Retail Zoning

Part
01
of three
Part
01

Retail Zoning: Overview

Zoning is the standard method of measuring the value of retail premises that is calculated based on distance from the window. Zones may also refer to the general physical location of buildings within communities. All these factors determine the product that can be sold. 

overview of retail zoning

  • Zoning is the standard method of measuring the value of retail premises. This entails dividing the area into three zones (zone A, B, and C) to a depth of 6.1 meters (20 feet).
  • Zone A is the area that is by the window, 20 feet long, and is the most valuable. Zone B is the next 20 feet from zone A, and zone C is any other area left after that.
  • Zone B is considered to be half the value per square foot of zone A and zone C, half the value of zone B.

rules and regulations

  • According to the Harper review, zoning and various laws can create a buffer that restricts healthy competition, preventing entry of some businesses into a market. However, these laws had the potential to do the opposite.
  • Victoria, Australia made a few changes in their regulations by reducing the number of zones from five to two. This opened up business premises to diversity in their activities.
  • These regulations do not only define how shops are sold in a vicinity, but also how the buildings are designed and constructed. It defines the dimensions of the individual stores, and indirectly, the kind of businesses in those stores.
  • Zoning also refers to physical location divisions such as districts. Each zone has its point of focus such as agricultural, residential, industrial, or commercial. Each of these zones will have restrictions, which need to be adhered to when opening a business. This refers to what can and cannot be sold in that area.
  • Below is an overview of the rules and regulations that govern these decisions.
    • The first point of concern is the zone in terms of location of the building such as residential or commercial areas, and whether that specific business type is allowed in that zone.
    • Secondly, the various business requirements need to be fulfilled such as building codes, permits, and the basic requirements for disability accessibility.
    • Signage is dependent on the building, whether it is a historic building or a modern building. The signage requirements or regulations will vary accordingly.
  • According to a study done by professors K. Sudhir and Sumon Datta from Yale and Purdue Universities respectively, zoning affects the types of shops that would be available, and may significantly impact diversity and may hinder market entry.
  • Retailers may choose to make some adjustments to their stores in order to meet requirements in different locations. One example is Walmart which has six different types of stores. Another example is Nordstrom which opened a branch in New York which was significantly smaller store than their average size.
  • Another approach of zoning is divided into three categories: centralized, neighborhood, and outskirts. Centralized zones tend to have a huge variety of products, while the outskirts zones tend to have homogeneity.

2-3 examples describing the implementation process from different countries.

  • The Dubai Mall, Dubai
    • In the Dubai Mall zoning in retail was implemented
    • For instance, the mall had “Fashion Avenue,” a zone dedicated to luxury brands and services that are tailored to the upscale customer, including a separate outside entrance and parking area.
    • It also successfully used large-scale zoning that featured culturally-designed settings such as “The Village” and "The Souk."
  • CentralWord mall in Bangkok
    • As per the zoning done in this retail location, home decor is on the fifth level, technology on the fourth, and fashion apparel on first to third floor, ensuring that customers don’t get lost inside the ever-increasing square footage of the seven-story mall.
  • Ibn Battuta Mall in Dubai
    • Ibn Battuta Mall in Dubai is home to over 270 shops in Dubai. Retail Zoning here ensures that the shopping xperience remains delightful. The mall, as per the zoning, is divided into four sections such as Family & Convenience, Up-Market Brands & Lifestyles, Entertainment & Leisure and Major Department Stores.

Research Strategy:

To find out the information as asked for in the request, we started our search looking into sources that included two major stakeholders in the zoning process. One was the sources that included surveyors who looked into whether they did proper zoning. These sources included sources such as RICS or Society of Chartered Surveyors. Another type of source included the beneficiary of retail zoning, which is retail and small business. From these sources, we got details on the overview and the impact of zoning rules and regulations. However, the examples cited were mostly fictitious examples devised to make understanding simple and logic-bound.

For further deep-dive, we also looked into reports published by companies are into property management including retail, such as JLL Newmark Knight Frank, Cushman & Wakefield, Colliers International, and reports on retail properties and asset classes published by reputed consultancies such as McKinsey, PWC, Deloitte et. Some of these sources, such as McKinsey, have details on real-life examples of retail zoning. We have presented these findings.

