Retail Site Selection

Introduction: 

When deciding to build a new retail store, location is critical to the success of a business. If a business is not placed in an ideal location it could have a very negative affect. The store must be near the target customer base and typically the more people living around a store will increase the chances of having more sales. The location criteria varies depending upon the type of retail store as well as who the target customers are. The purpose of this lab is to showcase the different things necessary for successful retail site selection.

Case Study:

This particular case study will be looking at putting a new Trader Joe's in the area surrounding Minneapolis and St. Paul Minnesota. The customer data used was created by the instructor given to us to use. This case study is a hypothetical situation designed to give the student a background in retail site selection. The goal of this lab is to go through the different important factors that influence the location of a new store and then use Business Analyst to come to a final conclusion.

Figure 1. This is the study area used to find a new location
for a Trader Joe's in Hennepin and Ramsey counties. 

The first step in finding an ideal location is to narrow down your study area. In this particular case study, the study are will be Hennepin and Ramsey counties in Minnesota. These two counties encompass Minneapolis and St. Paul, which is where Trader Joe's would like to develop a new store. The map to the left (Figure 1) shows the study area with the other Trader Joe's stores already in operation.








The next step is to determine the market penetration of the stores that are currently in operation. Market penetration compares the number of customers to a particular variable, total population is typically used as the variable. This lets a company know if they are doing well with the population living in a particular area or if there is room for improvement. The figure below (Figure 2) shows the market penetration for Trader Joe's stores.

Figure 2. This map shows the market penetration
that Trader Joe's currently has in the study area. 

Based off of this map, the darker the green, the greater Trader Joe's is doing in that particular area. This analysis used zip codes as the defined geography. There were more zip codes than what is actually shown. The reason there are fewer now is the zip codes were grouped by the name of each city. Grouping by a city name, instead of strictly zip code, allows for a company to find what cities in particular they are reaching.

Figure 3. This map shows what areas of the city
are the most densely populated. 

The next step is to do a hot spot analysis and look at the population of the study area. Hot spot analysis identifies areas that have a high proportion of a particular variable at a specified geographic scale. In this study, each grid square is 0.5 miles by 0.5 miles. As the map to the right shows (Figure 3), the most densely populated areas are around the central and east central areas of the study area.

The next step was to locate where the ideal customers for Trader Joe's lived. There can be multiple variables chosen in order to locate a specific demographic group. Similar to market penetration, the geography used for analysis can be changed. Zip codes were used again in this example. For this study, the two variables selected were total population and median household income. Within the variables chosen, floor and ceiling values can be set. This allows for a very specific demographic to be identified. After this tool is run, a layer is produced with the results. Since this example uses zip codes, if a zip code area is showing on the map, that means there is a high number of your ideal customers living in that geographic area. The map to the left (Figure 4) shows the ideal customers.


The final step is to run the rank site tool. After looking at all of the different analysis results, the user is able to choose multiple different sites to be ranked by Business Analyst. In this example, three different sites were chosen and then ranked. When the sites are being ranked, different variables can be used to help the program make the best decision on where the new store should be located.


Conclusions:

The ranking of a potential store location is shown in Figures 2, 3 and 4. As is shown, the most ideal location for a new Trader Joe's is located in the eastern portion of the study area. This area is surrounded by an ideal customer base as well as a fairly high population. As shown in figure 2, it is in an area where Trader Joe's is already doing well. Although it may saturate the market slightly, it also has the ability to pull other customers from outside of the study area.