You have a summer job with a small florist shop, Forget-Me-Knot, in Troy, Illinois, a growing area a half-hour east of St. Louis, Missouri. Until recently, Forget-Me-Knot and a smaller flower shop located a mile away in the center of town were able to easily satisfy the demand for flowers and floral arrangements in the area. Kathy Kistenmacher, the owner, believes there is room for another store because of the increasing number of people moving from St. Louis to the small suburban town. In fact, between 2000 and 2010, the city’s population increased from 11,000 to 15,500. Kistenmacher sells more than just flowers, which gives her a competitive advantage over other flower shops. She also sells novelty items such as figurines, candles, potpourri, and houseplants. These other items make up 25 percent of Kathy’s gross sales. The shop has been very busy, and sales are growing rapidly. The store is often very crowded between 4:30 P.M. and 6:30 P.M. Therefore, Kistenmacher is contemplating either expanding her current business or opening another store at a new location before someone else sees the opportunity. She does not have the financial capability to do both. The expansion would be less expensive, but another store might attract more customers. Current customer information is given in Exhibit 1. Exhibit 1 1. Current sales: $452,000 2. Sales growth rate (annually since 2000): 15 percent annually 3. Percentage of customers living within 3 miles: 43 percent 4. Percentage of customers living within 3 to 6 miles: 30 percent 5. Percentage of customers living more than 6 miles: 27 percent 6. Average income of those living within 3 miles: $32,000 7. Average income of those living within 3 to 6 miles: $61,000 Forget-Me-Knot is currently located at the edge of town 2 miles from the interstate to St. Louis on the main traffic artery from the interstate. Kistenmacher is considering two possible locations: One is in the middle of town, a half-mile from her current location and only two blocks from her competitor; the other location is next to the Interstate. The in-town possibility is centrally located, and Kathy feels that this location would attract many people who shop at the renovated downtown shopping area. The highway location, on the other hand, is conveniently located in a small shopping complex. This location would appeal to commuters returning to the town proper from St. Louis. It would also be accessible to other commuters who live in the new subdivisions across the interstate. Kathy feels that she has to make a change, but she cannot decide which location to choose, or whether she should renovate and expand the existing store. She can choose only one alternative. Since you have taken a retailing class, Kathy asks for your advice.
Consider the following and do the necessary calculations before reaching any decision: 1) Point of indifference can be calculated using the Reilly’s law given in the text to close in on one location. 2) It is obvious that effective buying income is the most important factor, followed by retail sales and population. Sales & Marketing Management magazine annually publishes a survey of buying power. This survey reports on current data for metropolitan areas, cities, and states. Using data that can be easily obtained from Sales & Marketing Management, you can develop the buying power index (BPI) for each location. Location with higher BPI can be considered. 3) After doing point of indifference and BPI calculations, pay attention to market demand potential characteristics, especially the household income provided in the exhibit could be of key consideration. As we know, a flower shop has more demand potential in a place with higher income. Provide some of this data in your answer.