We also looked into sources that were academic and contained studies on Retail Zoning. These sources included sites such as Academia, Researchgate, Yale University report. However, these sources contained information mostly on the impact of zoning rules and regulations on the operational profitability and sustainability of retail businesses.

We also looked at companies such as DPD which built zoned retail facilities such as The Dubai Mall.

When presenting our two to three case studies, we could not find adequate information. To combat this limitation, we deployed the following three strategies.

ALTERNATE DATASETS

In the Middle East region, cities like Dubai and Abu Dhabi big malls acted as the most prominent retail areas. We looked into the zoning implementation procedures of these malls, such as The Dubai Mall or the Ibn Battuta Mall. Although information was partly available on the existing zoning deployments, the studies were not detailed enough. However, since this was the maximum information that could be availed we provided the relevant segments in the findings. The reason behind the unavailability of data, as understood from the research, was that effective zoning in these malls equaled their competitive advantage. Understandably, the businesses were not keen to divulge them entirely.

CREDIBLE DATABASES

This included academic reports from Yale or Harper, retail property management cases studies published in JLL Newmark Knight Frank, Cushman & Wakefield, Colliers International. Property and retail businesses related news in local news agencies such as Khaleej Times and consultancy reports on effective retail management by McKinsey, PWC, Deloitte. However, because of the reason mentioned above detail cases of implementation were not publicly available.

BROADENING THE CRITERIA

Upon broadening the criteria, we found examples for India, Thailand, and Australia. However, these were short descriptions of the prevailing zoning and opinions, and not based on any quantifiable metric. However, in the absence of further detailed information, we included these in our findings.
Part
02
of three
Part
02

Retail Zoning: Best Practices

Introduction

Five good practices that help in maintaining healthy competition in retail sector are: trigger consumption through effective location (by improving synergy between category sub-segments and alternative asset classes and giving more space to Entertainment and F&B), alternation of asset classes and zoning for optimum tenant-mix, location of category markets (zoning of various categories including circulation and traffic management), mixed land use and zone pricing.

Findings

1. Trigger consumption through effective location

A) A synergy between category sub-segments and alternative asset classes
  • The focus now is not just on including all categories, but in proper zoning and creating synergies within all segments and between retail and non-retail categories (multiplex, bowling alleys, scary house, mirror maze, laugh clubs, skiing, etc.).
  • Dedicated spaces for community use or open spaces create avenues for leisure and therefore it is advisable to position the retail developments as social spaces.
  • Smaller centers also need to incorporate elements such as ATMs, salons, spas, gift shops, stationery stores, wellness centers, etc to serve the local population.
  • The tenant mix is on an evolutionary change in India since the last 5 years, as India has uniquely witnessed exponential growth in the online space, faster than any other country.
B) More space to Entertainment and F&B
  • It is quite important to create the clustering of F&B and entertainment so that critical mass is created in order to attract larger footfalls.
  • A quantity of similar offer/ segment should also be taken into account while preparing the tenant-mix so that there is no cannibalizing effect of tenants on each other.
  • The proportion of entertainment has increased in malls over the years, ranging from 13% to 21% in some leading shopping malls in India.

2. Alternation of asset classes

A) Alternative asset classes
  • Mall developers are creating centralized entertainment and F&B options and also constantly revamping existing food courts as per the consumer inclinations.
  • Multiplex players are also upgrading the movie theaters with enhanced F&B options and upgraded facilities.
  • If a shopping mall is surrounded by office complexes, then the dominant category can be F&B.
  • Seawoods Grand Central in Navi Mumbai is a combination of commercial, retail, and hospitality.
  • Select Citywalk in Delhi is part of a complex that comprises office space and serviced apartments.
B) Zoning for optimum tenant-mix
  • As the retail market is maturing, there is a need to adopt a more structured approach for further segmenting the retail, entertainment and F&B categories.
  • It is necessary to identify the complementary sub-categories that drive additional traffic to dedicated areas.
  • Dedicated zones are created for conducting events, activities, and installation of screens where consumers are encouraged to get involved in these activities.
  • Shortening of lease length has also benefited both mall developers and retailers.
  • Create an environment that attracts and entices people by keeping them engaged.: common areas are now being adopted to create zones of comfortable seating, enhancing walkways and improved ambiance.
  • Right tenant mix and optimum retailer placement after a diligent zoning exercise can help attract the impulse buyers by triggering spot purchase if complementary categories are placed in key mall intersections and high shopper traffic zones.

