack Welch share a

same line of thinking that consumer is the source of competitive advantage and one of

leading UK based retailers Tesco Inc. has shown how understanding consumer can be a

source of redefining business and gaining sustainable advantage.

The retailer operates four different retail formats namely Express, Super store Metro and Extra

to cater consumer need. The Group also has an additional 527 stores under the One Stop fascia.

All the formats are profitable and each format is tailor made to fulfill customer need. It is the

value offering which makes Tesco so popular and profitable. Similarly in India Pantaloon

Retail runs several formats and for value retailing Big Bazaar is receiving exceptional response

from the customers.

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4) Retailing in India is entirely different from western countries for that matter even from

Asian counterparts. Studies show that upgraded Kirana stores are growing at the same rate

as organized retailers.

5) It is also observed that in the changing retailing environment, understanding the psyche of

customer is critical to success in retailing. Aggregate level picture may be misleading, as it

averages the beats and the valleys. Hence, individual understanding is desirable.

6) Though, some Indians are behaving as sophisticated shoppers, tens of millions are still

novice but no less avid consumers are joining the fray every year. So, retailers have to

acknowledge this change and also stay a step a head of the evolution curve of the Indian

market.

7) Finally, it is not the format that gives business sustainability rather it is one of the vehicles

to deliver the value to the customer.

8) Indian consumers are still family-driven entities. Shopping, entertainment and eating out

are family events. Since these decisions are normally group decisions, hence a marketer has

to address family sensibilities more rigorously to woo Indian customers.

9) Indian customers have become more sensitive to quality, customer service and status.

He/She is ready to pay, sometimes, astronomical sums provided their needs are satisfied.

They are basically looking for an experience which is more of cognitive than physical. In

brief, Jo Dikhta Hai Wo Hi Bikta Hai.

In some cases, few Kirana store owners find no competition because they understand what

their customers want. So ultimately it can be said that for a retailer understanding the

customers is just like climbing the Greased Pole.

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REFERENCESCompany (Retail Location)

Business today edition dated Nov 6, 2008

Businessworld - The Marketing Whitebook, 2008

Press Sources like Economic Times, Business Standard, The Hindu Business Line

KSA Technopack Studies ( Handles some aspects of franchise for Barista)

o www.etretailbiz.com

o www.barista.co.in

o www.mothersprideonline.com

o www.rbk.com

o www.fernsnpetals.com

o http://www.ibef.org/economy/fdi.aspxo http://www.mumbaipropertyexchange.com/newsdetail.asp?news=84o http://www.pantaloon.com/html/company_profile.htmo http://retailindustry.about.com/od/abouttheretailindustry/p/retail_industry.htmo http://retailindustry.about.com/gi/dynamic/offsite.htm?zi=1/

XJ&sdn=retailindustry&zu= http%3A%2F%2Fwww.census.gov%2Fprod%2F2005pubs%2Fbr04-a.pdf

o http://www.plunkettresearch.com/Industries/Retailing/RetailingTrends/tabid/269/Default.aspx

o http://www.euromonitor.com/reportsummary.aspx?folder=Retailing_in_China&industryfolder=Retailing

Books:

1. MARKETING MANAGEMENT by Philip Kotler2. ORGANIZATIONAL BEHAVIOR by Stephen P Robbins.3. CONSUMER BEHAVIOR by Leon G. Schiffman & Lesile Lazar Kanuk

Websites:

1. GOOGLE.COM2. PROWESS DATABASE (CMIE)

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