INTRODUCTION

Location decisions are complex in nature (Skogster, 2006). The cost of selecting a location is very high and there is little flexibility once the location has been chosen. Location is imperative for the success of an organised retail outlet. A good location may lead to the success of an outlet even if other strategies are weak. A store location requires a sizeable investment and long-term commitment. Making a retail site selection decision is just as important for a small retailer as it is for major chains. In fact, a small retailer is significantly less able to sustain a bad site decision as compared with a major retail player. Small or first-time owners are typically undercapitalised and are unable to sustain months or years of underutilised business until they can relocate or renegotiate a lease.

The choice of location depends on population size and trait, market competition, transportation access, parking availability, nature of nearby stores, property cost, length of agreement, legal restrictions and other factors.

According to Fox et al (2007), the proximity of customers to a retail outlet relative to other outlets makes a significant difference in the revenue. Keeping this in focus, this article has developed a pilot study over a chosen area, that is, from Bandra to Borivali, in the western suburb of Mumbai focusing on four different categories of outlets and identifying two competitive brands under each category. A competitive analysis was carried out between the identified brands, which then led on to a profitability analysis being carried out in a hypothetical situation forming the basis of this article.

NEED OF THE STUDY

This study has been conducted in the western suburb of Mumbai. The total population of the western suburb is 24 605 per sq. ft. (refer Table E1 and E2, Appendix E). A large amount of modern retail activity happens in this area because of the presence of almost all formats of retail outlets. Bandra is the queen of suburbs and is one of the most cosmopolitan areas within Mumbai. Linking Road is the shopping hub of Bandra. The area of Andheri is growing commercially and developing with a number of flyovers that have made the flow of traffic smooth in this otherwise traffic-prone area. Goregaon is midway between Borivali and Andheri and is home to Asia's largest mall, the Inorbit Mall. Numerous developments have taken place in the area of Kandivali/Borivali because of the Charkop and Lokhandwala projects. The Western Railways also commences from Borivali, an area that comprises mainly the Gujarati community. Under such geographic conditions, finding a suitable location for a retail outlet, which is easily accessible to the masses, as well as attaining the required profit, is certainly not easy. Hence, there was a need to carry out a pilot study on an exploratory basis to dig out some interesting facts. In addition, an extensive research is underway for the authors of this article as a part of their PhD study, which covers the entire organised retail outlets of Mumbai. This article would be a curtain-raiser for that extensive research.

LITERATURE REVIEW

In order to understand and carry out the research, the authors had to comprehend and recognise specific theories associated with the study. The following theories were reviewed in order to have a handle on the topic of study (Dr Gupta and Chaturvedi, 2007; Bermans and Evans, 2007 and Bajaj et al, 2007).

According to Reilly's Law, more consumers go to a larger city or community because of the availability of large number of shops and stores. The principle of minimum differentiation originated from Hotelling's (1929) classic paper, which suggests that a given number of stores operating within the same market sector will achieve superior performance if they are clustered together. Hotelling (1929) made key assumptions regarding location, pricing, transport cost, consumer behaviour, market shape, conjectural variation and number of competitors. Huff's Law delineates the trading areas on the basis of product assortment carried at various locations, travel times from the shopper's home to alternative locations, and the sensitivity of the kind of shopping to travel time. The Central Place theory assumes consumers to be identical, which is not a very realistic concept. Most of the authors have criticised oversimplification of a single product or the purpose approach. Factors such as price, quality and image have been ignored. New models are being propounded on the basis of multipurpose shopping. According to Spatial Interaction theory, the large retailers have recognised the commercial opportunities offered by changing consumer demands and they have responded by providing new shopping facilities that offer the advantages of easily accessible out-of-centre sites, adequate car parking, larger premises to provide larger range of products, associated services and a more attractive shopping experience in more secure surroundings. These findings have encouraged a large concentration of retail outlets in all the areas of retailing. Finally, the Land Value theory, which is also known as Bid Rent Theory and Urban Rent Theory, propounded by Haig and Hotelling (1926) argues that competition for an inelastic supply of land ensures that in the long run all the urban land will be occupied by the activity capable of paying the highest rent and land is thereby put to its ‘highest and best use’. It proposes that location of different activities will depend on competitive bidding for specific sites. Land use activities occupy locations sequentially, and once established they can prove difficult to move in. In an urban area, there can always be non-conforming and outmoded land. The centre of Mumbai has lost much of its accessibility because of traffic and congestion and this has led to the existence of positive and non-negative rent, which do not always decline with distance

