An entrepreneur considering two sites for a men and boys\' shop determines that
ID: 2717533 • Letter: A
Question
An entrepreneur considering two sites for a men and boys' shop determines that he needs sales of $158 per square foot to be profitable. Site #1 has 13,500 potential customers who spend an average of $160.20 per year on men and boys' wear. Two competitors occupy 14,200 square feet of space. Site #2 has 10,800 potential customers spending an average of $152.10 per year on men and boys' wear. One competitor has 10,000 square feet.
The index of retail saturation for site #1 is:
The index of retail saturation for site #2 is:
Based on the above calculations, what is the entrepreneur's best option? Why?
Explanation / Answer
IRS = (POP*EXP)/CRS
Where,
IRS = Index of Retail Saturation
POP = Population in area who are likely to buy products
EXP = Per capita retail expenditure in area for the product
CRS = Current retail space (Square feet) in area selling the product
The index of retail saturation for site #1 = (13500 * $160.20) / 14,200 = 152.30
The index of retail saturation for site #2 = (10800 * $152.10) / 10,000 = 164.26
As the required sales to be profitable is $158 per square feet, based on the above calculation, we can easily find that the site #2 is the only profitable option with an IRS of $164.26. So, this is the best option for the entrepreneur.