Retailing MKTG 6211

Retailing Topics
Professor Edward Fox
Cox School of Business/SMU

Retail Site Selection

Openings
Expansions Closings

What are the effects of proposed changes in retail sites on the revenues of new and existing stores?

Retail Site Selection Why Does It Matter?

Access to consumers
Number Characteristics Growth

Locations of other stores

Cannibalization own stores Agglomeration Competition Complementarity According to Wal-Marts Real Estate group, the difference between good and bad locations exceed $25 million in gross profit

Retail Site Selection How Is It Done?

Select:

Geographic market
Site within the geographic market If an opening or expansion, the format/size of the store to be opened

Retail Site Selection Agglomeration

Agglomeration captures the countervailing effects of complementarity and competition among retailers Intra-type - Stores of the same type locating near one another
Facilitates consumer search Examples: motor miles and restaurant rows

Inter-type - Stores of different types locating near one another

Facilitates multi-purpose shopping, virtual one-stopshopping, and offers a wider variety of goods to choose from Examples: shopping centers and shopping malls

Recognizes that consumers may use multiple stores to meet their needs - shopping strategically!!

Retail Site Selection Agglomeration

Trip chaining Make unrelated purchases on the same trip Price search Search until you find an attractive price Cherry picking Visit multiple stores for their bargain prices

Retail Site Selection Where Do Consumers Work?

Another consideration in retail site selection is where consumers work Do shopping trips begin from home? From work?

Retail Agglomeration Trip Chains

Trip chains reflect the routing problem faced by shoppers Consumers minimize shopping costs by reducing travel, subject to fulfilling diverse product/service needs Price search Our research incorporates price uncertainty, allowing shoppers to terminate or continue a shopping trip (unplanned) Data limitations require that we: Consider visits only to selected store formats Assume that shopping trips begin from the consumers home

Retail Site Selection Agglomeration

How does retail location affect multi-store shopping?
RETAIL LOCATION

Relative to customers

Relative to other stores

Retail Competition

Destination Effect

Specifically, how are retailer revenues affected by nearby supermarkets, drug stores, mass merchandisers and supercenters, dollar stores and warehouse clubs?

Retail Agglomeration Preliminary Model - Data Description

Store Visits 2.6 7.1 3.7 2.4 4.0 1.7 Travel Time (min) 10.4 4.9 8.7 8.8 21.2 16.8

Retailer BiLo Food Lion Harris Teeter Winn Dixie Wal-Mart Supercenter Wal-Mart Discount Demographic Income (x $1,000) Family Size Head of Household Age College Education Working Woman

N 1790 1790 1790 1790 1790 1790 N 358 358 358 358 358

Spending Penetration $79 0.472 $184 0.785 $145 0.570 $56 0.478 $122 0.617 $30 0.343 Average 55.1 2.65 51.4 0.38 0.50 Std Dev 30.3 1.15 11.4 0.49 0.46

Retail Agglomeration Preliminary Model Results Travel Times

Distance to BiLo Food Lion Harris Teeter Winn Dixie WM Super WM Discount BiLo -0.921 ( -1.289 , -0.509 ) 0.184 ( -0.184 , 0.568 ) 0.323 ( -0.106 , 0.745 ) 0.393 ( 0.012 , 0.806 ) -0.340 ( -0.818 , 0.143 ) 0.037 ( -0.416 , 0.504 ) Food Lion 0.162 ( -0.075 , 0.405 ) -0.400 ( -0.613 , -0.182 ) ( ( 0.390 0.099 , 0.678 ) 0.223 0.019 , 0.429 ) Resulting Revenues at Harris Teeter Winn Dixie 0.246 0.373 ( -0.015 , 0.502 ) ( 0.009 , 0.737 ) ( 0.377 0.116 , 0.645 ) 0.135 ( -0.204 , 0.484 ) 0.280 ( -0.146 , 0.751 ) -0.934 ( -1.222 , -0.607 ) 0.200 ( -0.435 , 0.827 ) 0.216 ( -0.329 , 0.789 ) WM Super -0.095 ( -0.360 , 0.171 ) -0.139 ( -0.370 , 0.094 ) -0.008 ( -0.282 , 0.266 ) ( 0.291 0.025 , 0.556 ) WM Discount 0.250 ( -0.025 , 0.521 ) 0.133 ( -0.074 , 0.360 ) ( 0.333 0.076 , 0.591 )

-0.733 ( -0.960 , -0.501 ) 0.134 ( -0.101 , 0.385 ) -0.252 ( -0.584 , 0.105 ) 0.036 ( -0.334 , 0.410 )

-0.416 ( -0.618 , -0.218 ) 0.396 ( -0.112 , 0.920 ) -1.005 ( -1.304 , -0.703 )

0.096 ( -0.280 , 0.467 ) 0.081 ( -0.246 , 0.411 )

-0.460 ( -0.778 , -0.139 ) ( 1.015 0.604 , 1.432 )

Travel times have the expected negative effect for own-store; cross-store travel time parameters have smaller positive effects