A brief review on the three important types of organised retail formats with specific examples that were adopted for the research study is as follows:

Retail format

Hypermarket: Big Bazaar

Big Bazaar stocks all household products under one roof, spreading over an area of 30 000 sq. ft. Big Bazaar is India's first hypermarket in discount format. It provides more than 2 00 000 items, which include food, grocery, utensils, kitchen needs, home needs, bath needs, toys, stationary, electronics and white goods. As it has adopted the format of a discount store hypermarket, it has price as its principal value proposition. Big bazaar targets upper-, lower- and middle-class customers and offers the lowest available price without coupon clipping for discount. Big bazaar operates under three formats, namely the hypermarket spread over 30 000 to 60 000 sq. ft., the express format that spreads over 15 000–20 000 sq. ft. and the super format that spreads over 1 00 000 sq. ft. These stores are normally located in high-traffic areas (refer Table E3, Appendix E).

Departmental stores: Shoppers Stop

Shoppers Stop is an Indian departmental store promoted by K Raheja Corp group. The store offers a complete range of apparel and lifestyle accessories for the entire family. With its wide range of merchandise, exclusive in shop counters with international brands and world-class consumer service. Shoppers Stop's core customer represents a strong section a and b+ segment. It operates with several departments handling around 450 brands (refer Table E3, Appendix E).

Supermarket: Spinach

Spinach is the retail brand of Wadhawan Food Retail Pvt. Ltd, which is owned by Delhi-based Dewan Housing Corporation, having interest in real estate and housing finance. Spinach is a pioneering concept of a neighbourhood supermarket in the city of Mumbai dealing essentially with neighbourhood food and grocery retailing. They stock fruits, vegetables, stationary and OTC medicines. It has refrigerated space for meat and fish products and also has a centralised bakery to supply bakery products. Spinach stores are located in and around residential complexes to provide easy accessibility to customers and also offer the ease of home delivery of their products (refer Table E3, Appendix E) (Sukhwal, 2008).

CHIEF PARAMETERS TO EVALUATE IN RETAIL TRADING AREAS

The different parameters used to evaluate and compare the specific brands of retail outlet under precise categories are appended below.

Parameter 1 – Location

Parameter 2 – Proximity to competitor

Parameter 3 – Property rate

Parameter 4 – Population characteristic

Parameter 5 – Parking

RESEARCH OBJECTIVES

On the basis of the previous research conducted (Pathak, 2009) and the authors’ understanding of the theoretical aspects, the pilot study focused on the following objectives:

  1. 1

    to formulate a location mapping of the chosen organised retail brands under the specified area and categories (Bandra to Borivali);

  2. 2

    to carry out a comparative analysis between competitive brands under each of the four categories of organised retail format;

  3. 3

    to perform a profitability analysis for a hypothetical retail outlet in the same area of choice; and

  4. 4

    to formulate hypotheses on the basis of the interpretations of the comparative analysis and the hypothetical situation that could be tested statistically in future.

