Selecting the right location for a retail store is a critical decision that can significantly impact the success of a business. In this case study, we explore the detailed process of location selection for a boutique clothing store targeting middle-class customers in India. The study includes real-life scenarios, practical calculations, and actionable insights to demonstrate how to make informed decisions.
Business Overview
- Type of Store: Boutique for ethnic clothing.
- Target Audience: Middle-class customers.
- Value Proposition: Mid-range pricing, personalized service, and convenient location.
- Budget: ₹50,00,000.
The goal is to select a location that balances affordability with high customer footfall and aligns with the brand’s image.
Step 1: Market Analysis
Market Overview
- City Population: 2,00,000 people.
- Average Annual Clothing Expenditure per Capita: ₹10,000.
- Number of Existing Clothing Stores: 20 stores.
- Average Sales per Store: ₹50,00,000.
Calculation: Index of Retail Saturation (IRS)
The IRS determines if there is sufficient market demand for a new store.
Formula:
IRS=Market Demand (Population \ Expenditure per Capita) / Market Supply (Number of Stores \ Average Sales per Store)
Calculation:
- Market Demand:
2,00,000×10,000=₹20,00,00,000
- Market Supply:
20×50,00,000=₹10,00,00,000
- IRS:
IRS=20,00,00,000/10,00,00,000=2.0
Interpretation: An IRS of 2.0 indicates strong potential for opening a new store as market demand exceeds supply.
Step 2: Trading Area Analysis
The trading area is the geographic region from which the store will draw its customers. For this store, the primary trading area is a city with a population of 2,00,000. To estimate the store’s potential sales:
Formula: Potential Sales=Total Market Size×Your Percentage Share
Calculation:
- Market Size: ₹20,00,00,000.
- Percentage Share (Assumed): 8%.
Potential Sales=20,00,00,000×0.08=₹1,60,00,000
Interpretation: The store has the potential to generate ₹1.6 crore annually.
Step 3: Site Analysis
Location Options
- Shopping Mall: High foot traffic but higher rent.
- Downtown Core: Central location with good visibility.
- Free-Standing Store: Offers more control but involves higher setup costs.
For this case study, the chosen location is a shopping mall.
Rent Calculation
Formula: Total Rent=(Base Rent+CAM Charges)×Square Footage
Calculation:
- Base Rent: ₹2,000 per sq. ft. annually.
- Common Area Maintenance (CAM) Charges: ₹500 per sq. ft. annually.
- Store Area: 1,200 sq. ft.
Total Rent=(2,000+500)×1,200=₹30,00,000 per year
Breakpoint Calculation
Breakpoints help determine when the store will pay additional rent based on sales.
Formula: Breakpoint=Base Rent×Square Footage / Overage Percentage
Calculation:
- Base Rent: ₹2,000 per sq. ft.
- Area: 1,200 sq. ft.
- Overage Percentage: 8%.
Breakpoint=2,000×1,200/0.08=₹3,00,00,000
Interpretation: The store will pay additional rent only if its annual sales exceed ₹3 crore.
Occupancy Percentage
This metric measures how much of the store’s revenue is spent on rent.
Formula: Occupancy Percentage=Total Yearly Rent/Total Yearly Sales×100
Calculation:
- Total Rent: ₹30,00,000.
- Estimated Yearly Sales: ₹1,20,00,000.
Occupancy Percentage=30,00,000/1,20,00,000×100=25%
Interpretation: A 25% occupancy cost is reasonable for a retail business.
Results and Conclusion
Summary
- Market Demand: ₹20,00,00,000 with an IRS of 2.0 indicates strong potential.
- Potential Sales: ₹1.6 crore annually.
- Rent: ₹30,00,000 per year.
- Breakpoint: ₹3 crore annual sales.
- Occupancy Percentage: 25%.
Decision
A shopping mall is the ideal location due to its high foot traffic and feasibility within the budget. With a strong market demand, manageable rent, and good sales potential, the boutique clothing store is positioned for success.
This case study highlights the importance of using data-driven analysis to choose the right retail location. By following these steps and leveraging the formulae provided, you can confidently make informed decisions for your business.