3. Location of category markets

A) Zoning of various categories
  • Easy picks need to be upfront. In this category are cosmetics, accessories including watches and jewelry, chocolates and patisseries.
  • Fashion retail with the biggest brands being strategically located to encourage customers to walk through the entire mall.
  • Entertainment requires the largest area (cinemas, video gaming parlors, virtual reality parlors).
  • Food retail has large shopping tabs due to weekly/monthly shopping. These are ideally located closest to the parking to ensure trolley movement without hindrance, and also the home zone as they require large areas and access to service elevators for carting.
  • Food is a necessity and food courts are best placed en route to the entertainment zone. There are two options: creating an exclusive food zone or to spread the food service around if the format of the mall is large.
B) Circulation and traffic management
  • It is advised to keep away from multiple aisles, and confusing pathways and instead have a unified floor plate across all the levels.
  • The increasing number of vehicles demand larger parking spaces, as well as attention towards decluttering entry and exit points and streamlining the collection and access structures.

4. Mixed land use

  • This practice is common in Ji'an (China).
  • This practice is applied especially in major commercial streets.
  • With mixed land use, opportunities and services are within a short walking distance of where people live and work, and the public space is activated over extended hours.
  • Liuyun Xiaoqu, for example, provides an excellent model of retrofitting mixed uses, with shops and other ground floor services making the area more attractive and successful and supporting employment and economic growth.
  • With the burgeoning traffic in metro cities and larger Tier-II cities, most large developments are being poised as mixed-used integrated townships, where one can live-work-play-learn without wasting too much time on the road.

5. Zone Pricing

  • Zone pricing facilitates retailers to segment their product offerings into customized "price zones"(rather than geographic boundaries) in order to take local consumers' preferences, segment habits, and price sensitivities into account.
  • Transforming a retailer's strategy can expand total business margins by 50 to 150 basis points, owing to the fact that a well-designed zone-pricing strategy invests smartly.
  • To apply the strategy is necessary to study the willingness to pay of the customer, based on the customer characteristics, and the competitive intensity (proximity and number of stores): it depends on a long array of factors, (disposable income, living costs, and the ease with which you can purchase the product elsewhere).
  • Once the drivers of willingness to pay are understood, the next step is to consider is the competitor alternatives in the store’s trade area.
  • Then, the third step is to incorporate category and item-specific strategies: different category dynamics applies not only to mass retailers with multiple departments but also to restaurants or specialty retailers.
  • Specific attention must be dedicated to its operations, once the new strategy has been designed.

Your research team adopted the following Strategy

First, we researched what the best practices are used in the Middle East in zoning retail markets. We found abundant information related to zoning in malls and shopping districts.´We determined that the practice founded are the best due to the expertise of the authors of the article (Architect Reza Kabul of the famed ARK Studios), Inaz Madhukar (Executive Vice President of DLF Luxury Retail & Hospitality), Pankaj Renjhen (Managing Director-Retail Services, JLL India), and Najeeb Kunil (Executive Director of PPZ); and the examples of structures in the article, such as Select Citywalk, DLF Promenade, High Street Phoenix, DLF Mall of India, Phoenix Marketcity Bangalore, Inorbit Malad Mumbai, Seawoods Grand Central, Chanakya Mall, among many others.
Then, we broadened the search globally, in order to find information related to zoning in neighborhoods, and we found interesting insights about zoning in China. The authoritative authors of this practice are Far East Mobility. Their team of key experts includes: Karl Fjellstrom, Xiaomei Duan and Wenxuan Ma, leading the planning, design and implementation of Asia’s two 'Gold Standard' BRT systems in Guangzhou and Yichang. Regular Far East Mobility consultants Derek Trusler and Remi Jeanneret were also involved in the Guangzhou BRT planning. This authoritative source assures us the importance of this practice as one of the best.
Lastly, we included a practice developed for experts in retail zoning, that explains the benefits of his zone pricing strategy. This practice proves to be one of the best by the fact that, once applied, can expand total business margins by 50 to 150 basis points (unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument).
Part
03
of three
Part
03

Retail Zoning: Key Success Factors

Retail zoning success factors in the Middle East focus on providing more liberty and lesser rigid zoning policies which can be seen in the free zones in Dubai, Abu Dhabi, and the Aqaba special zone.

