Page 51 - DMGT552_VISUAL_MERCHANDISING

Visual Merchandising

Notes Index of Retail Saturation (IRS)

One of the more commonly used measures of market attractiveness is the Index of Retail
Saturation (IRS). This index is based on the assumption that if a market has a low level of retail
saturation, the likelihood of success is higher.
IRS is the ratio of demand for a product (households in the geographic area multiplied by annual
retail expenditures for a particular line of trade per household) divided by available supply (the
square footage of retail facilities of a particular line of trade in a geographic area.
In the following formula, a higher IRS indicates a lower level of saturation, thereby increasing
the likelihood of retail success.
Number of consumers  Retail expenditures per consumer
IRS =
Square feet of retail selling space available

Census data, which is published every five years, can provide information on the number of
potential customers in a trading area.

Task Take example of any one prime retail location in India and find out about the
number of shops at that location, types of shops, and its attractiveness.

Trade Area Analysis

A thorough analysis of trade area is necessary to estimate market potential, understand customer
profile, competition, develop merchandising plan, and focus promotional activities. Increasingly,
retailers are using Geographic Information System (GIS) software in their trade area delineation
and analysis. GIS combine digitised mapping with key locational data to graphically depict such
trade area characteristics as the demographic attributes of the population, data on customer
purchases, and listing of current, proposed and competitor’s locations. Thus, GIS software lets
retailers research the attractiveness of alternate locations and review findings on computer-
screen maps.

Market Potential

In estimating the market demand potential, retailers consider factors that are specific to their
product line. Hence, often there is a variable in the criterion used by retailers for market
estimation. Some of the important indicators of market demand are as follows:
(i) Population Characteristics and its Trends: Population characteristics such as geo-
demographics, psychographic, and behavioural characteristics are used to segment markets.
Considerable information about an area’s population characteristics can be acquired from
secondary sources. Retailers can access data regarding population size, population density,
and number of households, income distribution, sex, education, age, occupation and
mobility. The information on behavioural characteristics can be obtained by carrying out
a primary study measuring store loyalty, consumer lifestyles, and store patronage.
(ii) Purchase Power and its Distribution: The average household purchasing power and
distribution of household income can significantly influence selection of a particular
retail area. Thus, as purchasing power rises, the population is likely to exhibit an increased
demand for luxury goods and more sophisticated demand for necessities.

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