Influences and impacts of hypermarkets on urban commercial land values and

Material Information

Influences and impacts of hypermarkets on urban commercial land values and the case studies of..
Peterson, Sharon L
Place of Publication:
Denver, Colo.
University of Colorado Denver
Publication Date:


non-fiction ( marcgt )


General Note:
College of Architecture and Planning

Record Information

Source Institution:
|University of Colorado Denver
Holding Location:
|Auraria Library
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
941715722 ( OCLC )
1244575844 ( ISBN )

Full Text
Kollawat Sakhakara
B.Arch., Chulalongkom University, 1998
MURP, University of Colorado Denver, 2006
A thesis submitted to the
University of Colorado Denver
in partial fulfillment
of the requirement for the degree of
Doctor of Philosophy
Design and Planning Program

2011 by Kollawat Sakhakara
All rights reserved.

This thesis for the Doctoral of Philosophy
Degree by
Kollawat Sakhakara
has been approved
Peeradom Kaewlai


Sakhakara, Kollawat (Ph.D., Design and Planning)
The Influences and Impacts of Hypermarkets on Urban Commercial Land Value and
Land-Use Succession in Their Trading Areas in Thailands Cities: The Case Studies
of Chiang Rai, Lam Pang, Nakhon Sawan, and Kampheang Petch
Thesis directed by Professor Yuk Lee
The hypermarket business has been introduced to urbanites since 1963 as the
place selling a wide range of products with less expensive prices but standard
qualities. Nearly 50 years after that, the hypermarket business is dominant among
other types of retail businesses. With this domination, the hypermarket business is
deemed as the major cause of local businesses and supermarkets closing out.
In the last ten years, the commercial business in Thailand has fallen into the
same situation. With only a handful of previous studies in this field in Thailand, this
dissertation serves as a trailblazer. The purposes of this dissertation are to investigate
impacts of the hypermarket business on commercial land values, to scrutinize its
influences on commercial land use succession, and to find types of commercial
activities that can co-exist with or severely affected by locating in proximate to a
hypermarket store.

The two quantitative methods employed to conduct empirical studies in the
dissertation are the hedonic pricing regression, and the transition probability matrix.
The hedonic pricing regression is used to investigate the hypermarket business
impact on land values; and the transition probability matrix is used to examine the
impact on land-use succession. The four cities selected to study are the cities of
Chiang Rai, Lam Pang, Nakhon Sawan, and Kampheang Petch. These four cities are
selected based on the suitability and data availability.
The empirical analysis of the hypermarket business in the four Thai cities
allows the dissertation to offer four conclusions. 1) The presence of the hypermarket
business impacts commercial land use and land values. 2) The distance to the
hypermarket store impacts commercial land values. 3) The distance to the CBD and
the access to the main street impact commercial land values. 4) Local businesses that
can co-exist with the hypermarket business are local groceries, automobile-related
businesses, health and hygiene businesses, machinery suppliers, electric appliances
stores, and sport and entertainment businesses.
The findings of this dissertation should be of value to city planners, policy
makers, developers, and local business owners in Thailand. Thai planners can develop
city plans using the hypermarket business as a tool in order to achieve certain
planning goals and objectives. For instance, planners can provide incentives (tax
reduction program) to the hypermarket business to build stores in blight areas or
unusable lands. At the same time, the planners can develop programs that help local

businesses complete with hypermarket stores. Thai policy makers can enact proper
policies to control hypermarkets, and to protect local businesses that are severely
impacted by the hypermarket business. Thai private developers can establish
development projects that are suitable for hypermarkets communities. Thai local
business owners, recognizing the beneficiary businesses from the hypermarket
business, can adapt and modify their stores to the tap spill-over business from a
neighboring hypermarket store.
Broadly perceived by Thais, the hypermarkets impact in Thailand is crucial.
The impact urgently needs extensive attentions and appropriate solutions. By
understanding the benefits from the dissertations findings and applying these benefits
in proper ways, city planners, policy makers, private developers, and local business
owners together can create a win-win situation to Thai communities.
This abstract accurately represents the content of the candidates thesis. I
recommend its publication.

I would like to dedicate this dissertation to my family for their loves, trusts,
encouragements, helps, and understandings. These are four most important people in
my life. The first two people are my parents (Mr. Pramuan Sakhakara and Assoc.
Prof. Jantana Sakhakara). They are always there for me in any occasions. Love and
supports they have given me are innumerable. The third is my wife (Mrs. Sarinya
Sakhakara) who is always by my side with love and comforts. The last and most
important person is my beloved aunt (Ms. Jamnian Sakhakara, Pa Klang) who has
given me pure love, and has always believed in me. She has been, and will always be
my mentor and inspiration.

My dissertation would not have been completed if I would not have strong
supports from the group of my invaluable people. First of all, I would like to express
my deepest gratitude to my advisor, Dr. Yuk Lee for his academic and non-academic
guidance and encouragements all the time I have been in the United States of
America. I also would like to thank my committee member, Dr. Brian Muller, Dr.
Jeremy Nemeth, Prof. Dan Strammiello, and Dr. Peeradom Kaewlai for the
suggestions and comments.
I wish to extend my appreciation to the Office of Natural Resources and
Environmental Policy and Planning (ONEP), Thailand that offered a great academic
opportunity by granting me the Royal Thai scholarship. My appreciation also goes to
the Office of Educational Affairs staffs for the helps and suggestions.
Lastly, my recognition goes to all government officials and my real friends
who provide very significant data for conducting statistical analyses and empirical
studies. Without these data, I would never have my dissertation. My special thanks
also go to true friends in the U.S. and my life-long friends in Thailand for their
support and encouragement.

I. INTRODUCTION AND HISTORICAL BACKGROUND.................................1
Research questions.....................................................4
Research methodology ..................................................5
The selection of study areas...........................................7
Historical Background..................................................8
The emergence and development of the international large-scale
Consequences on urban retailing businesses in Western countries.14
The history of commercial businesses in Thailand focusing on
hypermarket and superstore businesses..........................18
The period prior to the large-format discount store era
in Thailand..............................................18
The emergence of multi-national large-format discount
The flourish period of hypermarket business..............27
The current situations of hypermarket business and its impacts
on land use in Thailand..................................32
Reviews of the Thai Act of parliament of wholesale and retail trade ...36
URBAN LAND USE SUCCESSION THEORIES ...................................47
Alonsos land use market theory (bid-price theory):
Retail location selection and land value..............................49
The establishment of bid-rent theory and its original concepts.50
The adaptation of bid-price theory to urban land use and
The adaptation of concentric zoning model to urban land use and

Central Place Theory: Retail location selection........................64
The establishment of central place theory and its original concepts ...65
The development and application of central place theory in empirical
Land-use succession theories: Retail land-use change...................70
The establishment of land-use succession and its original concepts ...70
The development and adaptation of land-use succession theory in
empirical studies................................................76
Other supporting theories: Retail location selection and
land-use change.........................................................79
Concept of convenient goods and comparison goods................80
The principle of cumulative attraction...........................81
The interception strategy........................................81
A concept of self-generator stores and suscipient stores........82
The principle of compatibility...................................83
A concept of agglomeration economies and scale economies.........83
Analytical methodologies................................................86
Hedonic pricing model (multiple regression analysis)....................86
The origin and evolution of the model............................88
The structure application and data requirement of the model.....90
The application of the method to the dissertation and its data
requirements ...................................................103
Transition Probability Matrices with Markov Chain models...............104
The origin and evolution of the model...........................105
The structure application and data requirement of the model.....107
The application of the method to the dissertation and its data
The criteria of site selection and procedures of selecting case study..117
Criteria and process of selecting case studies..................118
Discussion of the selected case studies.........................123
Criteria and process of selecting a comparative city............127
Discussion of the comparative city..............................128
Data collecting procedures: plans, difficulties, and adjustments.......130
Plans of data collection........................................130

Difficulties limitations and modification of plans in response
to limitations..............................................135
COMMERCIAL LAND-USE SUCCESION......................................141
The hedonic pricing models.........................................141
The data preparation for the hedonic pricing empirical analyses...142
The analysis and discussion of findings...........................151
The city of Chiang Rais findings.....................153
The city of Lam Pangs findings ......................161
The city of Nakhon Sawans findings .................164
The city of Kampheang Petchs findings ...............167
The summary of the empirical studies of hedonic
pricing models........................................169
The transition probability matrices................................172
The data preparation for the transition probability matrices
empirical studies...........................................173
The analysis and discussion of findings.....................179
The discussion of the case studys findings...........182
The summary of the empirical studies of transition
probability matrices .................................189
V. SUMMARY AND CONCLUSION ............................................190
The summary of results and findings................................190
The discussion of methodologies....................................195
The problems and limitations.......................................196
The contributions of the dissertations findings...................199
Future research and studies........................................202
A. The list of hypermarket stores in Thailand excluding the Bangkok
metropolitan area (base year 2009)..............................204
B. The summary of standards for mass appraisal..........................211
C. The data of the four case studies for the hedonic pricing regression.221
REFERENCES ...............................................................250

2.1 The Alonsos simplified chart of the bid-price theory of four
urban land uses....................................................56
2.2 The Andrews urban land use development decline and succession cycle.74
3.1: Map of the city of Chiang Rai with the hypermarket store location...124
3.2 Map of the city of Lam Pang with the hypermarket store location.....125
3.3 Map of the city of Nakhon Sawan with the hypermarket store location.126
3.4 Map of Thailand emphasizing case study cities and a comparative
citys locations...................................................129
4.1 Map of the city of Kampheang Petch ................................171

1.1 Large-Format Discount Store Major Outlets Shareholders..................26
1.2 Total Sell values and Market Share of Modem Trade.......................28
1.3 The Number of Large-Format Discount Store Outlets.......................29
3.1 The ten cities qualified to the criteria 1, 2, and 3 of site selecting process... 122
3.2 Identification of Data Sources and Actual Data Sources.................134
4.1 Descriptions of independent variables and their expected impacts on
the dependent variable................................................149
4.2 The application of independent variables to hedonic pricing models
based on years........................................................151
4.3 Hedonic Pricing Regression of the City of Chiang Rai.................154
4.4 Hedonic Pricing Regression of the City of Lam Pang ..................155
4.5 Hedonic Pricing Regression of the City of Nakhon Sawan...............156
4.6 Hedonic Pricing Regression of the City of Kampheang Petch ...........157
4.7 Retail Classification..................................................178
4.8 The Probability Transition Matrices of Commercial Activities for the
city of Nakhon Sawan..................................................183
4.9 The Results of Chi-square's Null hypothesis Test.......................184
4.10 The Functional Mobility (M) and Percentage of Change of
Commercial Business Categories........................................185

