Your BD team might scout what seems like the perfect location, but beneath the surface lie hidden dangers. In the realm of site selection criteria, retail expansion plans require a nuanced understanding of various factors to ensure success.
Inadequate insight into site selection strategy can derail even the most meticulously crafted expansion plans.
In this blog, we delve into the critical factors that impact the profitability of retail site locations.
From footfall and target audience demographics to considerations like cannibalization and accessibility, we explore the key elements that drive successful site selection strategies.
The Importance of Site Selection
When starting a new store, retailers ask a question.
A question that has remained unchanged for centuries.
“Where should I/we open the next store?”
Looking from the outside, this might seem like a simple question.
Open it at a location where you will make a profit, the ordinary person on the street would remark.
But seeing that you are here, reading this article, I am confident you understand the difficulty of starting a new store.
Let us dissect the conditions a site must satisfy when considering the location.
Identifying the Presence of a Target Audience for Site Selection
Broadly put, a target audience is a collection of people with similar characteristics who will purchase the products or services of a store.
For example, when a vegan and gluten-free restaurant opens in a neighborhood. The target audience of that restaurant is customers who are vegan and/or only consume gluten-free food.
Therefore, the priority when opening a new store is to identify if the target audience is in the selected geographic area or the catchment area.
Retailers define the presence of a target audience by conducting extensive fieldwork. Retail brands deploy surveys and employ soft launches to develop a realistic map showing the spread of the target audience in the selected catchment area.
In the above image, the RetailIQ AI solution helps retailers understand the factors behind the presence of a target audience in the selected catchment area.
From this example, we can identify the following about the target audience,
- They are young
- Affluent (households with incomes more than 10 LPA and the high average restaurant meal price for two)
Insights drawn from the solution enable retailers to determine the optimal catchment area for their expansion confidently.
Making data-driven decisions empowers retailers to eliminate the uncertainty surrounding location selection for expansion.
Insights from data enable retailers to identify the exact location clusters with the presence of their target audience.
For example, following the above example, the retailer can use a custom-built AI solution like RetailIQ to identify the locations to expand.
The Omnichannel Advantage
Direct-to-customer brands have a leg-up on their competitors when identifying a target audience for starting their first store or expanding into a new location.
How Does This Work?
Consider the example of company A.
It is a digitally native DTC brand. The leadership of this brand decides to expand into a new city.
The expansion team analyzes the addresses of customers who purchased from the brand in the city.
The team overlays this information over a map of the city. Now, the expansion team can accurately estimate the locations with the presence of the target audience.
A representative image of how a retailer can identify their target audience using location analytics.
In this example, the image on the left shows the orders that a DTC brand received in Bengaluru.
The image on the right is the advantage the GeoIQ AI solution provides the retailer. The green clusters on the map represent areas with a high presence of the brand’s target audience.
This data empowers the brand to target locations where they do not have a physical presence, boosting their revenue.
Now, an assiduous reader might ask how RetailIQ was able to identify these locations with the presence of the target audience.
RetailIQ draws inferences from more than 3,500 variables derived from various sources. Our custom-built AI solution helps retailers develop a granular perspective into potential locations for expansion.
RetailIQ’s AI model also incorporates complementary and competitor brands into site selection criteria to provide retailers with a better understanding of the catchment area.
Employing the Presence of Competitor and Complementary Brands in Site Selection
What Is a Competitor Brand?
Any retail store that competes with the brand is its competitor. In retail, analyzing the presence of competitor brands in an area is the simplest method to identify locations with a brand’s target audience.
For example, customers are more likely to find similar-category stores adjacent to each other in a high-density retail environment.
The above is taken at the following location with the lat/long of 12.84078809573873, 77.65054564470118.
Notice the presence of three stores in the same category opened next to each other.
This is an example of brands opening their stores next to their competition to leverage the existing target audience.
Competitor brands share the same target audience, making areas where they generate profits prime locations for retail brand expansion.
However, the presence/absence of a competitor brand alone does not guarantee the success of a retail store.
For example, brands might chance upon whitespace locations when conducting site analysis for retail expansion. Whitespaces are locations where the target audience is found without competitors.
In the above example, the RetailIQ model compares the presence of competitors in two different locations in Bangalore.
The location on the left is at 27th Main Road, HSR Layout – a shopping catchment area. The location on the right is at Brookfield, a primarily residential catchment area.
As expected, the location in HSR has a higher density of competitors than the location in Brookfield.
But, along with competitor brands, the RetailIQ model also calculates the presence of complementary brands in the catchment.
