Running Room Site Selection

Introduction

In order to guide The Running Room's continued expansion in the Minneapolis/St. Paul metropolitan area, this report analyzes the company's current market situation by considering current store locations, competitors, and potential growth areas. 

Using ESRI Business Analyst software, this analysis will include looking at:

• market structure/saturation
• drive-time trade areas
• hot-spot analysis
• gravity model.point of indifference
• optimal store locations
• ideal customers

Based on this analysis, four site proposals will be examined and ranked to present one recommended location for Running Room expansion. 

Case Study

The Running Room, started in 1984 and based in Edmonton Canada, has a stated focus of expanding into the U.S. market. As a result, there are now more than 110 stores throughout the United States and Canada. Spurred by a huge boom in the areas of running and walking, this very specific niche store has seen further growth opportunities beyond high-density CBDs which would typically be required to provide the needed customer base. Metropolitan areas, in particular, where there are a large number of high-income suburbs are ripe for expansion on the part of running/walking focused companies. 

 Running Room’s reputation has been built on product innovation, quality, and the knowledge of the sport of running. Its private-label products have been developed to provide customers with the best in style, functionality, fabric innovations, and reasonable price, and have been developed with the input of customers and staff alike. 

Though there are currently eight Running Rome locations in the metropolitan Twin Cities market, it remains an area they would like to expand into as the reputation of the city has been spurred by recent recognition for health as well as overall growth in the running/walking market.  

Study Area

The city of Minneapolis was recently rated by Forbes Magazine as the #1 Healthiest City in America. Thus, it is little wonder that the Running Room has expanding rapidly into the larger Twin Cities metropolitan area. Typically a store with such a specific focus would only find the needed concentration of customers by being located directly in the urban core of large cities. However, The Running Room has begun to expand into the greater metropolitan Twin Cities area seeing a huge market opportunity in high-income suburbs. Now, stores can be found in Woodbury, Eden Prairie, and Apple Valley, cities located far outside the urban core (see Figure 1).

Figure 1: Current Running Room store location in the Twin Cities metro

As a result, the study area considered for Running Room expansion goes beyond Hennepin and Ramsey counties which contain both Minneapolis and St. Paul. Also included in the study area are Anoka, Washington, Dakota, Scott, and Carver Counties (see Figure 2).

Figure 2: Twin Cities Metro Area under consideration for The Running Room store expansion

Methods

Drive Time Analysis

As previously stated, much of the recent Running Room expansion in the Twin Cities market has taken place in suburban cities. Invariably this cities have 50,000 residents and push beyond the urban core. As such, there business model is clearly focused on car traffic. Drive-time analysis reveals the area where a particular location can be reached within a certain segment of time. Using 10, 20, and 30 minute buffers reveals the drive time situation that applies to the current Running Room store inventory. 

Current store location show little, if any overlap for the 10-minute buffer indicating they prefer that individual stores be spread apart far enough where two store could not be reached by one location in 10 minutes or less (see Figure 3). New store proposals should be placed at bare minimum outside of another location's 10-minute buffer. In addition two stores in the urban core tend to have longer drive times indicating they do not fit the typical model and appeal more to people utilizing public transit, walking, and biking to reach their locations.

Figure 3: Drive time areas for current Running Room store locations 

Current Competition

While there are certainly other stores that sell running shoes and equipment, the Running Room's direct competition comes from other stores that focus exclusively on running/walking clothing and equipment. The Twin Cities metro contains nine direct competitor locations from 6 different companies (see Figure 4). Run N Fun is the only competitor with more than one location. 

Figure 4: The Running Room faces direct competition in the Twin Cities Metro from nine store locations representing six different companies

The Running Room has outpaced are equaled their competition in most directions/locations. Expansion to Maple Grove to the northwest, Eden Praire to the southwest, and Apple Valley to the South has preceded or been met with other competition. Suburban expansion is seen as a viable option by multiple companies. It also indicates the growth potential for suburban expansion is seen to be able to support more than one running-specific store.

Currently, the Running Room is the first company to expand to the west while Right Fit is the first to expand directly to the north. Future expansion may be too saturated moving generally south and west from the Twin Cities Metro while options to the east and north still exist.

As noted before, running store locations tend to be located on or near major highway arteries to facilitate customers who travel by car.

Hot-Spot Analysis
In order to get a sense of the overall market the Running Room faces in the Twin Cities Metro, Hot-Spot Analysis on the following variables was undertaken.

• Median Household Income
• Bought athletic shoes in last 12 months
• Participated in running/jogging in last 12 months

The hot spot analysis reveals that the variables chosen correlate well with current Running Room locations. Typically they are found at the transition point, with high median income areas proceeding out from the urban core after Runnin Room store location (see Figure 5). There are also downtown locations that fit a different model.

 Figure 5: Hot Spot Analysis centered on Median Income with support from Running Purchases/Activity shows that current store locations tend to be located at transition points with areas of high income proceeding out toward the suburbs after running store locations (Running Room and others). 

Using  the analysis, further expansion to the West toward Plymouth and Minnetonka as well as possible exapnsion to the north and northeast should be considered. 

Ideal Customers
With no customer data available, the process of identifying an ideal customer is hampered somewhat. However Business Analyst software allows for the selection of variables applied to a given geographic area in order to determine areas containing the most suitable customer base for a specific type of retail operation.