The word hypermarket (big-box discount store or large-scale retailer or
superstore or Large-format discount store) is common and extensively used in
everyday life. A large number of researchers have tried to give a definition of this
word. One of the widely accepted meanings defines this large-scale retailer as: proto-
global retailers -the outlets of modern retail stores having a size ranging from 50,000
to 200,000 sq ft, employing the concept of one-stop shopping, forging department
store and supermarket businesses, and selling the combination of supermarket items,
clothing and durables (Currah & Wrigley, 2004; Institute of Trade Strategies and
Foundation of Thai Research, 2005; Kaewlai, 2007; Mutebi 2007; Poapongsakom,
2002; TDRI, 1999). To be consistent, the meaning of large-format discount stores -
hypermarket, large-scale retailers, supercenter, and superstores -throughout this
dissertation will refer to the definition as stated above.
The concept of large-scale retailers was first introduced to the world in the
United States of America more than 50 years ago. The principal purpose of
establishing large-format discount stores or large-scale retailers is to employ the
economies of scale to cope with the decreasing profit margins and increasing
overhead costs (Nelson, 1959, p.37). This idea was first successfully developed on

both sides of the Atlantic -hypermarkets and superstores in Europe and commercial
big-box retailers in the U.S. The three largest discount stores in the U.S. (Wal-Mart,
Kmart, and Target) all opened their first stores in 1962. Until 2009, these big three
have a total number of store combinations equaling 5,773 stores (Kavilanz, 2009;
Sears Holdings Corporation, 2010; Wal-Mart corporate, 2010). Across the Atlantic
Ocean, large-scale retailing business as hypermarket was introduced in France as
hypermarkets in 1963, whereas the first emergence by the name of superstores in
the Great Britain was in 1970 (Bureau of Business Competition, 2006, p.4; Gerard &
Perrigot, 2005, p.80; Hallsworth, 1988, p.l). This occurrence of large-scale retailers
has proved that they create new shopping phenomena (one-stop shopping) responding
to the changes of consumers needs, revolving the traditional shopping patterns, and
being suitable for urbanite life styles. Not only the European and North American
continents has adopted these retailing business phenomena, but also globalization
has brought this successful hypermarkets concept to many big cities around the
world. Inevitably, the Asian continent is not exempted.
The large-format discount stores concept was initially brought to as large
number of cities in Asia in the late 1980s. During the last 10 years, many Asian
countries (such as China, India, Thailand, Vietnam, etc.) have proved to be
substantially profitable markets for the hypermarket business. Recently, while China
and India are considered two of the biggest oversea markets for Wal-Mart, the
Southeast Asian sub-continent is generating profits for European leading hypermarket

companies -Carrefour (France), Tesco (England), and Makro (Netherland).
Nowadays, these large-scale retailers are common among Asian urbanites. The three
major factors making Thailand and other East-Asian countries profitable places for
hypermarket business are substantial customer buying power, lack of strong
competitors and contributing laws, and existence of strong business alliances
(Dawson, Mukoyama, Choi & Larke, 2003, pp.39-42, 85). Asian shoppers perceive
hypermarkets as modem markets providing both convenience goods and comparison
goods with less expensive prices and standard quality. At the same time, economists,
small retailers, and city planners have raised concerns that hypermarkets might have
negative effects on urban land use and retailing business in their trading areas. Large
amounts of research have been done internationally, but few of them have been
conducted in Thailand. Only a handful of Thai research has paid much attention to
large-format discount stores impacts on the vitality and viability of local-traditional
retailers in hypermarket catchment areas; this research has omitted the effects
hypermarkets on physical land use and the succession of area in vicinity.
This previous research will be greatly beneficial to this dissertation namely
the influences and impacts of hypermarkets on the urban commercial land value, and
land-use allocation of areas in vicinity to fill the knowledge gap on hypermarkets
impacts on Thailand. The findings of this dissertation will help articulate a clearer
picture of how urban land use has changed its functions, values, and activities to be
suitable and co-existent with this new type of retailing business -hypermarkets. The

dissertation findings could benefit city planners and town developers in 1)
acknowledging how the large-format discount store business would affect physical
land use in its trading areas 2) knowing the projected development direction of land
use and business activities in the service areas of hypermarkets. Latterly, these
advantages would help planners and policy makers not only to issue proper land-use
ordinances and zoning codes to prevent the occurrence of hypermarket business in
undesirable areas, but to give incentives to large-scale retailers to develop their
outlets in desirable locations as well.
Research Questions
This dissertation pays all of its attention to studying the influences and
impacts of large-format discount stores on the land value and land use succession in
their trading areas. Bangkok and 50 other cities in Thailand are experiencing this
phenomenon. This dissertation is conducted basing on the premise that hypermarkets
do impact business activities in catchment areas by either forcing smaller retailers to
move away from hypermarkets service areas because of the mismatch competition, or
attracting them to settle in the catchment areas because of the spill-over benefits.
According to these premises, the dissertation has constructed the hypothesis which is:
in the service areas of large-format discount stores, there will certainly be the changes
in land use, land value, and the succession of land-use activities.
Following the dissertation premises, the dissertation has constructed research
questions. The questions are: 1) how have the commercial land use been altered by

the occurrence of large-scale retailing business; 2) how has the land value in vicinity
been effected by the land-use alteration caused by the presence of hypermarkets; 3)
what are the short-term (0-10 years after the stores opening) and long-term impacts
(more than 10 years after a stores opening) on land values in hypermarkets trading
areas; and 4) what should be the suitable commercial land-use activities that can
reciprocate and co-exist with the operation of hypermarkets?
The findings of this dissertation will not only answer all research questions,
but also will be greatly beneficial to the Royal Thai government agencies in terms of
understanding the nature and trend of large-format discount stores phenomena. With a
clear perspective, the Royal Thai Government agencies can issue precise policies
regulations and legislations to control the balance of development in large-format
discount store districts.
Research Methodology
Regarding the research questions, the principal objectives of the dissertation
are finding the commercial land-use succession and land value change in neighboring
areas of the case studys hypermarket outlets. The two employed quantitative
analytical methods are the probability transition matrices and the land-value
regression (the hedonic pricing model). The dissertation employs probability
transition matrices to find the changes in commercial land use over times, which
requires datasets of business locations and types of commercial businesses during at
least 3 intervals of time (before and after the establishment of an outlet) to be able to

conduct statistical tests. The dissertation utilizes hedonic pricing models to scrutinize
the influences of the hypermarket outlet on land value in surrounding areas. The
dissertation then conducts comparative studies among the chosen cities: three cities
with hypermarket outlets and a city without a hypermarket store. These comparative
studies are used to compare how principal factors impact land values of the study
areas. Definitely, the existence and locations of hypermarket outlets are ones of the
principal factors. The datasets of land values before and after the occurrence of
hypermarket in the area are in needed to run the statistical tests that will yield reliable
outcomes (the detail review of these two research methodologies will be further
discussed in chapter 3). In addition, the dissertation will use the computer software
ArcMap, which provides Geographic Information System (GIS). The program helps
with analyzing patterns of land use and land values in neighboring areas of a
hypermarket store by providing satellite images and data of the area. The dissertation
will test the validity and reliability of findings of the statistically analytical methods
for the multi-collinearity and statistical insignificance.
In terms of data collection, the dissertation will mainly rely on creditable
secondary data because of time and budget constraints. Principally, reliable data are
recorded and provided by the Royal Thai government at both central and local
agencies. The dissertation can obtain data of retail types and locations from the local
government office of commercial affairs, Ministry of Commerce, Thailand. At the
same time, the dissertation can acquire the datasets and maps of land values from the

Treasury Department, Ministry of Finance, and from Department of Land, Ministry of
Interior of Thailand. Primary data will be employed if necessary. The dissertation will
used primary datasets only in cases of incompletion and unavailability of secondary
data. The methods of collecting primary data are in form of field surveys and short
interviews with local business owners in studies areas
The Selection of Study Areas
The case studys site selection comprises a set of five criteria. First, the
dissertation excludes the Bangkok metropolitan area from this process due to a large
number of factors that affect the changes of commercial land use and land value.
Second, to be able to find the most explicit impacts of hypermarket, cities under
investigation for this dissertation must have only one hypermarket store in their
jurisdictions. Third, to be able to analyze the consequent impact, the hypermarket
stores must have been in operation for more than 8 years (base year 2011) based on
the availability of datasets of the Royal Thai governments data collecting system. In
the 8-year period, the dissertation can obtain at least 2 intervals datasets (one interval
before and one interval after a hypermarket opening year), since one interval has four-
year span. Fourth, in order to investigate obvious impacts hypermarket stores
locations must be located in a municipality jurisdiction (urban high-density area).
Last, datasets and archives of commercial land use and land values for cities under
investigation of this dissertation must be available and accessible.

Historical Background
The dissertation classifies valuable and beneficial background knowledge of
large-scale retailers into two sections: 1) the emergence and development of the
international large-scale retailers of the world, and 2) the history of commercial
business in Thailand, but focused on hypermarket and superstore businesses. By
concentrating on large-format discount stores, reviewing the history of commercial
business development of Thailand and those of international countries will provide
the fundamental knowledge of initial concepts and sequential development in both a
broader perspective and specific areas of interest. The review of commercial land use
theories focusing on commercial business will help explain the causes and reasons of
how and why the development and evolution of commercial activities have been
made. Chapter one will infer the discussion of the current circumstances of the
hypermarket business and its impacts on physical land use in commercial aspects.
This chapter will end up with the analysis and discussion of laws and regulations
relevant to large-format discount stores in Thailand.
The Emergence and Development of the International Large-Scale Retailers
The concept of large-scale retailers namely big-box discount stores,
supercenters, superstores, hypermarkets, or megastores; was first introduced to the
world in the United States of America, the United Kingdom, and France
simultaneously in the 1960s. While the U.S. retailers firstly launched their first three
large-format discount stores in 1962, the Great Britain and France introduced a large-

scale retailing business namely superstores and hypermarkets respectively in the
1960s (Hallsworth, 1988, p.l). The principal purpose of establishing the large-format
discount stores or big-box discount stores is to employ the economies of scale to cope
with the decreasing profit margins and increasing overhead costs of retailing business
(Nelson, 1959, p.37). The one-stop shopping, full-service retails, and low-prices
leader concepts have made the large-format discount stores the most desirable
shopping destination for the majority of consumers in a short period of time (Graff,
2006, p.54). The hypermarket-supercenter concept was not only favorable for
consumers because of its low-price merchandise, but also beneficial to local
governments by generating a high volume of sale tax collected in their jurisdictions
(Akehurst & Alexander, 1996, p.l57).
As the hypermarket business idea was first successfully developed on both
sides of the Atlantic, the only different is its names: hypermarkets and
superstores in Europe and commercial big-box retailers and supercenters in the
U.S. Although Cliquet and Perrigot (2005) claimed that the first establishment of the
hypermarket business, which was equal to supercenters in the U.S., was initiated in
France (Carrefour), Cliquet and Perrigot also admitted that the principal concept of
the large-format discount store has long existed in the U.S. (p.80). Before the full
format of the U.S. large-format discount stores emerged, the French hypermarket
(Carrefour) and the United Kingdoms superstore (Tesco) were established in 1963
and 1970 respectively (Bureau of Business Competition, 2006, p.4; Gerard &

