New Store Site Selection

Retail Site Selection of a New Location for an Outdoors store

Presented to: 

 Investors

Prepared by:

Kyle Roloff

University of Wisconsin - Eau Claire

Overview:

Store Selection LLC has been hired by a team of investors to find a new location for an outdoors/adventure store that will sell items from hiking gear, footwear, sporting equipment, fishing gear, and apparel.  Location is the biggest concern for customers when deciding what store to go to, therefore to find the best location is the goal of putting in a new store. Location can make a store great or will ruin the store due to being in a bad location or great location.  This store has been selected to be put somewhere within Ramsey and Hennepin County due to the large population, demographics, and market structure of the area. To determine the best location for the store, the demographics, trade areas, market structure, a gravity model, and a rank of sites will be used to find the location. This type of store will fit into the differentiated marketing where there will be separate company marketing mixes that will go to separate segments of people.  This allows the store to cover their bases with as many people as possible due to the sheer quantity of different types of items that will be sold.  Therefore, as an example the footwear the store will be selling shoes/boots/sandals that fit toddlers to adults with many different styles. 

The reason this type of store is being sought after is due to lack of outdoors stores in the two counties mentioned above.  Therefore, there is a potential market for this type of gear, and for this store to make its way into a new city and potentially steal customers away from going to the other stores by making a store that is closer for their drive time, has a great location, and offers just as many if not more services.  This store is trying to move into the traditional department store area that is show in Figure 1. The diagram below shows that this store will be slightly more expensive and have more product lines offered to cover more segments. This type of store was selected due to the demographics that were used in the ranking of the sites talked about below. 

Figure 1: Retailer Categories based on price vs service to determine what kind of store it is (Dr. R. Weichelt).

Methods

Demographics:

Since this store will be looking to do market segmentation it is imperative that the demographics match that type of market.  Therefore, this store will be looking at a variety of different types of people to figure out the demographics that are going on in an area.  Therefore, this is a list of the type of data being looked at:

·       2016 Pop age 15+ Married

·       2016 Pop age 15+ non-Married

·       2016 population age 20-24, 25-29, 30-34, 35-39,40-44, 45-59,60-64

·       2016 hh income 50-75000, 75-99999, 100000-149999

·       2016 Travel Trips Recreational Expenses:avg

These were chosen based on the type of person that is profiled to be going outdoors, can afford the type of equipment inside the store, and is at the age where these types of activities are still useable.  Selecting the married and non-married was a choice made due to people going on trips with their married partner, or the nonmarried was selected for people that would be going on trips, needed sporting goods to go with friends or significant others or for careers that may use outdoors equipment.  The population that was selected was 20-64.  This was picked because most people under the age of 20 are still going to have most of the more expensive equipment paid for by their parents which is covered in the higher end of the age group. The selected income was $50,000 - $150,000. This was due to the general type of people that would be using this store to buy their goods and afford to go on trips where our outdoors material is needed to go along with them.  The last demographic used was the average recreation trip expenses.  This was need to see what cities overall spend more money on recreational travel trips to determine which location would need this type of store.  Moreover, the ideal customer is someone who is 20-35 years old, has a steady income of $75k/yr, and spends around $1,000-2,000 a year in recreational travel. 

Ranked Sites:

Now that there are demographics a site selection can be made using ESRI’s business analyst. This was chosen based on the demographics listed above. After using the analyst Figure 2 was created to show which three areas are the best locations.  Now, the best location chosen was located around Plymouth Minnesota.

Figure 2: Ranked Locations, 1 (red) being the best choice and 3 (yellow) being the least fitting choice

Trade Areas:
Now that the sites are ranked the trade areas can be looked at to see which one will cover more area in a 5, 7, 10-minute drive time to each of the stores location (Figure 3). This is important because the store with more drive time within that 10 minutes will attract many more customers to its own area. Therefore, the store at Plymouth will cover the most ground within 10 minutes making it easier for people around this area to go to this store location, and should have more people attending its stores instead of the competition.  Drive times were also used to help answer where the customers are going to be driving from.  For the two stores in the south the people are going to either be driving out of the larger cities to get to those stores, or they will be driving from the more rural areas to come to the outdoors store, and that may draw the problem of people just deciding to order online instead of having to drive as far.  Therefore, Plymouth Minnesota is a great location due to covering many suburbs of the Twin Cities allowing people to not have to drive all the way downtown and to just attend the shopping center in Plymouth.   

                                       Figure 3: Drive Times for each of the ranked stores.

 Market Structure

The market for this type of store is small for the western part of the two counties. Therefore, there is a niche that needs to be filled by placing a store in one of the parts of this area.  The main outdoor stores are going to be Gander Mountain, and REI which are located throughout the counties, but are not very well located in in the west part.  Therefore, with the ranked sites from Figure 2 it makes sense to add a store in Plymouth, MN.  This will not saturate the market because there is not a store located there yet, and will not really steal many of the customers from the East part of the state, but it will draw in many people from the west side of the state where there is still a market for this type of store to be put in to place.

                                                    Figure 4: Location of Competitors.

Gravity Model/Point of Indifference
The gravity model or point of indifference is where the customer will chose which store to go between based on an equation created which is: Db= 

d = distance on major highway between city a and b
Pa = population of City a
Pb = population of City b
Db = breaking point from City A; measured in miles along the road to city B
To determine this the three cities chosen were Maple Grove, Mn, Wayzata, Mn, and Minnetonka, Mn. The breaking points along the highways were:
Maple Grove: 2.36 miles
Wayzata: 4.5 miles
Minnetonka: 3.88 miles. 

Conclusion:

The best place to put the store is going to be in Plymouth Minnesota.  This is based on the Market structure, demographics, trade areas, and the ranked sites.  As seen in the figure above there is a large gap to fill of not having an outdoors store.  With putting the location in Plymouth, Minnesota this store can fill that gap and allow people to make the small 10-minute drive to this store instead of the longer drive to another store, or having to drive into the downtown cities to make their small purchase.  This store will be able to steal many customers from the stores to the north and south of it making a large impact in the market structure.