SUPPLY CHAIN

Traditional Retail Store: Challenges and Solutions



Running a traditional retail store chain could be a daunting proposition for ABC Company. While retail can be a successful venture and can lead to big profits, several challenges may appear in the way of the company.

Challenges and Solutions

Retail Trade Location

After moving to traditional retailing, ABC Company will face the challenge to make decision about the location of its stores. Retail location decisions offer many opportunities for differentiation because each location is unique. Even contiguous locations may produce large differences in sales volume, sometimes for reasons that can really never be determined. Recent advances in geographic information systems (GIS) have made the retail location decision a relatively easy process. Location variables of retail trade, including population, traffic flows, competitive locations, and related factors, are input into location models that provide detailed assessments of alternative sites. GIS continue to change the landscape of retail trade. Retailers use GIS to identify underserved regions and overlapping trade areas of influence, to compare various markets from a national perspective, and to target specific stores for relocation due to intensification of competition sales (Louis and Stern, 2006, 296-308). Retail trade areas can be mapped with the help of census or ZIP code boundaries. Linking information to location is a process that applies to many aspects of retail trade. Retail trade area analysis makes decisions regarding the types of market areas that should be serviced, the locations that should be used, the size of new facilities, and related decisions that serve as a foundation for site selection. It also analyzes demographic and competitive information, looking for cities or neighborhoods where new store potential is the highest (Oliver and Webber, 2002, 63-75)

Solution

ABC Company should focus on its location, which is the key to retail business in 21st century. Early ideas in retail models used the central place theory, assuming that both customers and retailers make decisions that maximize their utilities. Concepts of the range and threshold of a good were adopted in explaining retail trade within settlements. According to the theory, different goods would have different ranges and thresholds. Others applied various forms of the gravity model: The law of retail gravitation, for example, allows analysts to draw trade area boundaries around cities using the distance between the cities and the population of each city.

According to the model, the larger a city, the larger a trade area it has. The extent of a trade area of a city is determined by the breaking point between multiple cities or centers. The model presumes that the cities are on a flat plain without any rivers, freeways, political boundaries, consumer preferences, or mountains to modify an individual's progress toward a city. A probabilistic retail model considers two components of retail attraction: (1) the store size and (2) the travel time or the distance between the consumer and the storesales (Louis and Stern, 2006, 296-308).

Spatial interaction models—a family of gravity models—can be used to predict the flows of consumer dollars from residential ...