Perrigot, 2005, p.80). Whilst the first Carrefour opened in 1963 in a southern suburb
of Paris, the U.S. three largest discount stores (Wal-Mart, Kmart, and Target) opened
their first stores in 1962. The first Wal-Mart was operated in Rogers, Arkansas, the
first Kmart in a Detroit suburb, and the first Target in a Minneapolis suburb (Graff,
2006, p.56). In the 1960s, the format of U.S. discount stores was smaller in size
(4,000-6,000 sq. ft.) than the French hypermarkets (25,000 sq. ft.) (Cliquet &
Perrigot, 2005, p.80; Vance & Scott, 1992, p.248). The French pioneers after the
international success of hypermarket expansion attempted to expand outlets in the
U.S. in the 1970s. The first four Carrefour outlets opened in the U.S. in Ohio, Illinois,
and Texas but quickly failed and withdrew from the market. Not until the late 1980s
was the full-format largest discount store successful in the North America (Akehurst
& Alexander, 1996, p.149; Gerard & Perrigot, 2005, p.81).
Focusing on the North American continent, in the early years Wal-Marts
market and development strategies were different from those of Kmart and Target.
Without the large amount of monetary support, Wal-Mart settled its business in small
towns with suburban residents as its targeted customers. In contrast, Kmart, having
the most substantial financial back up, sited its business in metropolitan areas and
expanded its number of outlets rapidly. Target tended to follow the Kmarts location
strategy. In spite of concentrating on the lowest tier of customers as the principal
consumer group (like Wal-Mart and Kmart), Target paid attention to the middle-
income group as its core customer by providing brand-name, higher quality, and

stylish products. During the 1960s and 1970s, Kmart was the largest discount retailer
in the United States, while Wal-Mart shared only a small portion of Kmarts sale
volume. The turning point of these three U.S. largest discount retailers was in the
1980s. A large number of scholars consider this decade as the opening era of
supercenters -the U.S. style hypermarkets. Wal-Mart and Kmart were the trail
blazers, while Target was playing a wait-and-see role. The different business
strategies among these three stores led to drastically dissimilar future development
among them. With the purpose of increasing its profits, Kmart expanded its business
scope outside its area of expertise. Up to the early 1990s, Kmart had purchased
Buildings Square, Borders, Waldenbooks, Furrs Cafeteria, PACE Membership
Warehouse, Payless Drugs Northwest, Sport Authority, and Office Max to capture
wider range of business. This Kmart strategy proved to be unsuccessful in the
following decades resulting in Kmarts financial difficulties (Graff, 2006, p.57).
On the contrary, Wal-Mart developed a different strategy. Not only did Wal-
Mart focus on discount retailing business, but also it rapidly increased outlets and
improved them to suitably serve the change of customers preferences. At the same
time, Target prudently increased its number of outlets slowly. In terms of the
distribution system deemed by scholars and practitioners as one of the most important
determinants of the success of discount retailing business, only Wal-Mart that
developed its own. Target and Kmart supplied their goods and products through
wholesalers and distributors. This difference in distribution practices resulted in

dissimilarity of outlet location strategies. Wal-Mart planned its store outlets to gather
around distribution centers within a 300-miles radius: the distance within one-day
freight, Kmart and Target spread their outlets all over the countrys metropolitan
areas. Having its own distribution centers gave Wal-Mart not only a reliable quality
control system, but also negotiating power to obtain low-price of products from the
manufacturing firms, which the other two rivalries could not obtain (Graff, 1998,
pp.49 & 55; Graff, 2006, p.55; Sandra & Scott, 1992, p.241). The Wal-Mart concept
of distribution center perfectly contributed to the supercenter establishments. To
maximize the exploitation of its distribution centers, Wal-Mart planned to construct
one hundred supercenters within a 300-mile radius of each distribution centers across
the nation. By the mid 1990s, Wal-Mart has become the U.S. largest discount retailer.
Target became the second in this category replacing Kmart, the former largest
discount retailer. Kmart has struggled with its strategic failure and financial deficit.
It was also in the 1990s when the monumental development in the history of
U.S. retailing business has been made. The experiment of supercenters by Wal-Mart
and Kmart in the 1980s has flourished, and Wal-Mart and Kmart has finalized the
successful formula of supercenters. The formula was explained as the larger version
of the previous discount stores outlets containing about 170,000 square feet -almost
double in size of previous format. This formula provided a great variety of products
ranging from comparison to convenience goods (Graff, 1998, pp.46 & 48). Target
later adopted this store format in the second half of the 1990s. Recently, the

supercenter format has proven to be the most successful and dominating format of
retailing outlets not only in the U.S. but in the world as well. A large number of
supercenter outlets have been added into the market by both new construction and the
replacement of unprofitable old locations. Recently, Wal-Mart pledged to open new
one-hundred Wal-Mart supercenters a year, whereas Target and Kmart will add a
large number of SuperTargets and Super Kmart centers in their systems. In 2009,
these big three companies had a total number of store combination of 5,773 stores:
2,747 Wal-Mart stores (Wal-Mart corporate, 2010), 1,699 Target stores (Kavilanz,
2009), and 1,327 Kmart stores (Sears Holdings Corporation, 2010). By the end of
2010, Wal-Mart absolutely dominated the U.S. discount retailing business, while
Target became one of the top ten American grocers. On the contrary, because of its
2002 bankruptcy, Kmart never reached its goal of super Kmart center expansion. K-
Mart has to consider outlet closures in some unsuccessful locations.
Regarding the success of Wal-Mart, the survival of Target, and the failure of
Kmart, there are four principal strategies influencing the achievement of operating the
U.S. large-format discount stores. The first strategy is to conduct research and
development in response to the change of customers preference. The second one is to
clarify of target group of consumers and the appropriate service provision. The third
strategy is to assess distribution system and outlet location strategies, which can
minimize overhead cost of products distribution. The last strategy to examine the
store size, which was proven by the success of Wal-Mart to be one of the keys of

success when supercenter provided better investment returns than those smaller ones.
The dissertation will refer these four strategies in a comparative manner when
reviewing the history and development of large-format discount stores in Thailand.
Consequences on Urban Retailing Businesses in Western Countries
Since the 1960s, people have blamed large-format discount stores as the cause
of the decreasing number of local retailers (mom-and-pop shops) in their service
areas. A large number of scholars have done a large amount of scholarly research.
Fisher and Fisher (1949) and Nelson (1959) were the very first ones who foresaw the
impacts of the large-scale retailing format on other surrounding land-use activities,
and noted this potential impact in their textbooks (Fisher, 1949, pp.340-341; Nelson,
1959, p.321). Nelson (1959) maintained that the arrival of supermarkets -the largest
retail establishment at that time -resulted in the elimination of small convenience
stores and the replacement of large self-service stores (Nelson, 1959, p.321).
Contributing to Nelsons and Fishers thoughts, Simmons (1964) affirmed the results
from his comparative study of commercial land use in Chicago metropolitan area
between 1931 and 1954. The results from his study witnessed the decline of candy
stores, dry goods stores, and millinery shops traded off by an increase of
supermarkets and larger unit stores (Simmons, 1964, p. 129).
On the one hand, a number of fellow researchers maintained statements like
those of Fishers, Nelsons and Simmons. Schutte and Ciarlante (1988) found that
hypermarkets take advantage of massive purchasing power to get better deals and

lower prices than local wholesalers could have from the manufacturers, and then
hypermarkets can offer goods and products at lower prices to customers than smaller
wholesalers (supermarkets). The consequence is that supermarkets are unable to
compete with large-format discount stores and forced out of business (Schutte &
Ciarlante, 1998, p. 178). Akehurst and Alexander (1996) from their research of
hypermarkets in the Czech Republic and Slovakia similarly pointed out that small
mixed shops will certainly decline in number. These small shops -traditional retailers
-will not be able to contend with hypermarkets either on price and quality or on range
and variety of products (Akehurst & Alexander, 1996, p.203). Recently, Kook (2007)
conducted his study in Central Europe (Hungary, Czech Republic, and Slovakia)
concluded that the construction and expansion of larger stores (hypermarkets and
superstores) caused the closure of smaller stores (local retailers, kiosks, and
container-type shops). He went on to insist that many parcels of land from those
closed-down outlets are now used for other purposes or still left vacant (Kook, 2007,
pp. 124-125).
On the other hand, there are arguments against Fishers and Nelsons and his
fellows claims from a number of scholars. These researchers maintain that the
hypermarket business does not cause the declination of local retailing businesses.
Oppositely, hypermarket business creates extra trade to local shops in their catchment
areas. Kirby (1975 & 1976) claimed from his studies in the U.S. and UK that local
shops may not be lost since the advantages of new large stores were still not available

to less mobile people. He went on to suggest that small shops may thrive on the top-
up trade from large-format discount stores. He asserted from the study in the UK that
hypermarkets have tended to bring about a reduction in the number of supermarkets
but not local shops. Ghosh and McLafferty (1987) supported this statement by
addressing that large-scale retailers always had some sale leakage to small
neighborhood groceries and convenience stores in their service areas (Ghosh &
McLafferty, 1987, p.106). Hallsworth (1988) from his study in Britain indicated the
coincident finding that hypermarkets and superstores have tended to have the greatest
market impact on high street supermarkets that have become less cost-effective. He
went on to address that some hypermarket neighboring communities found that they
have lost the provision of high street supermarkets but gained a larger store nearby
and much improved small local outlets (p.2). Hallsworth (1988) insisted, based on his
studies of ASDA and Havant hypermarket at Waterville, that the balance of evidence
has moved away from blaming large new stores, such as hypermarkets and
supercenters, for all local retail decline as the statement: superstores and
hypermarkets divert trade from supermarket but co-exist with small shops"
(Hallsworth, 1988, pp.49-50, 62). A number of studies, especially from the North
American continent, at the county level conclude that the entrance of Wal-Mart
increases local business sell value and boosts local economy (Hicks & Wilburn,
1999; Stone, 1991 & 1997). Local stores that obtained maximum benefits from Wal-
Mart s spillover business are those selling goods and services different from Wal-

Mart, such as food stores, restaurants, automobile stores, and building supply stores
(Davidson & Rummel, 2000, pp. 166-167). Jones and Doucet (2000) from their study
in Toronto, Canada showed similar results. They indicated that local principal stores
like supermarket lost business, but that small local shops gained business by being
proximate to multinational big boxes. Additionally, for local shops in order to not
only survive, but also to take advantage of big-box business in adjacency, they ought
to differentiate themselves from big boxes by giving consumers shopping alternatives
(Brennan & Lunsten, 2000, p. 160; Davidson & Rummel, 2000 p. 166; Jones &
Doucet, 2000, pp.245-246).
Regarding the findings from studies of impacts of hypermarkets on land uses
and land values, a common assumption can be found among these arguments. The
common agreement is that the occurrence of hypermarkets will apply some forms of
impacts on smaller retailing businesses and their activities in catchment areas. These
smaller retailers include traditional retailers, local wholesalers, and supermarkets.
These forms of impacts could be either negative to both smaller wholesalers and
retailers or positive to local-traditional retailers but negative to wholesalers. One can
infer that the effects of large-format discount stores on the smaller stores nowadays is
the same as the impacts of supermarkets and high-street market on mom-and-pop
shops in the 1940s-1950s. In any case, the ending consequence of the hypermarket
business influences is the change of business activities and land uses in vicinity
namely the succession.