KEY SUCCESS FACTORS FOR RETAIL ZONING IN THE MIDDLE EAST

The key success factors of retail zoning in the Middle East focus on the liberty and a reduced number of rules and restrictions enforced in each zone.

1. Free zones

KEY FACTORS
  • Some locations offer duty-free or low tax operations.
HOW IT IS IMPLEMENTED
  • Preference is given to locations that aren't very costly.
WHAT MAKES IT A KEY SUCCESS FACTOR
SUCCESSFUL EXAMPLES OF IMPLEMENTATION
  • Since Dubai is a duty-free city, the Emirate of Dubai doesn't hold back any profit from businesses.

2. Aqaba Special Economic Zone

KEY FACTORS
  • It is a special zone that promotes inclusion and growth while also encouraging preference in purchasing goods and services made in Jordan.
HOW IT IS IMPLEMENTED
WHAT MAKES IT A KEY SUCCESS FACTOR
SUCCESSFUL EXAMPLES OF IMPLEMENTATION

3. Inclusion and reduced regulations 

KEY FACTORS
  • This includes the permission for free ownership of companies without the requirement of a local partner or giving a majority of the shares to local shareholders.
WHAT MAKES IT A KEY SUCCESS FACTOR
SUCCESSFUL EXAMPLES OF ITS IMPLEMENTATION
  • Free zones in the UAE permit 100% ownership of companies and are known to be among the top leaders in trade markets.

OVERVIEW OF GLOBAL KEY SUCCESS FACTORS FOR RETAIL ZONING

1. Grant money is offered as a benefit of obeying zoning rules

KEY FACTORS
  • The federal and state governments offer grants when specific rules have been obeyed.
WHAT MAKES IT A KEY SUCCESS FACTOR
SUCCESSFUL EXAMPLES OF ITS IMPLEMENTATION
  • The National Flood Insurance Program is an example. It provides insurance for compliant citizens.

2. Zoning helps control traffic, development and protecting values

KEY FACTORS
  • It includes the prohibition of erecting structures like fast food restaurants and drive-in services in specific locations.
WHAT MAKES IT A KEY SUCCESS FACTOR
  • This has reduced traffic congestion, reduced noise, enhanced hygiene and the environment. Thereby making zoning policies attractive.
SUCCESSFUL EXAMPLES OF ITS IMPLEMENTATION
  • According to a survey carried out by BMC Public Health, there was a reduction in traffic issues and dependency on vehicles after banning some fast food restaurants and drive-in in certain locations in the United States.

Research Strategy:

We began our research by looking for the key success factors in retail zoning in the Middle East. We searched through reputable databases like Emerald Insight, Zawya, Arabian Business, Gulf Business, Gulf News, and Alexa Internet for reports, articles, and surveys conducted on retail zoning. Although we found very limited information, we were able to obtain a few success factors of retail zoning specific to the Middle East.

We then shifted our focus towards the global market by looking into several industry reports. The only information available was about the zoning rules, land regulatory bodies, land regulatory maps, disadvantages of enforcing zoning, the contradictions of zoning rules, negative effects of zoning and extreme policies and complaints about the zoning process. The information obtained all pointed to the fact that most zoning policies force businesses to obey them in order to avoid problems.

