Okay, this really bugs me. In my city of 130,000, there are only three bookstores (probably because most people here are drunken illiterates, but I digress…). All three bookstores are located within 100 yards of each other. You could turn and drive 40 miles in any direction and not find a bookstore, yet here’s three of them huddled right up next to each other. What the hell is the point of that?
I chose gas stations for the topic since they seem to be the most frequent offender. I mean if your gas costs 5 cents more than everyone elses, why do you build your store right next to all the cheap stations?
This stuff baffles me, but I guess that’s why I’m not a businessman. Can anyone explain why this is done?
I’m not a businessman either, but… Let’s say there was just one bookstore to begin with, so everyone in the city looking for books go there. If you were building a second bookstore, it may be advantageous to build it next to the first one where you are guaranteed to have potential customers walking by. That’s assuming you think you can compete directly with the first store in terms of service, selection and/or price. If you build it elsewhere, you don’t have to compete directly in terms of price, but you may have a hard time convincing people to come to your store instead of the first one which they already know.
I’ve noticed this effect in many places. Furniture stores tend to clump together. And if you’re ever in Tokyo, visit Akihabara some time. There’s nothing but electronics and computer shops within a 200 yard radius - not just a few huge stores, but also numerous little shops. Competition is fierce, but at least they are guaranteed a huge volume of potential customers walking by.
I would definitely check out a new bookstore if it opened right next to the one I frequent, to see if it offered anything more than the old store - different selection, lower prices, etc. I may check it out once and never go in there again, but I’ll at least take a look once. I’m not saying everyone is like that, and I have no idea if it really is more profitable to do that, but it’s not totally without logic.
Statistics show that 2 or 3 places next to each other selling the same type of commodity will generally do better than if each is isolated. Its location, location, location. You can see it with fast food places everywhere. Draws more people to that area. A physician will generally see more patients in a medical building with a lot of other Drs. like himself than if he or she was in his own separate building.
Let’s not forget zoning laws - they are (in theory) designed to keep odious places of business such as gas stations in a relatively small area, away from other, less odious places such as private residences.
Play SimCity for awhile, you’ll know what I mean.
I mentioned this in a different thread before, but to restate it…they call the phenomena you’re talking about ‘Competitive clustering’ in business texts. As stated previously, it has been shown that stores offering similar products or services located near one another will pull in more business as a whole than they would individually if spread out. We studied this with furniture stores, and more importantly, hotels/ motels.
While it’s true that zoning plays a small part, there are certainly several areas within a city or even on a street that a business can locate so that’s not the whole story.
At least with hotels, it is important to build up a critical mass of rooms to get complimentary services to come to the area. In other words, if you are the lone hotel in the middle of a boulevard, you may find yourself without a restaurant nearby, but open two side by side or across the street and a Denny’s will spring up the next day to service the people in those rooms.
Admittedly, the gas station thing isn’t as good an example of this since there is no complimentary service that the stations need to have nearby, and since their service is such a commodity versus a hotel room (where there are different grades of luxurious and cheap rooms) so you wouldn’t think they’d want to be nearby. Still, they all try to differentiate from each other by their additives and special credit cards to get you to not choose based strictly on price. And it could just be that the specific street corner has a ton of traffic where customers will choose a different station if there is a huge crowd in front of the one station where gas is only $0.02 cheaper.
I’m curious about how many people make left or u-turns to buy gas that is 5 cents cheaper than that which is being sold on the side of the street you’re driving along.
Maybe I’m just lazy, but the gas would have to be a lot cheaper to get me to make that left turn (and don’t forget the left you have to make out of the parking lot when you leave).
I love the scene from a Simpsons’ episode where Hank Scorpio is telling Homer where he can get some hammocks. Turns out all the stores are located in the “Hammock District”.
I wouldn’t. I’m with you - the station on my side of the street would have to be charging a lot more before I’d cross traffic twice. Then again, trafic’s pretty heavy around here, particularly at any intersection that can support several gas stations.
You see it with bars and nightclubs as well. Look at Main Street in downtown St Charles, Mo. (I think it’s Main, anyway) Bars up and down both sides of the street, many of them quite small.
At first glance, it seems stupid to build a glommul store right next to the only other glommul store in town, but it’s not as daffy as it looks. If your competitor is doing well there, it’s a good place for a glommul store, and when folks who’ve never heard of you get a hankering for a glommul are going to head for that part of town. You probably believe you are going to be a better store than the other guy, or you wouldn’t be wasting your money building a store. If you’re right, you’ll probably drive him out of business and take over his clientele. I’ve seen it happen with groceries, fast food joints and discount stores.
On the intersection of Illinois 59 and Aurora Ave. there are two Mobil Stations kitty corner from one another, often offering different prices.
I think its obvious that there is a financial advantage to clustering stores. You see it with bookstores, gas stations, fast food restaraunts, theme and franchised restaraunts (TGI Fridays, Applebees, Red Lobster etc.), banks, video rental stores, and about every other genre I can think of. I imagine there are some parallels with the strategy for developing malls.
I personally can’t relate to this reasoning, I’ll go to the Barnes & Noble thats close, before going to the competitor across town. Same with Gas, I’ll hit the one on the way regardless of price, by putting 4 next to each other, I’ll hit the cheapest one. Convienence and speed is usually my first priority, but I suppose with the saturation of gas stations there is always two or more in a convienent spot.
I’m sure its lucrative, but doesn’t line up with my rationalization.
In Massachusetts, gas stations are free to buy anybodie’s gasoline-meaning that an indepedant station can sell Mobil, Shell, etc.-this more or less tells you that gas is all the same. Branding means nothing-I buy whatever is cheapest.
Clustering is good for the customers as well though. It means more competition, which invariably leads to better service and/or prices. Usually the one bookstore nearby has higher prices than the cluster of several bookstores downtown.
I work for three thrift shops, they are in a row [with one barber shop in between]. The SPCA, SPCA2 & St Vinnies. I’d say its great for business cus vinnies does more advertising & thrift shops don’t usually have the same exact items.