The History of Commercial Businesses in Thailand Focusing on
Hypermarket and Superstore Businesses
From the beginning of the recorded history to recent years, with an attention
on the large-scale retailing business, the history of commercial business in Thailand
can be classified into three intervals. Basing on the chronological order the three
intervals are: the period before the occurrence of large-scale retailers, the emergence
of multi-national large-format discount store, and the flourish period of hypermarket
business. The review and discussion of these three intervals in great detail are as
The Period Prior to the Large-Format Discount Store Era in Thailand
Since ancient years, a free-trade business has been one of the fundamental
trading activities in Thais everyday life. The first archive was documented as the
stone inscription dated back to the Sukhothai Dynasty -13th century to 16th century
(Chamommam, 2002; Poapongsakom, 1999; Sirataranont, 2006). With small amount
of influence from the Chinese and Western countries, the retailing business was
occurred either at wet markets or at traditional shops. Before 1950s, almost of
retailers were family-owned selling bargained goods in small-size establishments
serving neighboring areas. These traditional shops were in primitive without
decoration and organized displaying shelves (Institute of Trade Strategy, 2005, p.2-7;
Poapongsakom, 1999, p.3-2). The majority of goods and products at that time were
daily-fresh and everyday-life products. The distribution channel had not been

identified. It was not until 1950s that the Thai retailing business undertook a distinct
change in its format (Chamommam, 2002; Institute of Trade Strategy, 2005; Kaewlai,
2007; Poapongsakom et al., 2002). After World War II, Thailand adopted the modem
retail concepts from European countries and Japan. The Thai local-tradition retailers
were challenged by these modem trade concepts. These new concepts could be
described as larger retail establishments located in strategic locations providing better
shopping atmosphere and services with a store decoration. These stores provided
more variety and better quality of goods on arranged displaying shelves. Among
various types of modem retail businesses, the department store was the first one
introduced to Thailand.
The domination of Thai department store era reigned from the mid-1950s to
the late 1990s. In 1956, the first Thai department store owned by the Chinese-
descendent pioneering family opened. After having been operating small retail (600
sq. ft.) selling imported luxury merchandises for 9 years, the Central Trading
launched its first department store. The Central Department Store was located in the
heart of Bangkoks business district at that time focusing on the high-income
households. It was the first time in Thailand that comparison goods (clothing, home
appliances, etc.) and convenience goods (daily-fresh products) were arranged in the
same store. The success of combining supermarket as a part of department stores
engendered the successful formula for other fellow department stores. The fixed-price
system was also first introduced to Thai consumers: all products prices were tagged

and no bargain allowed (Chamornmam, 2002; Institute of Trade Strategy, 2005, p.2-
3; Kaewlai, 2007, p.23; Poapongsakom et al., 2002, p. 18).
Following the success of the Central Department Store, the first foreign chain
department store joined the pool of department store business in Thailand. In 1964,
Thai-Daimaru Department Store, the Japanese-based chain department store opened
at the Ratchaprasong district; this district was deemed as the emerging commercial
district in that period. Thai-Daimaru has installed the newest high-technology
facilities: escalators, full air-conditioned store; which Thai shoppers had never been
experienced. The accomplishment of these first two pioneers brought about the period
of rapid growth of Thai department stores.
In the following 30 years, a large number of department stores, both local and
foreign owned, emerged. The later version of department stores has provided
customers more convenience and recreational facilities by combining book stores,
restaurants, food courts, theaters, and amusement parks. In this period of the rapid
grow th of department stores, two other Thai iconic department stores: the Robinson
and The Mall; had emerged in 1979 and 1981 respectively. Together with the
substantial branch expansion of the Central department stores, these three department
stores shared the upper market trade. At the same time, there were a large number of
local department stores striving for the share of the medium-low to low income
consumers spreading outside Bangkok Metropolitan periphery into other second-tier
cities (500,000 to 2,000,000 of population). Because of the highly competitive

market, only three international chain department stores opened their outlets in
Thailand between 1988 and 1992. These three were all Japanese department stores:
Tokyu, Zen, and Isetan.
In this dominating period of department stores, there were other types of
modern trade introduced to Thailand. The convenience store format was first
introduced in 1987: Big-7 and Central mini-mart (two local companies). They were
forced out of business by the arrival of multi-national chains, Seven-Eleven and Am-
Pm in 1994. The second type, the Cash & Carry wholesaler (Makro), was introduced
in 1989. The third type, the international-chain specialty stores have risen since 1993
-Mark & Spencer in 1993, Watson in 1996, Super Sport in 1996, and Boots in 1997.
Before the end of the distinct period of department store, Thai urbanites experienced
two other modem trade retailing businesses. These two formats were the stand-alone
supermarkets and the shopping center. The shopping center format comprised at least
two anchored department stores at each ends with rows of small shops along the
corridors linking these anchored stores. The shopping centers located in the Bangkok
Metropolitan suburb areas. The first four mega shopping malls were Future Park
Bang Kea and Seri Center opened in 1993, and Seacon Square in 1994 and Future
Park Rang-sit in 1994 (Institute of Trade Strategy, 2005, pp.2-7, 2-9; Nipon
Poapongsakom et al., 2002, pp. 18-20). Despite having competition from other types
of modem retailing businesses, the department store still firmly shared the majority of
retail sale volume.

The Emergence of Multi-National Large-Format Discount Stores
The hypermarket concept was initially brought to Asia in the late 1980s.
During the last decade, the hypermarket business has been successful in a number of
Asian countries, such as China, India, Thailand, and Vietnam. Recently, the Southeast
Asian sub-continent generates substantial profits to European leading hypermarket
companies -Carrefour (France) and Tesco (England). In 1994 the first actual multi-
national large-format discount store was developed in Thailand. The occurrence of
hypermarket business has brought about drastic changes to the Thai retailing
business. Thailand has been a base of large-format discount stores for more than 15
years. The development of hypermarkets in Thailand can be reviewed in two
intervals: the emergence of large-format discount store interval and the rapid
expansion of hypermarket interval.
The emergence of Thai hypermarkets was from 1989 to 1997, which was the
period of Thais economic rapid growth. The first wholesale store, Siam-Makro
opened in Bangkok, Thailand in 1989. This Cash & Carry wholesale format was
found under the joint venture between a Thai shareholder CP Food, the largest daily
products producer and distributor in Thailand and the SHV Group, Dutch multi-
national private investors. This joint venture was a result of the Thai Trade Law at
that time that prohibited foreign companies from solely-operating a hypermarket
business or to be a major shareholder of joint venture of retailing business in Thailand
(Keawlai, 2007; Poapongsakom, 1999; Poapongsakom et al., 2002). Also joint

venture would allow foreign investors to mitigate investment risks by partnering with
local investors. In so doing, the foreign investors will benefit from the local
marketing knowledge of local partners (Akehurst & Alexander, 1996, p.35). A
primary purpose of this wholesale store was to sell a large amount of manufacturing
goods and products to local distributors in a membership format; the final consumers
were not its main target group. It was until 1994 that a large-scale locally owned
retailer, Big C, emerged in Bangkok, Thailand. Then in 1995 and 1996, two world-
class multinational large-scale retailers were established in Bangkok and its
periphery. The two European-base multinational retailers were Tesco-Lotus (joint
venture between English-based superstore: Tesco and the giant Thai food company:
CP Food) opening its first hypermarket in 1995; and Carrefour (French-based
hypermarket) operating its first store in 1996 (Institute of Trade Strategies, 2005, p.2-
16). According to the 2002 ranking of world largest large-format discount stores,
Carrefour was the 2nd biggest and Tesco was the 7th, while Wal-Mart was at the top of
the list. At the early stage, Bangkok was the only market area for the three companies
because of Bangkoks large population size, consuming capacity and urbanized
environment. The occurrence of hypermarkets is a response to the change in life-style
of people in urban settlements. Because of a large portion of time spent on working,
people need an efficient management for their small portion of time on shopping and
other recreational activities. By providing one-stop shopping concept with the lower

price of goods and products the hypermarkets have become favorable among urban
At this point, hypermarkets did not share a large portion of the retailing
business. It ranked behind department stores and traditional retailers respectively.
There were two reasons. First, Thai consumers perceived hypermarkets selling low-
price items as the place providing low-quality goods for low and middle-low income
households. Second, before the 1998 economic crisis in Thailand, Thais believed that
high quality merchandise with more expensive prices were affordable and available at
department stores. Therefore, department stores were popular among the majority
urban households, while hypermarkets were deemed as the second tier retailers
serving only specific demographic groups in some low-income districts. These
reflected the slow growth rate of hypermarket business. A small number of new
outlets had been added into the market per year (Poapongsakom et al., 2002, pp. 101-
On the second half of 1997 when the economic crisis hit Thailand, the Royal
Thai government announced the inflation of Thai currency. The Thai currency value
had drastically dropped more than half of its value (from 25 baht per 1 USD before
the crisis to 55 baht per 1 USD within a month) (Institute of Trade Strategies and
Foundation of Thai Research, 2005; Kaewlai, 2007; Mutebi, 2007; Nipon
Poapongsakom et al., 2002). Thai scholars deemed 1997 as the turning point of the
large-format discount store business in Thailand. The Thai big-box discount store

market was more attractive and profitable to multinational hypermarket companies
than it was before the economic meltdown because of two reasons. First, the
devaluation of Thai currency discounted Thai property values more than half of their
original prices. In other words, the Thai rapidly growing hypermarket business
became more obtainable and profitable for foreign investors. The high investment
profits are guaranteed by small amount of monetary investment. Second, the
amendments of Thai Commercial Laws (Alien Business Operating Acts 1999) under
the advice of IMF (International Monetary Fund) allows foreign companies to own
and operate many types of businesses in Thailand including the large-scale retailing
business (Tosonboon, 2003: p.87). These resulted in the takeover of multinational
hypermarket companies from their current joint ventures (Table 1.1).
In 1999, Ahold (the Dutch multinational hypermarket company) bought the
share of Siam-Makro from CP Food and became a major share holder of this large-
scale wholesale retailer. Casino groups (the French multinational retailing company
from France) purchased shares of Big-C hypermarkets from Central Group, and
became a major share holder with 66 percents of share (Tosonboon, 2003: p.84).
Simultaneously, Carrefour (France major hypermarket) bought its share from its Thai
joint-venture, and became the majority shareholder of Carrefour Thailand. And
Tesco-Lotus was bought by its English-based share holder (Tesco). After the
takeover, the share of Tesco-Lotus hypermarket between Tesco multinational
company and CP Food Thailand went from 49:51 to 91:9 in the favor of Tesco. Since

2000, after the economic recovery from the 1997 meltdown, the Thai joint-venture
companies have tried to buy back the shares from their foreign major share-holders,
but the negotiation has never been successful (Institute of Trade strategies, 2005: p.2-
According to the information from the Department of Internal Trade, Ministry
of Commerce, Thailand, the latest unsuccessful attempt has been made. At the end of
2010, when Carrefour officially announced its withdrawal from the Thai competitive
hypermarket business, groups of Thai investors strived for buying back a hypermarket
business from this multinational chain company. Thai and foreign companies
negotiated and made offers to Carrefour in the takeover process. In December 2010,
Carrefour announced its takeover agreement with the French Casino groups who has
won the negotiation. As a result, the Casino group will operate all 41 Carrefours
hypermarket outlets along with its 95 Big-C stores in Thailand.
Table 1.1: Large-Format Discount Store Major Outlets Shareholders
Large Format Discount Stores Total stores (June 2011) Major Shareholders
Tesco-Lotus 90 Tesco Stores (Thailand) Company Ltd.: Britain
Big-C 95 The Casino Group: France
Carrefour 41 The Casino Group: France
Siam-Makro 48 Siam Makro Holding: Holland
Total Outlets 274
Data: Department of Internal Trade, Thailand 2011

The Flourish Period of Hypermarket Business
The dominating period of hypermarket business in Thailand began in 1998.
The Thai currency devaluation resulted in the reconsideration of the perception of
hypermarkets by Thais. Because of the inflation and the uncertainty of financial
status, large-format discount stores have been perceived as places providing
convenient shopping condition (time saving shopping), less expensive and acceptable
quality of products. This follows the Ghosh and McLafferty (1987) claim that basing
on quality and price of goods big-box retailers might be placed in between mass
merchandisers and traditional department stores (p.21). Since 1998, hypermarkets
have expanded their market not only to low-income households, but also to medium
and upper medium income families. In this period, the hypermarkets business has a
highest growth rate among all types of modem-trend commercial businesses in
Thailand in both the sale value and the market share value categories (Institute of
Trade Strategies and Foundation of Thai Research, 2005). Since 2000, the
hypermarkets have surpassed other types of modem-trade retailers and had the
highest sale value in the modem-trade categories. In 2005, the total amount of
hypermarket sale ($6,114 million) was more than three-time higher that of
convenience store sale ($1,708 million) -the second highest retail type in the modem
trade retail business category. The department store, which was the highest-ranked
modem retail business, now has been fallen to the third position (Table 2).

