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TopDefining Markets
For retailers, decisions relating to which markets to enter (or exit), the type of formats to operate, and the optimal mix of formats for a particular market are amongst the most far-reaching and investment intensive decisions they face (Ghosh & McLafferty, 1987). These ‘location-based’ decisions have long-term strategic implications for retail organisations (Jones & Simmons, 1990). They typically represent a major capital expenditure in the short-run and operating expense in the long-run, during which resources are grounded in the bricks and mortar of the retailer’s store portfolio (Guy, 1994). Once made, location decisions are costly to reverse, making them critical to the overall health of the firm. Therefore, the long-term success of a retailer is directly correlated to sound strategic locational decision making (Thrall, 2002).
The viability of a given market can be formalized as a function of the existing and projected supply and demand relationship. This relationship can be thought of as the amount of demand for a given set of goods and services against the level and type of supply (Berry & Parr, 1988). Demand is typically determined by a combination of measures, including demographics (e.g., population size, age and family structure, employment, education, etc.), and wealth (e.g., income, assets, etc.). These factors are often translated into some form of consumer spend potential, which is ideally subdivided for specific types of goods and services. Supply is generally measured by the size, number, and competitive mix of retailers within the marketplace, along with the retailers own stores and competing chains (e.g., formats, type of location, square footage, etc.).