How Can Retailers Maximize Market Share but Minimize Sales Cannibalization?

When you’re a growing retailer, it’s tempting to choose retail locations that are distant from one another to avoid negatively impacting your sister stores in the market.  However, this strategy for analyzing retail sites can leave gaps in the market that put you at risk of a competitive entry or worse, leave dollars on the table when you could have had three stores in the market instead of two.  The goal, then, is to plan a network that maximizes your market share without overly cannibalizing your own sales. 

How does one determine the sweet spot for store spacing?  When it comes to site selection, achieving the right middle ground takes data and a methodical approach. At a high level, however, here are the key factors to think about when you’re choosing locations: 

Spacing out locations appropriately isn’t a one-size-fits-all approach.

Too often, retailers assume the best approach to spacing stores/locations is to draw a radius around their existing locations and choose new sites that are outside of that ring. But consider the area. Is it an urban area with densely located businesses? Or a suburban area with retail and restaurants spread out? Trade area rules should be flexible to the dynamics of the neighborhood.

There might be a demand gap in an area for a reason.

So you’ve identified a gap for your product or service in an area, and on the surface, the area seems like a perfect place for your next location. It always pays to dig deeper. Is there a reason none of your competition wants to locate there? Is there a longstanding independent store that has been successful in this location for a decade and nobody—even the big chains—wants to go up against them? Is your target customer lacking in this area? Is this particular area past its prime (making it hard for you to differentiate yourself there)?

Zoning could create unforeseen challenges.

There’s also the possibility that a certain area isn’t zoned for retail now but will be soon. Pay attention to plans for areas to get rezoned. This change could create an opportunity for your business that does not exist today.

It’s wise to try to understand customer behavior.

There are lots of customer factors to think about when you’re choosing locations. An area might have heavy daytime traffic thanks to a train stop nearby that brings a lot of commuters to the area but is dead at night. One location might see lunchtime traffic while another one down the street is the spot for the evening crowd. Look for the hidden customer segment that isn’t being served—but could be near your site. And don’t assume that all your sales will come from the people who live or work in close proximity to a location. There could be another store nearby that might bring shoppers your way. Traffic patterns could work for or against you (meaning someone might choose your location over one slightly closer to them because yours is easier to get to).

It makes sense why it’s important to assess the above as you’re expanding and opening new locations, but how can you do so thoroughly? Retail site selection is a complex process and sales cannibalization is an often-overlooked factor. How do you go about choosing locations correctly?

By using a robust market planning tool that helps you evaluate opportunities while taking sales cannibalization into account. The right hotspot analysis tool helps you identify statistically significant areas on a map, selected based on parameters that you’ve marked as important. You can then isolate sites using retail site location analytics with certain criteria, get a list of possibilities scored by how well they match your criteria, and see them on a map. You can then run sales impact/cannibalization models, which evaluate the impact that a new location might have on your existing store network.