Table 1.2: Total Sell values and Market Share of Modern Trade
Total Sell Values ( $ Million) 2009 Market
Types/Year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Share
Hypermarket 2,495 3,173 3,888 4,896 5,604 6,411 7,125 7,992 8,970 10,258 10,812 60%
Convenience 564 693 835 1,143 1,594 1,643 2,034 2,562 2,973 3,559 4,166 23%
Department 2,504 1,092 1,191 1,306 1,411 1,555 1,685 1,683 1,704 1,794 1,943 11%
Supermarkets 340 355 361 473 647 730 865 966 967 1,020 1,136 6%
Total 5,903 5,312 6,274 7,817 9,256 10,340 11,709 13,202 14,613 16,630 18,058 100%
Regarding the success of Thai large-format discount stores, the Thai big three
supercenters share their three principal strategies of success. These strategies are:
one-stop shopping and entertainment concept, everyday low-price concept, and
minimization of distribution cost. Providing one-stop shopping and entertainment
center (restaurants, theaters, bookstores, etc.) for urban residents; hypermarkets have
been favorable among urbanites, and have expanded their outlets rapidly. According
to 2009 Department of Internal Trades data, there are 50 of the total Thailands 70
provinces excluding the Greater Bangkok metropolitan area that have at least an
outlet of hypermarkets in their jurisdictions. One can infer that hypermarkets have
become one of the most important parts of Thai urbanite lifestyles (Poapongsakom et
al., 2002, pp.22-24).
This incident coincides with the claim of Hallsworth (1988) that when people
are constrained by limited time and grocery shopping budget, they tend to made less
shopping trips but more amount of grocery goods a time. Basing on the 2011
government archive, there are 226 chain stores of the three hypermarket companies in

Thailand. Tesco-Lotus has 90 stores, Big C supercenter has 95 stores, and Carrefour
has 41 stores (Table 3). These outlets are located in big cities throughout the country,
such as Chiang Mai, Khon Kean, Nakhon Ratchasrima, Nakhon Sawan, Pataya,
Song-Kha (Department of Business Development, the Ministry of Commerce,
Thailand, 2009). Recently, these hypermarket companies have planned to continually
expand their service areas by opening new outlets in response to an increasing
demand of Thais who commonly regard the grocery shopping as family leisure,
entertainment, and social events (Schutte & Ciarlante, 1998, p.185). Based on data in
Table 1.3, the average annual growth rate of the total number of hypermarket outlets
in last 12 years is 14%. With this growth rate, the total number of stores will exceed
400 outlets within next five years.
Table 1.3: The Number of Large-Format Discount Store Outlets*
Hypermarket Stores/Y ear 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2016**
Tesco-Lotus 24 33 41 48 49 54 57 59 79 79 90 90 173
Big-C 23 29 33 36 40 45 49 54 66 67 87 95 183
Carrefour 11 15 17 19 20 23 23 26 30 38 41 41 79
Total Outlets 58 77 91 103 109 122 129 139 175 184 218 226 435
* The data were up-to-date at April 2011
**The projected numbers of stores based on the average 14% annual growth rate of hypermarket outlets in the last 12 years
Data: Department of Internal Trade, Ministry of Commerce, Thailand 2011
Considering a hypermarkets provision of low-price products, the ability to
provide consumers with the lowest-price products could be described by the
hypermarket bargain power. A large volume of sales and a great variety of goods
supercenters carry means a huge volume of demands to manufacturers and suppliers.

Together with the high frequency of orders, the large-format discount stores are on
the upper hand in negotiating with manufacturing firms to obtain the best discount.
This advantage of large-format discount stores results in the acquisition of goods and
products from manufacturing plants at lower prices than all other smaller retailers
would have. Poapongsakom et al. (2002) pointed out in the retail and wholesale 2002
annual conference that with the bargain power, hypermarkets received the average of
6.25 percent discount of the manufacturers suggested retail prices (MSRP) from
suppliers. Comparatively, smaller wholesalers and local retailers received 4 and 2
percent in average discount from manufactures or suppliers respectively
(Poapongsakom et al., 2002, p.19). Whilst a part of these benefits passes along to the
consumers hands, manufacturers wholesalers and smaller retailers suffer from
shrinking profit margins and losing their feet in the business. Coupled with the more
price consciousness of current Thai consumers as lesson-leamt from the 1997
economic meltdown, the hypermarket tends to increase their domination in both
market share and sale value among modem and traditional trades retailing business
(Akehurst & Alexander, 1996, pp. 169-170). The competition among the three
multinational hypermarkets is also intent. Tesco-Lotus concentrates its strategy on
being the lowest-price provider, Big-C establishes its image as the local-owned
supercenters, and Carrefour contests as being the first choice for metropolitan
consumers (Jew, Disthacharoen & Pinkaew, 2007).

To further improve their profit margins and decrease their overhead costs, the
three Thai hypermarket companies have developed their distribution system
(Poapongsakom, 1999, pp.3-27; Jew, Disthacharoen & Pinkaew, 2007, p.65). The
efficient distribution system has been widely recognized as the most important
strategy contributing to the provision of low-price products and guaranteeing the
business success (Graff, 1998 & 2006; Sandra & Scott, 1992; Yuthipong Jew et al.,
2007). Among the three hypermarket companies, Tesco-Lotus has been a front
runner with the highest volume of sales because of its lowest price with the standard
quality of products. According to the government database provided by Department
of Internal Trade of Thailand, Tesco-Lotus had the most complete system of
distribution center. Its distribution center located at Wang-Noi district, Ayutthaya
province -the central region of Thailand -in proximity to the one of Carrefour. This
distribution center is considered as one of the best distribution centers in Asia. The
size of 75,000 sq. m. (807,300 sq. ft.) made Tesco-Lotus distribution center become
the biggest center in the South East Asian (Poapongsakom, 1999, pp.3-26). Besides
having the best distribution center of the three Thai hypermarket companies, Tesco-
Lotus further develops its distribution system to distinguish itself from the other two
rivals. Instead of only conveying goods and products to its outlets and having the
empty trucks back to its center, Tesco-Lotus develops two systems called a Drop &
Hook and a Back Hauling.

The first system: Drop & Hook; is described by Tesco-Lotus as when the
freight truck convey goods to supercenters outlets, the trucks hook up the empty
containers back to the distribution center. The second system is that these trucks with
empty containers will visit the supplier or manufacturing plants to carry goods and
products ordered by Tesco-Lotus back to the distribution centers warehouse. It is
called Back Hauling. The transportation costs created by Back Hauling process will
be upon the suppliers and manufacturers responsibilities. While more than 90
percent of all products were stored and distributed by these processes, the cost of
distribution has been substantially decreased. With these regards, Tesco-Lotus has
edged other supercenter rivals, and has gained customers appreciation by providing
the lowest-price goods (Sirataranont, 2006; Jew, Disthacharoen & Pinkaew, 2007,
pp.61-67). The domination of Tesco-Lotus hypermarkets in Thailand could be
compared to the one of Wal-Mart in the U.S. since both have crucial strategies of
success in common. Not only are the Wal-Marts everyday low price and the Tesco-
Lotuss roll back programs providing customers the lowest prices of goods, but also
their distribution centers are the best ones outperforming their rivals.
The Current Situations of Hypermarket Business and Its Impacts on Land Use in
Considering locations of supercenters or hypermarkets, a large number of
Thai hypermarkets settle their stores in urban core areas close to high-density
residential and commercial districts, while large-format discount stores in western

countries seek to settle in undeveloped suburban lands due to effective land-use
ordinances. By locating their outlets in urban settings, Thai hypermarkets gain their
business from being easily accessible, having a large amount of traffic flows, and
serving various groups of potential consumers in neighboring areas (Nelson, 1959:
pp.80-81, 88). Two causes support why hypermarkets in Thailand are able to locate in
built-up environments. First is the weakness of land-use ordinances. Since
government agencies have nor foreseen impacts of supercenters and city planners and
developers have underrated the hypermarket business potential in the initial period,
the government did not form an agency for taking direct responsibility for controlling
hypermarket development. Additionally, current land-use zoning ordinances and
planning regulations were obsolete and cannot respond to the rapid growth of
hypermarkets. Thus, hypermarkets have deployed ordinances and regulations
loopholes to anchor their stores in the heart of urban areas in Thai big cities (Mutebi,
2007). Second is the strong financial support from multinational European-based
companies (Tesco: England, Carrefour and Casino Group: France). This support
allows Thai supercenters to acquire premium infield locations in the inner cities. This
foreign investing capital helps Thai hypermarkets overcome the only constraint of
acquiring urbanized locations, which is the expensive value of land. The previous
uses of these lands usually were deteriorated department stores, obsolete malls,
unsuccessful commercial centers, traditional market places, large parcels of
residential lands, etc.

Because of opening their outlets in already built-up areas, hypermarkets grasp
attention from Thai researchers and planners in terms of their effects on local-
tradition retailers and people shopping behavior. Although these hypermarkets claim
that they have created a substantial number of jobs to their neighboring communities,
there is also a great number of family-owned small business, grocery stores, and local
shops closing. The government statistical data of retailing business has shown in the
last 10 years that while the hypermarket business has become the most successful
retailing business, the number of traditional retailers and their share of sale value have
drastically decreased. Taking the projected annual growth rate of 14% into account,
the impacts of the hypermarket business on local businesses and land values will be
double within next five years. With anticipation that hypermarkets would heavily
affect the vitality and viability of local and traditional retailers -mom and pop shops,
scholarly researchers conducted a number of studies internationally. Among these
studies, a few of them were conducted by Thai scholars. There have been debates
among scholars in terms of research findings regarding the assumption of the impacts
of hypermarkets on local retailers. A number of scholars maintain that hypermarkets
engender negative effects on local retailers in service areas (Kaewlai, 2007; Mutebi,
2007; Mutebi & Ansari, 2008).
Mutebi and Ansari (2008) found in their study in Thailand, through employing
statistically analytical methods, that the appearance of large format stores has a
negative relationship with the sale values of small retailers (p.2709). They further

referred to Mutebis (2007) findings from his research in Indonesia, Malaysia, and
Thailand that the smaller the town or community, the more drastic impact large-
format discount stores will have on small retailers (Mutebi, 2007, p.374). In addition
to these claims, Kaewlai (2007) inferred in his Doctoral dissertation conducted at the
Harvard University that the occurrence of hypermarkets in Bangkok, Thailand,
resulted in the closing out of traditional retailers and the losing business of
wholesalers (middle men). He further pointed out an interesting point that the real
estate market and other types of urban development that occupy lands previously used
by local and traditional retailers in the hypermarket trading areas will deploy
hypermarkets as an added value to their real estate and development projects to
increase their sales (Kaewlai, 2007, p.205). His statement was coincident with
Browns (1992) assertion that the inevitable outcome of the transfer of ownership
caused by the appearance of hypermarket (the birth, death, survival and relocation) is
a perpetuation for existing space of retail activity (p.91). Additionally, Kaewlai
(2007) went on to express his concern about the loss of local characteristics.
In contrast, a study from Thailand by the Institute of Trading Strategies (2005)
exhibited opposite findings. The results of Institute of Trading Strategies study at
Ubon-Rachathani province showed that the emergence of hypermarkets (Big-C and
Tesco-Lotus) created a livable trading environment in the vicinity (Institute of
Trading Strategies, 2005, pp.2-50). Researchers have agreed that 1) changes in
surrounding land use and building use have been brought to the communities by the

