Steps:
Step 1: Analyze the market in terms of industry, product, and competitors: How old is the company in this business? How many similar businesses are there in this location? What the new location is supposed to provide: new products or new market? How far is the competitor’s location from the company’s perspective location?
Step 2: Understand the Demographics: Literacy of customers in the prospective location, age groups, profession, income groups, lifestyles, religion.
Step 3: Evaluate the Market Potential: Density of population in the prospective location, anticipation of competition impact, estimation of product demand, knowledge of laws and regulations in operations.
Step 4: Identify Alternative Locations: Is there any other potential location? What is its cost of occupancy? Which factors can be compromised if there is a better location around?
Step 5: Finalize the best and most suitable Location for the retail outlet.
Macro Factors
Demographic Characteristics
Demography is the study of population characteristics that are used to describe consumers. Retailers can obtain information about the consumer’s age, gender, income, education, family characteristics, occupation, and many other items. These demographic variables may be used to select market segments, which become the target markets for the retailer. Demographics aid retailers in identifying and targeting potential customers in certain geographic locations. Retailers are able to track many consumer trends by analyzing changes in demographics. Demographics provide retailers with information to help locate and describe customers.
Cultural Characteristics
Cultural characteristics impact how consumers shop and what goods they purchased. The values, standards, and language that a person is exposed to while growing up are indicates of future consumption behavior. Consumers want to feel comfortable in the environment in which they shop. To accomplish this, retailers must understand the culture and language of their customers. In a bilingual area, a retailer may need to hire employees who are capable of speaking both of the languages spoken by the customers. Some retailers have found it useful to market to the cultural heritage of their consumers, while other retailers seek to market cross-culturally. Normally larger cultures are made of many distinct subcultures. Retailers need to be aware of the different aspects of culture that will affect the location decision.
Economic Characteristics
Businesses operate in an economic environment and base many decisions on economic analysis. Economic factors such as a country’s gross domestic product, current interest rates, employment rates, and general economic conditions affect how retailers in general perform financially. For example, employment rates can affect the quantity and quality of the labour pool available for retailers as well as influence the ability of customers to buy. Normally, growth in a country’s gross domestic product indicates growth in retail sales and disposable income.
Competition
Levels of competitions vary by nation and region. In some areas, retailers will face much stiffer competition than in other areas. Normally, the more industrialized a nation is, the higher the level of competition that exists between its borders. One of the environmental influences on the success or failure of a retail establishment is how the retailer is able to handle the competitive advantages of its competition. A retailer must be knowledgeable concerning both direct and indirect competitors in the marketplace, what goods and services they provide, and their image in the mind of the consumer population.
Infrastructure
Infrastructure characteristics deal with the basic framework that allows business to operate. Retailers require some form of channel to deliver the goods and services to their door. Depending on what type of transportation is involved, distribution relies heavily on the existing infrastructure of highways, roads, bridges, river ways, and railways. Legal infrastructures such as laws, regulations and court rulings and technical infrastructures such as level of computerization, communication systems, and electrical power availability also influence store location decisions. Distributions play a key role in the location decision especially for countries and regions. There is a significant variance in quantity and quality of infrastructures across countries.
Micro Location Evaluation
At this level of evaluation, the location is assessed against four factors namely:
- Population: Desirable number of suitable customers who will shop.
- Infrastructure: The degree to which the store is accessible to the potential customers.
- Store Outlet: Identifying the level of competing stores (those which the decrease attractiveness of a location) as well as complementary stores (which increase attractiveness of a location).
- Cost: Costs of development and operation. High startup and ongoing costs affect the performance of retail business.