Page 21 - DMGT553_RETAIL_STORE_MANAGEMENT

Retail Store Management

Notes It is possible to order centres and create a hierarchy of central places. Highest order good offered
by the centre determines the order of a centre. A central place hierarchy can be regarded as a
multiple system of nested centres and market areas.

Did u know? Low order centres and their market areas nest under the area of higher order
centres. As the hierarchical level increases, the number of trade centres decreases.
The large centres are widely spaced while the hamlets are the most numerous. The determination
of the size of the retail outlet in a location especially the city implies application of the same
concept. As the size of the outlet, increases in the CBD of the city, its primary trading area
increases and therefore the number of such outlets are less.
Hierarchy: Space preference structures measure the trade-off between a journey’s distance to
shop for goods and services, and the town size. The larger the town size, greater the positive
mental stimulus, while the increased distance to the town centre is a negative mental stimulus.
Rural residents receive a certain payoff to go a certain distance.

Task Comment upon the statement: Town size as a surrogate for the market basket of
shopping possibilities that exist there measures the payoff.
A central place hierarchy of goods and services also exists inside the city. This hierarchy is the
retail hierarchy, and urban residents display a similar behaviour to rural residents. Shoppers
obtain low order goods from the closest places and higher order goods from higher order
centres.
Typically, location models identify as “best” that new location, which maximises some measures
of overall financial performance for the organisation, often the total revenue. In doing so, the
model usually allows new locations of the organisation (as long as total revenue is maximised)
to cannibalise revenue from old locations. While this poses no problem to the corporate-owned
chain, franchise systems are different. A current franchisee would be understandably upset if a
new franchisee location cannibalises revenue at his/her, no matter that system-wide revenue
increases. From the franchisee’s perspective, the lost sales have been pirated away, just as surely
as if by a competing system. Therefore, location also plays an important role in determining
franchisee site-selection decision.

Self Assessment

Fill in the blanks:
16. Location decision is very important in retailing business because location involves
................................. cost.
17. Customer traffic is also affected by the selection of location which consequently affects the
.................................

18. Retailer should understand the importance of location decision in the context of
.................................
19. In .................................stores systems each section of the industry has separate stores attached
with it.
20. In ...................................... system the main store located centrally fulfils the needs for each
and every department.

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