appearance of large-format discount stores, and 2) the control of supercenter growth
is needed.
Reviews of the Thai Act of Parliament of Wholesale and Retail Trade
(Standard Guidelines of Hypermarket Land-Use Ordinances and
Building codes)
Recently, realizing this urgency, the Royal Thai government has strived to
bring back the balance of the retailing business milieu and urban land use. Since
2002, the Royal Thai Government has assigned the Ministry of Commerce to issue
the Acts of Parliament to control the rapid growth of hypermarkets. During the
process of establishing the Acts, the Cabinet has assigned the Department of Public
Works and Town & Planning, Ministry of Interior, to amend and enforce their
existing building codes and zoning ordinances in response to the impacts of large-
format discount stores. From 2002, a large number of ongoing debates and comments
on the strength and weakness of this set of criterion have been stemmed.
In October 2009, to cope with the controversial problems of large-format
discount stores, the Royal Thai government, specifically the Bureau of Business
Competition, Department of Internal Trade, Ministry of Commerce, submitted the
final draft of the first Act of Parliament of w holesale and retail trade to the cabinet of
Thailand. After a massive collaboration of government agencies for more than eight
years that resulted in drafting and editing the set of standards, the complete set of
guidelines has been considered by the Parliament. The purpose of these criteria is to
be references for local government agencies to issue their municipal laws controlling

hypermarket development. These standards work as guidelines helping district and
local governments make their decisions on issuing regulations and codes that control
the occurrence of large-format discount stores in desirable locations. In January 2010,
the cabinet drafted resolution to approve the principal concepts behind the Act and to
assign the Ministry of Commerce, specifically to the Department of Internal Trade, to
amend this Act in detail and submit the revision to the cabinet for approval (the
Secretariat of the cabinet, 2010).
Regarding the context of the Act of Parliament of wholesale and retail trade,
the purposes of this Acts are to create equivalence of opportunities to the new and
former retailers of all types, to maximize consumers welfare, and to encourage
appropriate urban land uses. This act will serve local governments as guidelines for
annexing municipal laws. These standards are flexible and adjustable to be best
suitable for the different characteristics of each municipality. The guidelines of this
Act could be classified, based on the locations hypermarkets establishments, into two
categories -municipal jurisdiction locations and rural locations. Each of the two
categories is approached in two aspects -the standard for site and the standard for
construction. Prior to the description of the criterion, the Act gives the definition of
large-scale retailers structure. The building structure is defined as single or multiple
buildings or structures including row houses whose spaces are utilized for the purpose
of wholesale or retail activities (Bureau of Business Competition, 2009, pp.1-3).

Considering the municipal district location, the proposed proper size of
retailers should be between 300 and 1,000 sq m. (3,230-10,764 sq ft.). First, the
standards of sites can be divided into three subcategories: land use, transportation,
and public facilities. The residential zones are deemed as apt locations for retail and
wholesale activities, while retailers are not allowed to construct their outlets in
premium agriculture land and preserved wet land. In terms of transportation aspects,
the locations along the arteries, but not at the highway sides, are appropriate for retail
business. These arteries must have at least 4 traffic lanes or at least 20 meters (65
feet) in width. Retail outlets sites must be at least 100 meters (328 feet) away from
an intersection. Retail business sites must have access to standard public facilities
(water, sewer, electricity, cable lines, and sanitizing system). Second, the standard of
buildings and structure has seven significant aspects: 1) the Floor Area Ratio (FAR)
should not exceed 1.5; 2) the Building Coverage Ratio should be within 0.3; 3)
twenty percent of the site should be well landscaped; 4) the front set back is at least
50 meters (164 feet) or 30 meters (98 feet) for less than 10 meters (33 feet) building
height; 5) other sides set back is 15 meters (49 feet); 6) when the historical, religion,
and very important government buildings are present, the retail outlets should be at
least 500 meter (1,640 feet) away; and 7) with the presences of specific buildings
listed in 6), hypermarkets structures should not exceed 10-meter height (32 feet).
Third, the suggested provision of parking space ratio is one parking spot per 20 sq. m.
(215 sq. ft.) of building space (Bureau of Business Competition, 2009, pp.3-4).

Analyzing the municipal jurisdiction standard, the intent of this set of criterion is to
prevent new large-format discount store outlets in this area since the maximum size
of outlets is limited at 1,000 sq. m. or 10,764 sq. ft.
Regarding rural locations, the size of retail and wholesale establishments
qualified to comply with these measures is from 1,000 sq. m. (10,764 sq. ft.), which
has a net annual income from 1,000 million baths (30.9 million USD). The two
aspects -the site standard and the construction standard -are also applied. Focusing
on the criterion of site, the proposed new retailing structures will be allowed when
they locate outside municipal districts with a distance of at least 15 kilometers (9.3
miles) along the major arteries away from the municipal jurisdictions. The site must
not be premium agricultural land or wetland. Only on the side of national highways
with at least 40 meters (131 feet) in width and 500 meters (1,640 feet) away from
intersection or highway exits is retailing outlet permitted. The requirements of the
public facilities are the same as those of the sites in municipal districts. In terms of
standards of building and construction, the maximum Building Coverage Ratio is 0.2,
while the maximum FAR is 1.5. Whilst holding the landscape area requirement at the
same percentage (20 percent) as the municipal district sites, the front set back is set at
least 75 meters (246 feet) and 50 meters (164 feet) for a height lower 10-meters. The
other side set backs are suggested to have at least 20 meters (215 feet). The parking
provision is set at 1 spot per 40 sq. m. of building space. The standard requirements
of municipal jurisdiction are applied when important government buildings historical

and religion structures are present (Bureau of Business Competition, 2009, pp.4-6).
Additionally, this drafted Act also encourages participatory processes from
stakeholders and local residents. It is obvious that the assigned locations of large-
format discount stores are in the rural -unusable agricultural area -with a certain
distance outside municipal jurisdictions. In these areas, there is no maximum
limitation for the size of retail outlets if the site itself already has approval based on
other criterion. These could be considered as government efforts to prevent any
further changes in urban areas influenced by the occurrence of additional
According to comments from the conference (public participation) of the
drafted Act of Parliament of wholesale and retail trade held by the Bureau of Business
Competition on September 19th 2009 and the stakeholders feedback collected by the
Secretariat of the Cabinet, a number of valuable suggestions have been taken into
account (Bureau of Business Competition, 2009; The Secretariat of the Cabinet,
2010). An outstanding comment on the conceptual practice of the Act and four
detailed suggestions on the standards of measure set by the central government were
made. The comment regarding to concept of the Act was that the two committees in
charge of this Act should be appointed to have two different levels of responsibilities.
One is at the central government level enacting standards and criteria, and the other is
at the local level adopting and enforcing these standards and criteria. Regarding the
four suggestions, the first point was made on the vagueness of assigned minimum

areas of establishment (1,000 sq. m.) that qualifies to follow the Act in municipal
jurisdictions. The minimum areas should only include selling areas, but exclude
storage, parking, and rental spaces. The second point was the specification of types of
wholesale and retail businesses that are controlled under the Act; the suggested four
types of business are large-format discount stores, Cash & Carry wholesalers,
supermarkets, and chain convenience stores with the total annual income exceeding
1,000 million Baht. The third comment was on the distances of establishments in
rural areas and hypermarkets operating time. Based on the four suggested types of
retailing business, supercenters hypermarkets and Cash & Carry wholesalers should
locate at least 5-10 kilometers from municipal jurisdictions. A 5-kilometer distance
was applied for supermarkets, whereas no minimum distance limitation for
convenience stores. The operating time was suggested to be not more than 12 hours a
day. The fourth recommendation was about laws and amendments. Whilst the penalty
of retailing businesses who failed to comply with the act was suggested to be both
sentences and fines, the provision of an environmental impact assessment report was
preferable (Bureau of Business Competition, 2009, pp.1-18).
In January 2010, the Secretariat of the Cabinet collected all comments and
proposed them to the consideration of the cabinet for the resolution. In this process,
two significant suggestions had been added. One was the law prohibiting the lost-
leading activities of supercenters -the campaign selling goods under manufacturing
prices with the purpose of eliminating smaller retailers -proposed by the Office of

Customer Protection Board. The other was the establishment of organizations
training local and traditional retailers in the basic knowledge of operating modem
retailing business and supporting funds and technologies. The sets of basic knowledge
are a logistic system and a communal organization for groups of local retailers to gain
bargain power negotiating with manufacturers and distributors (The Secretariat of the
Cabinet, 2010).
Concerning the application of large-format discount store laws internationally,
the dissertation has conducted a review of parallel studies. In the U.S., the very first
recognized law controlling retail business was the Sherman Act: Fair Trade Practices,
1890 (Sirataranont, 2006). Recently, from a study of a large number of cases, four
principal rules have been exercised under the law of big-box development with the
recognition that the development of superstores, in the absence of appropriate
regulatory guidelines, may have an irreversible negative impact upon the city
(School of Law and College of Environmental & Design, University of Georgia,
2007, p.22).
Beside the use of zoning ordinances, the first rule was the use of retail caps to
limit the size of supercenter establishments. The caps range from 30,000 to 120,000
sq, ft. from city to city. This has been the cases of Portland, Oregon; Peachtree City,
Georgia; Fayetteville, Georgia, etc. A weakness of a caps rule is that it could be
challenged by supercenter developers claiming that the rule created an imbalanced
competitive condition. Whilst, forbidding supercenter business to possess the lands,

caps rules have allowed other types of businesses to occupy the particular locations.
The other charge was that there was no obvious outcome from studies that the effects
of large-format discount stores were different from those impacts of the accumulation
of smaller retailers with the same amount of operating space in the same locations
(School of Law and College of Environmental & Design, University of Georgia,
2007, pp.5-13).
The second rule was the incentive of development on blight big-box sites. In
2003, the City of Roswell, Georgia, granted incentive to Home Depot in redeveloping
the left vacant lot of a former Wal-Mart site with the retail space exceeding the city
limit. The only concern of this incentive was that the new redevelopment project was
not the cause of having a new blight site when a supercenter left for the new location.
The third restriction was the restriction preventing supercenters from
relocating their outlets in the same market area. California issued a restriction
prohibiting local agencies from providing financial assistance to large-format retailers
relocating their outlets in the same market areas. The purpose was to prevent negative
consequences for the communities that the big-boxes left behind (School of Law and
College of Environmental & Design, University of Georgia, 2007, pp.20-21).
The last rule was the moratorium and design regulation. Fort Collins,
Colorado was a case where the city utilized this rule to temporarily cease new
supercenter developments. The city exercised a six-month halt to the prospected
supercenter to protect the potential sprawl caused by this new development. Six

months later, the city came up with new design regulations preventing the proposed
supercenter from locating in the city area.
Facing similar influences of large-format discount stores, different countries
have come up with dissimilar laws and practices. The two European founding
countries of hypermarkets -the United Kingdom and France -issued laws to protect
local retailers (Sirataranont, 2006). While the French law (Loy Gallend 1996) fined
large-scale retailers selling products lower than manufacturing prices with the amount
of 2.5 million franc, the UK Competition Act prohibited this unfair practice to small
local and traditional retailers. Japanese government had enacted laws: the monopoly
of large-scale retailer since 1947 (Antimonopoly Act). It was replaced by the Large-
Scale Retail Store Law in 1974, which is recently replaced by the Law of Local
Living Environment Protection in 2000 (Bureau of Business Competition, 2007). In
Malaysia, the Distribution Law prohibited hypermarket to run the small-size retailers
(Sirataranont, 2006).
Focusing on the urban land-use control and protection, regarding the Bureau
of Business Competitions record (2006) and Mutebis (2007) research, Denmark,
Malaysia, Spain, and Taiwan have deployed zoning ordinances. In Taiwans case,
hypermarkets must locate in commercial districts; otherwise the hypermarket must
obtain permission from public participation. While Denmark allows hypermarkets to
settle outlets only at commercial districts without historical preservation areas or
other existing hypermarket outlets, Spain left the decision for district governments.