In order to determine the ideal customers for the Running Room expansion, variables used include:

• median household income > $75,000 
• total population greater than 45,000
• bought athletic shoes in last 12 months > 3500 persons
• bought athletic shoes for walking > 1500 persons
• participated in running jogging in last 12 months > 3500 persons
• participated in walking for exercise in last 12 months > 1500 persons

Because current store locations for the Running Room and its competitors have done a very good job addressing the current needs of the market, lower variable floors were set in order to identify areas where more than one zip code fit the criteria. For example, higher floors may have only indicated one zip code meets the criteria as you move northwest from the urban core while slightly lower variable floors reveal there is a progression leading from the northwest where placing a location at the earliest location proceeding from the urban core could meet the needs of many areas (see Figure 6).

Figure 6: Ideal Customer locations based on zip code show potential expansion opportunities to the north/northwest and and the northeast. 

Somewhat surprisingly, proceeding directly west from the urban core past St. Louis Park toward Plymouth and Minnetonka did not contain any ideal customer zip codes. Moving south and southwest from the city, you will see many ideal customer areas, but the current store locations appear to meet their needs. Proceeding west shows some ideal customer areas but not enough to warrant any more than the Running Room's expansion to Woodbury. Areas to the northwest, northeast appear to present the best options for expansion based on ideal customers.

Site Proposal Identification
Without customer data to help identify some optimal sites for baseline, four sites were chosen based on previous analysis. Important to this process is knowing that the Running Room is not currently located in any city in the Twin Cities Metro with a population less than 50,000. As such cities considered for site proposals had to meet that minimum baseline.

Secondly, the direction in which there were both a limited number of current running stores, if any, and a pattern of zip codes with ideal customers were required. As mentioned previously, this ruled out expansion to the south and southwest, and east for saturation of the current ideal customer base.

This left expansion to the northwest and northeast.Three towns were identified as possibilities based on the population threshold and nearby ideal customer zip codes. These include Coon Rapids and Blaine to the north and northwest and Maplewood to the northeast (see Figure 7).

Figure 7: Four site proposals were identified based on previous analysis. Three are based ideal customer locations, and is based on hot-spot analysis.

In addition, despite no ideal customer locations directly to the west, hot-spot analysis showed expansion this direction fit the current model of Running Room locations (see Figure 5). Therefore, an additional location was selected in Ridgedale between two cities (Minnetonka and Plymouth) with ideal city populations and along Highway 12 proceeding west (see Figure 7). 

All locations are located on or near major highway arteries in prime retail locations. Also, each site proposal is located outside of the 10-minute buffer of all other Running Room locations.

Ranking Sites

Business Analyst was employed to rank the four selected sites based on the following variables. 

• median household income 
• total population
• bought athletic shoes in last 12 months
• bought athletic shoes for walking
• participated in running jogging in last 12 months
• participated in walking for exercise in last 12 months

Based on this analysis process, the Coon Rapids location was identified as the top-ranked location for Running Room expansion (see Figure 8).

Figure 8: The four site proposal were ranked based on six variables in order to determine the best site location for a new Running Room location

Point of Indifference
After identifying an ideal store location, the point of indifference is determined between Coon Rapids and three surrounding cities (Anoka, Blaine, and Fridley) in order to understand how far out a Coon Rapids Running Room location can market and advertise and have people prefer to come to Coon Rapids rather than go to the other city. This is calculated using the formula:

 

This formula compares the distance between each city to the population. The end result is the distance in miles to the point of indifference. In this study, three different cities were compared to Coon Rapids, MN. The three cities and their point of indifference are listed below.

• Blaine, MN    2.37 Miles
• Anoka, MN    2.75 Miles
• Fridley, MN    5.1  Miles 

All three cities are located less than 10 miles away from Coon Rapids and their influence out toward each of these cities will be relatively small as a result. Blaine is nearly the size of Coon Rapids, and thus if a resident living between Coon Rapids and Blaine leaves more than 2.37 miles away from Coon Rapids they will go to Blaine whenever possible. Fridley possesses the greatest reach potential for Coon Rapids.

All this being said, there are no specific competitors located in either of these three towns. So, there is a very strong possibility that a Coon Rapids Running Room can capture a large percentage of the market share in each of the surrounding cities despite a very low point of indifference.

Discussion

As the analysis revealed, Running Room expansion has taken place along major transportation arteries at the transition point between the urban core and suburbs where moving away from the urban core past their locations will be into areas with high median household income. In addition, the Running Room has made a point of not locating in a city with less than 50,000 people. 

Site 4 located in Ridgedale between Minnetonka and Plymouth (two cities fitting the Running Room profile) appears to have suffered from not having enough zipcodes with an ideal customer base nearby. So, despite hot-spot analysis painting a different picture, this was the lowest-ranked of the four site proposals.

Site 3 located in Blaine also may have suffered from not being located directly in an ideal customer zipcode. Despite huge expansion in Blaine and many ideal customer areas all around it, the lack of concentration as well as being located on a less-traveled highway artery relegated it to the third ranking. 

Maplewood does appear to be a good site. However, it sits just below the Running Room population threshold at just over 45,000 residents. In addition, there is typically fewer ideal customer areas to the east of the Twin Cities Metro as well as smaller populations.

Conclusion

The top-ranked site for Running Room expansion based on the analysis performed above is located at 1258 Riverdale Boulevard in Riverdale Village in the City of Coon Rapids (see Figure 9).

Figure 9: The top ranked site for a new Running Room is located at 1258 Riverdale Boulevard, Coon Rapids, MN

With a population of 60,000+, a large growing population nearby in Blaine, and ideal customer zip codes all along Highway 10 both before and after the city, this location is the ideal site proposal for Running Room expansion. It is also situated to receive north-south traffic from Highway 47.