We observe symmetric competition among grocery stores in terms of location

Revenues at EDLP storesFood Lion and Wal-Mart Supercenter are least sensitive to distances that their customers have to travel

Retail Agglomeration Preliminary Model Results - Agglomeration

Agglom of Club Dollar Drug Grocery Discount Supercenter BiLo -0.021 ( -0.091 , 0.067 ) -0.070 ( -0.407 , 0.257 ) -0.629 ( -1.226 , -0.008 ) 0.086 ( -0.783 , 0.995 ) 0.057 ( -0.177 , 0.306 ) -0.201 ( -0.327 , -0.053 ) Food Lion -0.019 ( -0.045 , 0.013 ) -0.154 ( -0.438 , 0.129 ) -0.114 ( -0.480 , 0.240 ) 0.117 ( -0.281 , 0.495 ) 0.075 ( -0.086 , 0.241 ) 0.068 ( -0.051 , 0.193 ) Resulting Revenues at Harris Teeter Winn Dixie 0.016 -0.018 ( -0.074 , 0.112 ) ( -0.092 , 0.078 ) -0.405 ( -0.616 , -0.182 ) 0.349 ( -0.159 , 0.866 ) 0.156 ( -0.326 , 0.621 ) ( 0.179 0.017 , 0.352 ) -0.139 ( -0.532 , 0.272 ) 0.056 ( -0.789 , 0.938 ) 0.038 ( -0.703 , 0.804 ) 0.053 ( -0.139 , 0.275 ) -0.096 ( -0.277 , 0.105 ) WM Super -0.027 ( -0.097 , 0.053 ) -0.197 ( -1.246 , 0.846 ) 0.255 ( -0.170 , 0.675 ) 0.012 ( -0.775 , 0.807 ) -0.056 ( -0.376 , 0.273 ) -0.053 ( -0.221 , 0.113 ) WM Discount -0.062 ( -0.190 , 0.092 ( ( 0.588 0.214 , 0.963 0.619 0.030 , 1.241

-1.191 ( -2.210 , -0.173 0.044 ( -0.086 , 0.185 ( . . , .

-0.016 ( -0.080 , 0.057 )

Wal-Mart Discount stores are most affected by locating near other stores
Wal-Mart Supercenters are not affected by the concentration of other stores nearby Locating near club stores does not affect retailers in our sample

Multi-Channel Retailing

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Multi-Channel Retailing
How big is the Internet -- milestones
Mid - 1996: online population of the United States was 35 million Mid - 1998: online population became 72.6 million April 1999: more than 83 million users online above age 16 2000 Census: 42% of US households have internet access >50% of US households have computers
Source: Levy & Weitz and Census Bureau

Multi-Channel Retailing
How big is the Internet?
Worldwide Active Internet Home Users, July 2007 Country Jun-07 Jul-07 Growth (%) Difference Australia 10,818,299 10,842,782 0.23 24,483 Brazil 18,047,372 18,522,750 2.63 475,377 Switzerland 3,673,908 3,717,766 1.19 43,858 Germany 33,023,580 33,198,475 0.53 174,895 Spain 13,999,820 13,484,624 -3.68 -515,196 France 22,586,718 21,948,082 -2.83 -638,635 Italy 17,197,972 17,071,177 -0.74 -126,796 Japan 45,867,926 46,625,634 1.65 757,708 U.K. 24,651,765 24,681,279 0.12 29,514 U.S. 146,828,875 148,128,321 0.89 1,299,446 Totals 336,696,235 338,220,889 0.45 1,524,654
Source: Nielsen//NetRatings, 2007

Multi-Channel Retailing
How big is Internet retail?
Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales: 4th Quarter 19992nd Quarter 2007
Percent of Total

Multi-Channel Retailing
What do shoppers buy on the Internet?
Category Airline Tickets Computer hardware Other Hotel Reservations Apparel Toys/Video Games Consumer Electronics Books Car Rental Food/Beverages Software Music Health and Beauty Office supplies Videos Jewelry Sporting Goods Linens/Home Decor Footwear Small appliances Flowers Tools and Hardware Furniture Appliances Garden Supplies Total Spend $6,665,374 $3,907,186 $3,544,600 $3,262,206 $2,580,352 $2,346,174 $2,262,047 $2,201,026 $1,660,432 $1,654,286 $1,624,707 $1,526,183 $1,334,326 $1,271,997 $1,085,490 $824,178 $807,614 $761,820 $600,100 $596,605 $590,454 $509,188 $443,254 $283,579 $188,857 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Source: PCDataonline Jan 00-Jan 01

Multi-Channel Retailing
What do shoppers buy on the Internet?
Selected Product Categories' Sales Growth, 2004 and 2005 (%) Growth Apparel and accessories 36 Computer software (excludes PC games) 36 Home and garden 32 Toys and hobbies 32 Jewelry and watches 27 Event tickets 26 Furniture 24 Flowers, greetings, and gifts 23 Notes: 1. Sales exclude auctions and large corporate purchases. 2. Sales are non-travel online consumer spending.
Source: comScore, 2006