BUSI 446 Week 3 Discussion Board Forum 3 Example

Discussion Board Forum 3: Choosing a Site for a New Store

BUSI 446 Retailing and Category Management, Discussion Board Forum 3 Thread and Replies

Thread by [Student Name]

The forum prompt and the classmates are composites; the textbook, the research and the Scripture cited are real.

Thread

Suppose a regional hardware chain must choose between two sites for its next store. Site A is a freestanding pad beside a highway exit, with room for a 40,000-square-foot store and its own parking. Site B is a 25,000-square-foot space in a neighborhood strip center anchored by a grocery store. Rent is higher at Site A, but the store would be larger.

Levy et al. (2019) describe a store's trade area as the region from which it draws customers, divided into a primary zone that supplies most of its sales, a secondary zone and a fringe beyond. For a hardware store, the primary zone is usually small, because most trips are for a few items needed today. That points toward Site B, which sits inside dense neighborhoods.

The Huff gravity model gives a more careful answer. Huff (1964) proposed that the probability of a shopper choosing a store rises with the store's size and falls with the travel time needed to reach it, relative to every other store the shopper could choose. A larger store can pull from farther away, but each added minute of driving reduces its pull. Applied here, Site A's larger assortment would let it draw from the whole county, while Site B would win the quick trips of nearby households but lose larger project purchases to the big home centers.

Travel cost is not only a theory. Ma et al. (2011) found that when gasoline prices rose, households changed where they bought groceries, moving some spending toward supercenters where they could buy more in one stop. When each trip costs more, shoppers reward stores that let them finish the job in one visit. For a hardware store, that favors the larger site, where a contractor or homeowner can buy everything for a project at once.

A rough calculation shows how the model would separate the sites. Suppose a neighborhood two miles from Site B and seven miles from Site A also has a 100,000-square-foot home center eight miles away. Using square footage for attraction and travel time for distance, Site B's small size is offset by its closeness, so it would capture a large share of quick trips from that neighborhood. For a household 12 miles out in the county, though, Site B would barely register, while Site A, near the highway, would compete directly with the home center. The model does not settle the choice by itself, but it shows that the two sites would serve different customers and different trips.

My recommendation is Site A, with one condition: the chain should confirm with traffic counts that the exit carries enough local traffic, not only through traffic, because Levy et al. (2019) note that accessibility depends on the direction and purpose of travel as much as on the volume of cars.

Luke 14:28 describes a would-be tower builder doing the arithmetic first, because a half-finished tower invites mockery from the neighbors (English Standard Version Bible, 2001/2016). A store lease commits a retailer for 10 years or more. Counting the cost here means modeling the trade area and the competition honestly before signing, rather than choosing the site that looks impressive from the highway.

Reply to Caleb

Caleb, your plan to open a third coffee shop two miles from your second one makes sense given the traffic counts you found, but I would test it for cannibalization first. Levy et al. (2019) note that a new store near an existing one can take sales from it, so the chain gains less than the new store's total sales.

Pancras et al. (2012) examined this problem for a chain of fast-food restaurants and found that a new outlet draws part of its sales from the chain's existing outlets, with the effect falling as the distance between them grows. Their work suggests estimating the net gain, new sales minus the sales taken from nearby units, before approving a site. Kalnins (2004) studied hotel franchising and found that new units placed close to existing ones reduced the revenue of those nearby units, which is why franchisees often fight new openings in their area.

Proverbs 15:22 links a plan's success to the number of advisers consulted before it is carried out (English Standard Version Bible, 2001/2016). Asking the manager of your second shop how many customers come from the new site's direction would be a cheap first check. A more careful check would use the loyalty app, if the shops have one, to map where the second shop's regular customers live. If a third of them live closer to the new site, the chain should expect the new shop to take a meaningful share of their visits, and should count only the remaining sales as true gains when judging whether the site pays for its lease. What share of your second shop's customers live closer to the new site?

Reply to Olivia

Olivia, I liked your case for downtown locations because of foot traffic and the character they give a boutique, and the textbook agrees that central business districts offer high pedestrian traffic. I would add parking and accessibility to your analysis.

Bitner (1992) argued that the physical setting shapes how customers feel about and behave in a service business, and the surroundings of a store, including how easy it is to reach and park, are part of that setting. Baker et al. (2002) found that store environment cues influence shoppers' perceptions of merchandise value and their intention to shop at a store. A downtown boutique with charming architecture may lose shoppers who cannot find parking within a block, especially those carrying purchases.

That does not mean downtown is the wrong choice for your boutique. Levy et al. (2019) note that the right location depends on the retailer's target market and strategy, and a boutique selling unique clothing to shoppers who enjoy browsing may benefit from the foot traffic of nearby restaurants and galleries. The question is whether the shoppers you want will arrive on foot or by car. If most of your customers live in the suburbs, parking becomes part of your offer, and the site analysis should treat it as seriously as rent.

Proverbs 24:27 puts the fieldwork ahead of the house: prepare the land outside first, and build afterward (English Standard Version Bible, 2001/2016). For a downtown store, preparing the field might mean negotiating validated parking with a nearby garage before signing. Does your downtown have public parking within a short walk?

References

Baker, J., Parasuraman, A., Grewal, D., & Voss, G. B. (2002). The influence of multiple store environment cues on perceived merchandise value and patronage intentions. Journal of Marketing, 66(2), 120-141. https://doi.org/10.1509/jmkg.66.2.120.18470

Bitner, M. J. (1992). Servicescapes: The impact of physical surroundings on customers and employees. Journal of Marketing, 56(2), 57-71. https://doi.org/10.1177/002224299205600205

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Huff, D. L. (1964). Defining and estimating a trading area. Journal of Marketing, 28(3), 34-38. https://doi.org/10.1177/002224296402800307

Kalnins, A. (2004). An empirical analysis of territorial encroachment within franchised and company-owned branded chains. Marketing Science, 23(4), 476-489. https://doi.org/10.1287/mksc.1040.0082

Levy, M., Weitz, B. A., & Grewal, D. (2019). Retailing management (10th ed.). McGraw-Hill Education.

Ma, Y., Ailawadi, K. L., Gauri, D. K., & Grewal, D. (2011). An empirical investigation of the impact of gasoline prices on grocery shopping behavior. Journal of Marketing, 75(2), 18-35. https://doi.org/10.1509/jm.75.2.18

Pancras, J., Sriram, S., & Kumar, V. (2012). Empirical investigation of retail expansion and cannibalization in a dynamic environment. Management Science, 58(11), 2001-2018. https://doi.org/10.1287/mnsc.1120.1540