The Malaysian government only allows hypermarkets to site at locations with least
3.5 kilometers (2.17 miles) away from city centers, and these center must have at
least a population of 350,000 (Bureau of Business Competition, 2006, p.3; Mutebi,
2007, p.371 ). In terms of hours of operation restrictions, Malaysia allows
hypermarkets to open from 10 a.m. to 10 p.m. during weekdays and 10 a.m. to 1 a.m.
on weekends. In European countries, hypermarkets are permitted to operate at
maximum 12 hours a day. Whereas an operation time from 6 a.m. on Monday to 5
p.m. on Saturday applies to Denmark, the maximum of 55 hours per week is allowed
in Netherlands. The weekly maximum of hypermarkets in Australia is 66 hours a
week (Bureau of Business Competition, 2006, p.6; Mutebi, 2007, p.372).
Taking laws and practices from various countries into account, this
dissertation has acknowledged a number of aspects contributing to the benefits of the
prospected act of parliament of wholesale and retail trade. The currently proposed Act
of Parliament of wholesale and retail trade 2010 is utilizing only three codes:
limitation of building caps, distance from municipality boundaries, and building
codes. Free Trade Law and local and traditional retailers supporting program exist as
additional recommendations. Three planning tools and restrictions from international
research could be beneficially added to the Thai act. These three suggested tools are:
the incentive of developing urban blight locations, the restriction of operation hours,
and the moratorium to temporarily halt supercenters development that give more time
for government to make circumspect decisions. With this new Thai Act and addition

suggested tools, the future of supercenters development in Thailand will be
controllable, predictable, and creating less negative impacts on hypermarkets
surrounding land uses.
Concerning the existing hypermarkets in urban areas in Thailand, the ongoing
impacts of existing large-format discount stores outlets requires intensive studies.
The findings and outcomes of this dissertation will be beneficial to creating precise
solutions to these ongoing issues. This dissertation namely The influences and
impacts of hypermarkets on urban commercial land value, and land-use allocation in
their trade areas in Thailands cities: the case studies of Chiang Rai, Lam Pang,
Nakhon Sawan and Kampheang Petch serves as one of initiative studies
significantly in needed in Thailand.

Researchers and scholars have been familiar with the urban commercial and
retail location selection discipline in the scholarly research arena for nearly a century.
In early decades of study, scholarly researchers had recognized commercial and retail
research as a second-tier discipline. It was not until the 1960s when scholars
acknowledged the studies of retail location selection as one of the vital factors
influencing urban land-use development (Berry & Parr, 1967, p.175; Brown, 1992,
p.l). In their book, Berry and Parr pointed to the significant functions and locations of
retailers with respect to urban land-use structure and noted that Retail and service
businesses are the end of the chain of production and distribution and the beginning
of the process of consumption (Berry & Parr, 1967, p.2). With the creditable pioneer
work of Brain J.L. Barry and John B. Parr, Ernest M. Fisher and Robert M. Fisher,
James Simmons, R.L. Haig, R.M. Hurd, William Alonso, William Applebaum,
Richard L. Nelson, and Richard U. Ratcliff, retail research received recognition from
a large number of scholars in other disciplinary fields as one of the most significant
body of studies influencing the movement, development, and alteration of urban land

For nearly a century, researchers have introduced and developed a number of
theories to study retail evolution, to understand the retail phenomena, and to project
the trend of retail progression. Three often-used fundamental land-use theories that
explain the nature and progress of retailing activities in urban areas are: the bid-price
(rent) theory, central place theory, and land use succession theory. While the bid-
price theory and central place theory can best interpret the evolution of location
selection of retailing activities in urban areas and the differences of land prices at
given distances from market centers, the land-use succession theory can suitably
explain the alteration of urban land use activities over periods of time.
In this regard, the focus of chapter 2 is the discussion and analysis of these
three theories in detail. The dissertation will analyze strengths and weaknesses of the
three theories as well as beneficial knowledge contributing to the principle objectives
of this dissertation. The research will start with a review of the bid-price theory: it
will cover from the establishment of the theory and its original purpose of explanation
to its application to urban land use contexts. This is followed by a review of the
central place theory in terms of the theorys approaches to location selection of urban
activities from dissimilar view points. Not only can the central place theory provide
concepts of selecting a specific location in an urban area for a particular activity, but
the theory also provides an appropriate citys shape and the association between
different cities sizes in response to cities dominant activities. Following the review
of the first two theories, the land use succession theory will be analyzed. The

dissertation will discuss the land use succession theory from its initial concepts and
description to its use in empirical studies. At the end, this chapter will provide a
discussion on other relevant theories that partly influence the selection of retail
locations and urban land-use alterations.
Alonsos Urban Land Use Market Theory (Bid-Price Theory): Retail Location
Selection and Land Value
According to the history and development of the bid-price theory, the
dissertation will divide the discussion of this theory into two parts: 1) the invention of
the concept (bid-rent theory) and its original application of the theory, and 2) the
adaptation of the theory to an urban economic discipline (bid-price theory). In the
first part, the bid-rent theory will be reviewed from the initiation of the idea in 1817.
The research will discuss the theory regarding the development of the theorys
original concept by a number of scholars. In the second part, the researchs main
focus will be on the adaptation and application of the original concept of the theory to
explain land-use activities in urban areas. Given that the dissertations principal
objective is to study the changes of urban commercial land uses influenced by
hypermarket business, this chapters second part will concentrate on two aspects.
These aspects are the theorys location selection strategies to explain the nature of
hypermarket stores locations, and the theorys interpretation of a hypermarket store
as a magnet site to other small retailers. The detailed reviews and discussion of these
two parts will be in the following paragraphs.

The Establishment of Bid-Rent Theory and Its Original Concepts
For almost two centuries, researchers have introduced and repeatedly used the
classic bid-rent theory to describe the relationship between land values and distances
from an area of core activities. In early years, the theory was initiated and applied to
agricultural lands. David Ricardo was the first scholar who discovered this
relationship. In 1817, he addressed in his book Principles of Political Economy and
Taxation that ...the most fertile lands are put to use first, with production extending
to less favorable land only as demand increase... (as cited in Alonso, 1968, p.3;
Barry, Conkling & Ray, 1976, p.124). He went on to affirm that with the competition
among farmers to occupy the most fertile land, land owners are guaranteed to receive
the highest rent from the most productive land. Less than a decade after Ricardos
statement, it was Johann H. von Thunen (1926) in his book Isolated State who
developed the theory of differential rent and widely introduced it to the academic
arena by the name of bid-rent theory (Alonso, 1968, p.3; Barry, Conkling & Ray,
1976, p.127; Richardson, 1978, pp.15-16).
The theory was the first economic model of spatial organization. Von
Thunens theorys first introduction was the single-crop model, when all farmers in
the market grow the same type of crop. The model simplified the towns conditions.
These pre-assumptive conditions are that a town is located on a flat and homogenous
plain with the same fertility. All landlords share the same goal of maximizing profits
from their lands by having perfect knowledge of the market, while farmers farm the

same crop with the same technique. In addition, prices of crops, production rates, and
costs of transportation per unit distance are held constant everywhere in the town
(Alonso, 1968, p.3; Barry, Conkling & Ray, 1976, p. 127; Richardson, 1978, p.16).
In the single crop model, von Thunen pointed out that the most significant
point of the bid-rent theory was that the value of land depends on its accessibility to
the center of activities. Farmers bid for land close to their market to avoid the high
cost of transportation as their income on the agricultural products diminish with the
decreasing accessibility of their land to a market place. In other words: the net income
is the total amount of sale of their products subtracted by the transportation cost of
delivering products to the market place. The other finding from the single-crop model
is the towns boundary. The edge of the town is the most remote radius distance from
the market center. Von Thunen inferred that in an ideal situation, the farthest land
bidden by a farmer yields just enough profits to cover the cost of transportation. Thus,
by knowing the total products income and transportation rates, the distance of the
land from the market center can be acquired (Alonso, 1968, pp.3-4; Barry, Conkling
& Ray, 1976, pi28).
Following the single-crop model, von Thunen further developed a
circumstance where multiple crops are grown in a town. The four commodities in the
multi-crop model are milk, potatoes, wheat, and wool. Given that market prices,
transportation costs, and investment costs vary from one good to another, this market
situation is more realistic than that of the single-crop model since it relaxes some of

von Thunens previous models restricted assumptions. Holding the principal concept
of the theory that the closest land to the market center is occupied by the highest
bidder who gains the best profit by being close to the market, the multi-crop model
provides a wider range of factors influencing farmers net profits. The net profits of
products are affected by differences of market prices per acre, production costs,
transportation rates per mile, rental costs, and products life cycles.
In this multi-crop case, farmers in milk production are the ones who pay the
highest bid and occupy the closest land to the market center because of the highest
profits per acre and the shortest product life (a daily product). Simultaneously, wool
fields located farthest away from the market center pay the lowest rent since wool
yields the lowest profits per acre (Barry, Conkling & Ray, 1976, p. 129). According to
the findings from the multi-crop model, von Thunen introduced his farming system as
comprised of six farming rings in a circle-shaped town boundary. The city
jurisdiction consisted of six different-sized rings surrounding a market center. Each
ring represents an area occupied by one crop in which the closest ring (also the
smallest one) to the center is occupied by the highest bid crop and vice versa for the
farthest one. This concept gave an idea of how a town was formed by different types
of agricultural activities, and a particularly-sized town should regard types of
agricultural products. A large number of fellow scholars have adopted and widely
referred this concept. The concept has later been called concentric land use zoning or

concentric model of land use (Barry, Conkling & Ray, 1976, pp.130, 136;
Richardson, 1978, p. 16).
As a simplified theory, von Thunen realized constraints of bid-rent theory in
terms of representing real states by addressing in his book Isolated State book that
there are three major factors making real countries differ from his Isolated State.
First, it is impossible to find lands with the same fertility and soil conditions. Second,
there is no town that has completely uniform geographical features. Third, certain-
sized cities always have small cities (satellite cities) in their boundary (Barry,
Conkling & Ray, 1976, p.130). Von Thunen further relaxed his town farming patterns
by adding three constraint factors. The result was the modified town model, and it
carried his concept of economic land rent. This model consisted of the three most
fundamental components forming his three city shapes. These three city shapes are: a
concentric-ring city described by concentric circle around centers defining points of
greatest accessibility, a sector or wedge city formed by development axes along major
transportation routes, and a multi-nuclei city created by satellite cities and/or
additional points of intersections (Barry, Conkling & Ray, 1976, p.133).
Although von Thunens bid-rent theory sounds realistic and applicable to
agricultural towns and rural areas, there was no evidence at that point of how suitably
the theory could apply to an urban setting land use. As a result, scholars in urban
land-use studies modified von Thunens bid-rent theory to be a bid-price theory.
However, fellow researchers have still critiqued the original theorys conclusions in

terms of representing real cities. One major constraint is that the theory perfectly
represents the system of agricultural towns, but it provides no real explanation for an
urban city and its hierarchy of urban economies. Four aspects support this critique: 1)
transportation costs of urban firms are partially subsidized by workers, not solely by
owners; 2) personal preferences of locations vary from person to person; 3) not all
firms prefer central city locations; and 4) the obsolescence and redevelopment of sites
can alter the demands of particular locations (Evans, 1985, p.67; Barry, Conkling &
Ray, 1976, pp. 134-135). Despite the downsides of the bid-rent theory, a large number
of scholars still referred to the theory as the original thoughts of land use premise to
be further developed to become more realistic concepts that can properly apply to
urban land use and economic in the real world.
The Adaptation of Bid-Price Theory to Urban Land Use and Economics
Nearly a decade after the first introduction of the original bid-rent concept as
seen in agriculture land uses, urban economists and city planners adopted the bid-rent
theory to explain land use activities in urban areas, which was the same time that city
planning had been emphasized and developed (Alonso, 1968, p.6). The first three
persons who significantly influenced the idea of applying the bid-rent concept to
urban land use context were Marshall (1890), R.M. Hurd (1903), and Haig (1926) (as
cited in Alonso, 1968, p.4-6; Barry, Conkling & Ray, 1976, p. 133). Marshall (1890)
was the pioneer among the first three, initiating this idea by stating that the
industrial demand is parallel to the agriculturaF (as cited in Alonso, 1968, p.4).