RESEARCH METHODOLOGY

The present study is an exploratory research conducted in the western suburb of Mumbai. In order to pursue the aims and objectives outlined in the introduction, a content analysis of information gained from a multimedia research process was conducted to establish the underlying trends in location procedures used by Mumbai retailers. The first stage involved gathering of secondary information from industry and formulating a location map of the select brands of organised retail outlets. The second stage involved identifying four categories of retail formats and two identified brands in the western suburb of Mumbai (Bandra to Borivali) and studying their location strategy by means of an in-depth interview with retail experts and structuring a comparative analysis of the five identified parameters under each category. A summary of interpretations was also given. In the third stage, a profitability analysis was carried out by making specific assumptions in a hypothetical situation. In the last and the fourth stage, on the basis of the results and interpretations, specific postulates were framed, and on each postulate hypotheses were framed that can be tested through quantitative research in the future. The above-mentioned stages have been described as objectives in the preceding paragraph.

FORMULATION OF RETAIL LOCATION MAPPING

Area – Bandra to Borivali (refer Table 1 and Figure 1).

Table 1 Retail location mapping
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Figure 1
figure 1

Retail location mapping.Source: Google Maps India.Interpretation: It is seen that the outlets of different brands are forming a cluster, which consequently results in stiff competition.

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SUMMARY INTERPRETATIONS ON THE COMPARATIVE ANALYSIS

The detailed analysis has been put up as comparative tables and are placed as Appendices A, B, C and D

Category 1 – Hypermarket (Big Bazaar and D'Mart)

illustration

figure d

From the above result, it is clear that Big Bazaar has a marginal advantage over its competitor D'Mart in terms of profit based on location strategy (refer Appendix A and Table E3).

Category 2 – Supermarket (Spinach and Spencer's)

illustration

figure c

From the above result, it is clear Spinach has a good edge over its competitor Spencer's in terms of profit based on location strategy (refer Appendix B and Table E3).

Category 3 – Departmental store (Shoppers Stop and Lifestyle)

illustration

figure b

From the above result, it is clear the Shoppers Stop has a better turnover over its competitor Lifestyle in terms of profit based on location strategy (refer Appendix C and G and Table E3).

Category 4 – MBO (Vijay Sales and Ezone)

illustration

figure a

From the above result, it is clear the Vijay Sales has an advantage over its competitor Ezone in terms of profit based on location strategy (refer Appendix D and G and Table E3).

PROFITABILITY ANALYSIS

In order to carry out the profitability analysis, the authors took the base information from the comparative analysis carried out on the four different categories of retail formats and hypothetically formulated the analysis for an upcoming retail outlet in the designated area between Bandra and Borivali. The profitability analysis is carried out on the basis of a working paper titled ‘Evaluation of retail store locations through profitability analysis’ by Roger A. Kerin and Michael Harvey; Journal of Small Business Management, January 1975. The calculation encompasses the following factors:

Factor A:

Household in the catchment area

Factor B:

Annual Income

Factor C:

Proportionate Expenditure

Factor D:

Location

Factor E:

Market Share

ASSUMPTIONS

As the profitability analysis is structured in a hypothetical situation, certain assumptions need to be framed. These are:

  1. a)

    The catchment area is taken as covering 2 km in radius.

  2. b)

    Each household has an average of five family members.

  3. c)

    The cost of goods sold is taken as 75 per cent of the total sales established.

  4. d)

    Specific weights were assigned to the locations, such as mall, high street, stand-alone and residential as the case may be.

  5. e)

    The average annual income is assumed as shown in Table 2.

    Table 2 Average annual income
    Full size table
  6. f)

    The proportion of expenditure is assumed as 35 per cent weight on income @ 3 lac and 25 per cent weight on income @ 5 lac.

  7. g)

    Assumptions on market share for a hypothetical retail outlet are as follows: Area where there are three or less competitors  – 30 per cent Area where there are four competitors –25 per cent Area where there are five competitors  –20 per cent

POSTULATES AND HYPOTHESES

Upon arriving at all the results on the basis of the comparative analysis and the hypothetical situation formulated, the following postulates were structured:

  1. a)

    In the category of Hypermarket, Big Bazaar has a marginal advantage over its competitor D'Mart in terms of profit based on location strategy.