We tried to widen the request criteria to include key success factors of zoning rules and land regulations in general. We visited government websites and other reputable sources like Strong Towns, Urban City, and the Center for Neighborhood Technology. Most information pointed out to the zoning rules used in the United States. We included all relevant data above.
Sources
Sources

From Part 01
Quotes
  • "Zoning is a standard method of measuring retail premises to calculate and compare their value. It is used by both public and private sector surveyors."
  • "Shop or retail premises are divided into a number of zones each of a depth of 6.1 metres - or 20 feet."
  • "Zone A closest to the window is most valuable with the value decreasing with distance from the frontage: Zone B is the next 6.1 metres, then Zone C until the entire depth of the retail area is allocated to a zone - anything after Zone C is usually defined as the remainder."
  • "The established valuation convention is to halve back from Zone A, with Zones B onwards assessed ‘in terms of Zone A’ (ITZA): Zone B =A/2; Zone C=A/4. Zone D, which is usually the remainder of the retail area after Zone C, is assessed as A/8 and any ancillary space will probably be valued as A/10."
Quotes
  • "When you calculate the rental value of a retail property you tend to use a specific form of measurement called ‘Zoning’, which uses an 'ITZA' rate in order to formally acknowledge the unique way in which a retail property’s shop floor works for a retailer. "
  • "This is actually what Zoning prescribes, literally 20 feet deep sections going back that theoretically halve in value every time you move into the next section. So the rate per square foot of the second is assumed to be only half as valuable as the first one. The final area C is then halved again i.e. half of what area B is, or to put it another way, one quarter of what the original area A was. "
  • "These are all known as Zones, and are standard 20 feet deep sections of space assumed to halve in value every one going back. A surveyor will therefore need to divide their areas up into these different Zones, with the first Zone A space being, say, 600 sq.ft in this example, the next Zone B being 600 sq.ft. and in fact the final Zone C being another 600 sq.ft."
  • "In reality, it’s often just the ground floor area treated in this way, often to just Zones C or through to D and E before a generic rate is then applied for the remainder. This is in addition to other standard rates for each floor of the shop and rear store rooms, which again tends to reduce in value the further up you go as the difficulties of further steps to walk to collect upper-floor storage area is reflected in the overall retail rent. However for popular stores you may still need to apply retail zoning on say the first floor or other areas dependant upon footfall."
Quotes
  • "If regulatory laws impose too many restrictions or too onerous a burden on market participants, they can stifle competition and economic activity. For example, a popular bar may wish to extend its premises in response to increased demand. However, local planning and zoning might prevent it from doing so. The relevant council could either refuse the business permission to increase in size outright or deter the business from ever applying because the process of receiving development approval is too complex, overly expensive and excessively lengthy."
  • "In its final report, the Harper Review also noted that zoning and planning laws have a very real capacity to restrict competition by creating unnecessary barriers to entry into a market. However, such regulations equally have the potential to encourage competition and resist limiting entry into the marketplace. The report perceived that some planning laws are placing inflexible restrictions on retailers at present. These include restrictions on land use and expensive approval procedures. These regulations have the effect of hindering potential entrants to the market. It also deters those already in the market from expanding. The report noted that ALDI, the supermarket chain, has made submissions suggesting that its expansion in Australia had been considerably slower than anticipated on account of regulatory constraints."
  • "However, the report acknowledged that some jurisdictions are leading the way by drafting planning laws that encourage competition. In particular, the report characterised planning reforms in Victoria as a leading example. The Victorian government began this process of reform in 2013. An important component of the reforms was the decision to reduce the number of zoning categories from five business zones to two broader commercial zones. Within these two zones, there would be more permissible uses, consequently allowing a more diverse range of activities to take place in business precincts. "
Quotes
  • "Zoning laws define how structures can be built on a property and how those structures can be used. For instance, zoning laws can govern the height and position of your store on a piece of property, in addition to determining what type of business you can conduct in that store."
  • "Zoning laws are created by city or county government officials, usually with the assistance of a planning commission. They divide parts of a community into districts or zones and determine whether each zone will be used for agricultural, residential, industrial, or commercial use. It might be possible to receive permission to use land for an alternate use than its originally zoned purpose, but you will need to request a special or conditional permit."