What Are Complementary Brands?
Contrary to competitor brands, while a complementary brand shares a similar target audience, they do not compete to snatch the sales from each other.
A complementary brand exists to draw customers to the catchment, increasing the footfall traffic in the location.
For example, for a Jewelry store, its complementary brands belong to either/all Apparel, furnishing, and accessories, among others.
Importance of Analyzing Footfall for Site Selection Criteria
Across different countries, cities, and categories, a common unifying thread connects all successful shopping districts.
The sea of shoppers. A crowd of people who signal economic prosperity.
Can you envision a market that isn’t crowded?
Footfall is a necessary measurement to consider when selecting a site for expansion.
However, successful locations have more than just a large crowd of people. They have a large crowd of customers belonging to a similar target audience.
Utilizing foot traffic data alongside the presence of competitors and complementary brands offers a detailed insight into the revenue potential within the catchment area.
The above image displays the footfall heatmap for stores in the apparel retail category in the 27th Main Road, HSR layout, Bangalore.
The location selected for this example is surrounded by competitor and complementary brands, highlighting the importance of their presence in drawing footfall to the catchment area.
The bright red places on the map represent locations with the highest concentration of customer traffic.
Importance of Accessibility in Site Selection Criteria
Imagine, if you will, a retailer who identifies the presence of their target audience and opens a store in the location.
However, their chosen location does not have any good accessibility options.
There are two options for the retailer,
- Hope that customers take the extra step to reach the store
- Build better connectivity options by paying out of their pockets
- Close their store and try again
This study by Knight’s Frank about the state of high streets in India highlights the importance of accessibility and the success of a retail location.
From Mumbai to Chennai and Bangalore, the high streets of these locations have access to public transport and car parking convenience.
The image above compares two of India’s most vibrant high streets, Church Street, Bangalore, and Anna Nagar, Chennai.
The accessibility factor in both locations is amongst the highest in the country.
Both these high streets can be accessed by personal vehicular traffic as they have a significant thoroughfare running across them.
With ample parking options, customers traveling to this location do not need to go out of their way to find locations to park their vehicles safely.
These two locations and the other high streets in the country have robust public transportation networks, including metro, rail, and bus connectivity.
Understanding the Significance of Cannibalization in Site Selection Criteria
Cannibalization occurs when two stores of the same brand share a similar catchment area, where they compete for the same customer base, reducing the overall revenue for the brand.
Cannibalization is the unfortunate product of unregulated expansion that happens without data-backed decisions. At one point in its quest to dominate the national coffee market, Starbucks had too many stores, with four stores in a 2-kilometer radius.
This predictably reduced its margins, leading the coffeehouse giant to shutter close to 150 stores in a single calendar year in 2019.
In this image, placing the two more supermarkets close to each other might be a textbook case of cannibalization if supported by other factors.
Similarly, this image might not indicate cannibalization because the selected catchment area could sustain these two stores.
Retail Landscape in Site Selection Criteria
The example above provides retailers with a comprehensive view of the retail activity in the selected catchment area.
Specific locations yield higher revenue by hosting a dynamic mix of retail establishments across diverse categories, attracting customers from varied demographics and enhancing retail stores’ revenue potential.
For example, consider the example of store A in the above location. The store generates revenue from the presence of its target audience in the catchment area.
But it also generates revenue thanks to the presence of its competitor brands, which draw in customers that broadly intersect with the interests of store A’s target audience.
The retail health of a location is also determined by its growth trend.
The growth trend indicates the net change in new store openings within the chosen catchment area. A positive trend occurs when openings surpass closures, while a negative trend arises when closures outnumber openings.
Conclusion: Importance of Location in Site Selection Criteria
Location is paramount in selecting a site for the expansion of a retail store. The examples illustrated above all hinge on identifying the exact location. An ideal location should satisfy a few of these criteria for its consideration.
- The presence of a target audience
- Presence of competitor and complementary brands
- Accessibility
- Footfall traffic
- Low chances of cannibalization
- Retail Landscape
To help retailers reduce the uncertainty of finding a site location for retail expansion, GeoIQ created RetailIQ.
What is RetailIQ?
RetailIQ is a cutting-edge AI solution revolutionizing offline expansion for the retail section. It is built on top of extensive location data and brand data to give street-level answers to expansion problems.
RetailIQ is a powerful tool providing site recommendations to maximize success at the store level and minimize the risk of closure. It also helps identify the total addressable market, conduct competition analysis, better understand your target audience traits and their presence, and perform detailed site analysis and reports, all adding up to a successful expansion strategy.