Developing and applying a disaggregated retail location model with extended retail demand estimations

The spatial interaction model (SIM) is an important tool for retail location analysis and store revenue estimation, particularly within the grocery sector. However, there are few examples of SIM development within the literature that capture the complexities of consumer behavior or discuss model developments and extensions necessary to produce models which can predict store revenues to a high degree of accuracy. This article reports a new disaggregated model with more sophisticated demand terms which reflect different types of retail consumer (by income or social class), with different shopping behaviors in terms of brand choice. We also incorporate seasonal fluctuations in demand driven by tourism, a major source of non-residential demand, allowing us to calibrate revenue predictions against seasonal sales fluctuations experienced at individual stores. We demonstrate that such disaggregated models need empirical data for calibration purposes, without which model extensions are likely to remain theoretical only. Using data provided by a major grocery retailer, we demonstrate that statistically, spatially, and in terms of revenue estimation, models can be shown to produce extremely good forecasts and predictions concerning store patronage and store revenues, including much more realistic behavior regarding store selection. We also show that it is possible to add a tourist demand layer, which can make considerable forecasting improvements relative to models built only with residential demand.