  • "In order to choose an appropriate location for your business, you should determine what the zoning restrictions in your business location are. For instance, you might have the option of opening a business in a particular area, but face restrictions concerning what you can sell from that location. It is extremely important you understand the rules governing what type of business you can conduct in an area. The last thing you want to do is rent or purchase a property only to learn you cannot sell your particular product from that location. You should also determine whether you will have the option of altering the zoning for the location to meet your needs in the future should your business grow or change."
Quotes
  • "And yet the influence of zoning on a store’s choice to enter a market remains a surprisingly understudied subject. Marketing professors K. Sudhir and Sumon Datta, from Yale and Purdue respectively, probed this issue in a recent article for Quantitative Marketing and Economics. They revealed that, as one might assume, zoning powerfully affects outcomes of storefront diversity; failing to incorporate this effect distorts the current understanding of retail market entry."
  • "For instance, it is quite possible that locations with higher incomes have tougher zoning rules that restrict entry. Absent consideration of zoning, fewer stores in these areas would imply that income does not have a big impact on entry and profits. However, recognizing that the lack of entry is due to zoning could imply the opposite: income does, indeed, have a large, positive impact on store profits. Or take the case of commercially zoned locations: these would have dense populations with more retailers. This retail presence might be attributable to the effect of population, but equally probable is the effect of favorable zoning laws."
  • "The paper empirically validates that zoning restrictions do reduce entry, but that firms also shift their formats to avoid compromising entry. Ever wonder why the retail giant Walmart has six different store types? Or what motivated Nordstrom in New York to open a retail branch with 11,000 square feet, a store about one-tenth the size of an average retail location? It’s because firms respond to controlled spatial differentiation—that is, zoning—by adjusting basic statistics like square footage."
  • "To extend their findings, the authors also tested how certain “prototype” zoning approaches such as “centralized” (retail in the center), “neighborhood” (distributed retail), or “outskirt” (retail on the fringes) affect entry. Their key finding is that these different zoning arrangements lead to different retail structures and formats: outskirt zoning leads to greater homogeneity, while centralized zoning leads to more variety. This insight is imperative for city planners who aim to encourage retail format variety through zoning policy. As towns open up their locations to big-box retailers, and as the global population becomes increasingly urban, these results will provide valuable information for the planning debates to come."
Quotes
  • "Finally, malls are overcoming the commoditization problem by focusing on specific consumer segments and/or creating specific zones within the mall that allow consumers to find an area that caters to them. "
  • "In the Dubai Mall, for instance, “Fashion Avenue” is an area dedicated to luxury brands and services tailored to the upscale customer, including a separate outside entrance and parking area. "
  • "In the 7-story CentralWord mall in Bangkok, home décor is on the 5th level, technology on the 4th, and fashion apparel on 1-3. This approach also represents a way for malls to ensure that customers don’t get lost inside the ever increasing square footage of malls."
Quotes
  • "Aspects of local culture are featured throughout the spatial environment, from the exquisite details of motif and patterns adorning walls and ceilings, up to large-scale zoning that features culturally-designed settings such as “The Village” and “The Souk”."
Quotes
  • "Ibn Battuta Mall, the world’s largest themed shopping mall on the Sheikh Zayed Road, pays tribute to the Arab traveller, Ibn Battuta. As you step inside the mall, you will be mesmerised by its architecture and theme, influenced by regions travelled by Ibn Battuta, which include India, Andalusia, China, Tunisia, Egypt and Persia."
  • "It is home to over 270 shops and captivates the visitors with its vibrant ambience. Retail zoning is a blessing here which ensures a delightful shopping experience. Family & Convenience, Up-Market Brands & Lifestyles, Entertainment & Leisure and Major Department Stores are the four sections, from which you can choose, as per your shopping needs."
From Part 02
Quotes
  • "Efficient zoning triggers spill over consumption"
  • "we have to always maintain the sanctity of positioning across all asset class. Retail being the most customer-centric, plays a very important role in defining this as the immediate captive audience of the integrated township."
  • "zoning and positioning for a retail entertainment mall has become quite pertinent considering the various options that a consumer can choose today."
  • "Efficient zoning can trigger impulse buying"
Quotes
  • "Transit station areas have special characteristics that often warrant the creation of a special zoning district or at least special zoning provisions that apply to properties adjacent to or near a rapid transit station. "
  • "Transit districts tend to allow for higher density, a greater mixing of land use, lower parking requirements (if any), better pedestrian and bike facilities, and a higher density of streets and pathways."
  • "With mixed land use, opportunities and services are within a short walking distance of where people live and work, and the public space is activated over extended hours."