  2. b)

    The retail brand Spinach has an edge over its competitor Spencer's in terms of profit based on location strategy under the Supermarket category.

  3. c)

    Under the Departmental Store category of retail outlet, Shoppers Stop has a better turnover as compared to its competitor Lifestyle in terms of profit based on location strategy.

  4. d)

    The brand Vijay Sales has an advantage over its competitor brand Ezone in terms of profit based on location strategy with respect to the retail format category of MBOs.

  5. e)

    The net profits calculated on the basis of five factors, such as those given in Table 3, of an organised retail outlet (hypothetical) operating under the three formats, Hypermarket, Supermarket and MBO category, at chosen places Bandra and Borivali are nf1=16.84 per cent, nf2=9.13 per cent and nf3=17.66 per cent, respectively.

    Table 3 Factors used to calculate Net Profit
    Full size table

The hypotheses that were framed, which are required to be tested by collecting adequate primary data in the future research, are as follows:

For postulate (a)

Null Hypothesis:

  • In the category of Hypermarket, Big Bazaar does not gain an advantage over its competitor D'Mart in terms of profit based on location strategy.

Alternate Hypothesis:

  • In the category of Hypermarket, Big Bazaar does gain a marginal advantage over its competitor D'Mart in terms of profit based on location strategy.

For postulate (b)

Null Hypothesis:

  • The retail brand Spinach does not enjoy an edge over its competitor Spencer's in terms of profit based on location strategy under the Supermarket category.

Alternate Hypothesis:

  • The retail brand Spinach does enjoy an edge over its competitor Spencer's in terms of profit based on location strategy under the Supermarket category.

For postulate (c)

Null Hypothesis:

  • Under the Departmental store category of retail outlet, Shoppers Stop does not gain a better turnover over its competitor Lifestyle in terms of profit based on location strategy.

Alternate Hypothesis:

  • Under the Departmental store category of retail outlet, Shoppers Stop does gain a better turnover over its competitor Lifestyle in terms of profit based on location strategy.

For postulate (d)

Null Hypothesis:

  • The brand Vijay Sales has got no advantage over its competitor brand Ezone in terms of profit based on location strategy with respect to the retail format category of MBOs.

Alternate Hypothesis:

  • The brand Vijay Sales has got an advantage over its competitor brand Ezone in terms of profit based on location strategy with respect to the retail format category of MBOs

For postulate (e)

Null Hypothesis:

  • The net profit calculated on the basis of the five factors, such as those given in Table 3, of an organised retail outlet (hypothetical) operating under the three formats, Hypermarket, Supermarket and MBO category at chosen places Bandra and Borivali are nf1≠16.84 per cent, nf2≠ 9.13 per cent and nf3≠17.66 per cent, respectively.

Alternate Hypothesis:

  • The net profit calculated on the basis of the five factors, such as those given in Table 3, of an organised retail outlet (hypothetical) operating under the three formats, Hypermarket, Supermarket and MBO category at chosen places Bandra and Borivali are nf1=16.84 per cent, nf2=9.13 per cent and nf3=17.66 per cent, respectively.

FUTURE SCOPE OF RESEARCH

The current research is based on the literature review and qualitative deliberations such as focus group and depth interviews. The postulates and the subsequent hypotheses, which were developed on the basis of the current research, could be subjected to a quantitative analysis through testing by specific statistical tools. This could be taken up as the future scope of the research.

CONCLUSION

There exists a relationship between the format of the retail store and its location. Before deciding a location for a new store of a particular format, the retailers take into account the catchment area, competitors, income profile of the people living in the trade area, their lifestyle and demographic factors. On the basis of many deliberations and a qualitative analysis, this article has identified specific hypotheses, which would be subjected to quantitative testing using statistical tools in the future.