While Hurd (1903) stated that the value of land depends on the nearness (as cited
in Berry, Conkling, & Ray, 1976, p. 133), Haig (1926) further clarified Hurds idea
by addressing that transportation is a device to overcome the friction of space (as
cited in Alonso, 1968, p. 6). Haig (1926) went on to emphasize two principles: 1) the
importance of accessibility to centers of activities as reflected by transportation cost
as a vital determinant of land rent in urban areas; and 2) lands can be acquired by
bidding through the real estate market as its value at particular location is defined by
the highest bided price (Alonso, 1968, p. 133). Contributing to this theory, Ratcliff
(1949) came up with two categories of land-use bidding competition. These two
categories are a competition of dissimilar types of activities on the land providing
different economic advantages to them, and a competition of the same activity on the
same set of land (Ratcliff, 1949, p.375). As these three predecessors commented on
the plausible utilization of bid-rent theory to explain urban land-use patterns, there
was no in depth analysis or empirical study to support this idea.
It was until 1959 when Alonso (1968) elucidated the application of bid-rent
theory to urban contexts. He dubbed his applied bid-rent theory to urban land use
activities as bid-price theory, which will be used in the entire dissertation when
referring to the theorys urban land use applications. Alonso constructed his theory
under certain restrictions adapted from the ones by von Thunen, which are: a city
with one Center Business District (CBD), a flat and featureless plain, transportation
costs linearly related to distance to CBD, and each plot of land sold to the highest

bidder (Cadwallader, 1996, p.52). Utilizing bid-price theory, Alonso identified the
activities of urban firms in general, including retail and wholesale, office, financial,
and manufacturing firms. The study was constructed under the premises that the bid-
price theory determined the maximum distance from CBDs and that the lowest-rent
location that each retail businesses could bid within the threshold profit margin would
be just enough for them to stay in business (Cadwallder, 1996; Simmons, 1967). In
other words, the willingness to pay rent or purchase urban locations of firms varies
with distances from the CBD in order to gain the same benefits at a particular
distance from the CBD (Richardson, 1978, p.20) (Figure 2.1).
Figure 2.1: The Alonsos simplified chart of the bid-price theory of four urban land uses
Analyzing bid-rent theory, Alonso (1968) pointed out a crucial point that
makes the theory directly inapplicable to an urban land market. Alonso argued that
two of bid-rent theorys statements do not fully hold true in the case of retailing firms.
These two statements are that transportation costs entirely represent costs of friction,

and that firms seek locations to minimize these costs. In addition, the volume of sales
also depends largely on retail locations. Hence, when choosing locations, firms have
to weigh benefits between reducing costs of friction and increasing volume of sales
(Alonso, 1968, p.7).
Analyzing the pre-assumptions of the original theory and its application to
land use in urban markets, Alonso (1968) determined the theorys four vital factors
influencing land rent of urban sites and explained four unrealistic restrictions of von
Thunens classic model. On the one hand, regarding the four influential factors, the
first is distance from an urban core: the longer the distance from an urban core, the
less value per unit of land is. The second is accessibility of the site to potential
customers (specifically applied to retailers and wholesalers): the easier the access, the
more expensive the lands are. The third is a number of competitors and their
locations: being in proximity or distance from a competitor could yield both positive
and negative effects to land values (the details of this statement will be mentioned
later in this chapter). The fourth is the proximity of complementary land uses: land
prices are higher when closer to customers and/or sources of materials (Alonso, 1968,
On the other hand, Alonso mentions downsides that make von Thunens
model unrealistic. First, there is no featureless plain in the world. Second, the land
owners goal is to maximize price, not revenue. Thirdly, the model ignores different
amount of land each highest bidder would purchase. Lastly, consideration the

distance from a town center as the only factor of land price may not provide an
accurate interpretation and projection (Alonso, 1968, pp.94-95).
Developing the bid-price model to become more realistic, Alonso (1968)
relaxed some of bid-rent theorys restrictions. In his theory, Alonso (1968) addressed
that increasing profits by minimizing the costs of friction (mainly transportation
costs) will solely hold true only if revenues and all other costs generated by other
factors are held constant. With this statement, Alonso (1968) introduced four other
significant factors affecting urban land values. First, the growth of urban populations
can proportionately increase land value in a regressive ratio: the net increase of land
price in areas of settlement will be less than the new areas occupied by the new
population. Second, imperfect knowledge of landlords about the land market could
obstruct their lands to yield the maximum profits to them: the ability to understand
market trends and to choose the right development projects at the right timing affect
the price of land. Third, technical improvements of transportation systems can lessen
the importance of a city center but enhance performance of peripheries. Fourth,
government interventions can be impediments to reaching the maximum monetary
value of land: land-use zoning and building codes and ordinances could prevent the
highest-bidding activities from occupying the land. The result is that the second
highest bidder purchases the land with a lesser amount of money offered. Alonso
(1968) further cautioned fellow scholars when conducting empirical studies of his
bid-price theory: in regression models, the error terms could represent not only the

difference between observed land prices and regression land values but also the
models lurking valuables (Alonso, 1968, p. 130).
Following Alonsos introduction of the bid-price theory, a large number of
researchers have tried to scrutinize the applicability of the theory to real urban
situations. A large number of scholars have considered the theory and its model as the
only theory interpreting land supply in urban markets (Evans, 1985, p. 135).
Researchers have insisted the theorys principal concept is that it holds true that the
distance from the center of activities (accessibility) plays a significant role in
influencing values of lands. Researchers have also believed that the distance is not the
only factor affecting urban land prices; at the same time, the value of land is expected
to be highest at the center of the city and to fall at a declining rate with distance from
the center (Brown, 1992; Cadwallader, 1996; Evans, 1985; Hamilton, 1974; Mills &
Richardson, 1978; OFlaherty, 2005; Simmons, 1964).
Contributing to the theorys statements, Simmons (1964), from his empirical
study of Chicago in the 1950s, found that retailing activities gather around the CBD
(Simmons, 1964, p.14). Brown (1992) and Cadwallader (1996) expressed their
findings that associated urban land use patterns can be classified into three land use
types: industrial, residential, and retail. Among these three types, retail activity has
the steepest bid-rent curve since retail offers the highest bid and occupies the central
citys locations (Brown, 1992, p.53; Cadwallader, 1996, p.53). A recent study by O

Flaherty in 2005 in Manhattan, New York showed that the CBD is still important as a
center of employment and commerce (OFlaherty, 2005, p. 127).
Supporting Alonsos idea of relaxing the bid-rent models restriction as well
as Alonsos list of other factors affecting urban land values, fellow scholars have
added new factors in their recent research articles. Richardson (1978) proposed traffic
congestion as one of the important urban land-value determinants. He further
discussed that not all types of firms found CBDs as the most attractive location,
specifically manufacturing firms. These types of firms might prefer peripheral
locations rather than central ones. As a result, types of firms and their preferences can
impact the price of urban lands (Richardson, 1978, p.24). Cadwallader (1996) agreed
with Richardson and stated that the location preferences of the different types of
retailers based on goods and services they carry is a land-value determinant that
cannot be overlooked (Cadwallder, 1996, pp.55-57). Evans (1985), as one of one the
supporters of Alonsos theory, introduced additional factors causing urban lands not
to be utilized by the highest bidder. He pointed out the effects of speculation and
inertia of landlords who expect the higher price of land if it is sold at later time. The
social value of the site and the acquisition of several contiguous parcels of land could
also delay new developments that provide the optimal use and highest value of the
land (Evans, 1985, pp. 133-134). Lately, Cadwallader (1996) and OFlaherty (2005)
insisted that an omnipresence of poly-nuclear cities can distract some types of land-
use activities away from CBDs to locate at suburb centers, interstate highway

intersections, and airports (Cadwallder, 1996, pp.55-57; OFlaherty, 2005, p. 127). At
the end, a large number of scholars still agree that even though cities are unlikely to
have a single center, the CBD is still the most attractive location among them.
The Adaptation of Concentric Zoning Model to Urban Land Use and Economics
Regarding the other finding of von Thunens agricultural land-use theory,
researchers have also adopted and well developed the concentric zoning model in
urban land-use contexts. The original thought of applying this model to describe
urban land was from Ernest W. Burgess in 1923 (as cited in Fisher, 1949, p.310;
Barry, Conkling & Ray, 1976, p. 135). As the pioneer, Burgess (1923) introduced the
concentric zoning model: a circle-shaped city comprising five land-use zones
characterizing the citys internal structure. These five circle-shaped zones with
different radii share the same central point (CBD) and spread out evenly in all
directions. Respectively starting from a central city to its periphery, the first zone is
the Central Business District (CBD). It is the place where offices headquarters,
department stores, clubs, hotels, theaters and museums are located. The next zone is
the zone in transition. This zone contains warehouses, rooming-houses, and ghettos of
first settlement immigrants. The third zone is the zone of independent-workingmen
houses. It belongs to second-generation immigrants and consists of row houses and
detached houses. The quality of houses in this zone is much better than those in the
transition zone. The fourth zone is called the zone of better residences. People who
live in this zone are in a middle-class group -white collar workers. Single houses and

apartments with well-maintained landscapes and amenities dominate this zone. The
last and most remote zone is the commuters zone (dormitory suburban). It represents
areas where heads of household travel to work at offices inside the CBD, while their
spouses take care of house and children. Burgess (1923) and his fellows also called
this zone a homeless-mens region (Fisher, 1949, p.310; Barry, Conkling & Ray,
1976, p. 136). Regarding these five zones, scholars found the accumulation of
retailing businesses in the CBD zone at where their high density of prospective
customers was (Fisher, 1949, p.310).
Following Burgess application, Homer Hoyt (1939) introduced his axial
model providing dissimilar shapes of a city. By taking into account the influence of
major transportation lines, Hoyt (1939) proposed that a directional or sectoral
component of urban land is more realistic than a concentric zone. According to his
concept, Hoyt believed that land uses expand from the central city area to its
periphery in a wedge-like shape (as cited in Fisher, 1949, p.71). For instance, instead
of spreading evenly in the same zone around the CBD, high-rent residential areas
(high-income residences) gather in urban peripheries in U.S. urban cities in a sector-
like shape. These high-rent residential areas occupied one third of the peripheral zone.
In addition, Hoyt (1923) insisted that the high-quality houses gathered in proximity to
the retailers and office districts (as cited in Barry, Conkling & Ray, 1976, p. 137).
Consequently, with a concern that urban cities in the real world have multiple
centers rather than a single center (CBD), Harris and Ullman (1943) developed the

concept of multi-nuclei cities. This models pattern of land use is a combination of
the concentric zone introduced by Burgess (1923) and the sectoral-shape model
developed by Hoyt (1939). Harris and Ullman proposed five potential types of district
nuclei, which are CBDs, wholesaling and light manufacturing, heavy industrial,
specialized district, and suburban and dormitory satellite, respectively starting from
the CBD ( Barry, Conkling & Ray, 1976, p.139). Berry (1963) supported this concept
of urban land use by affirming that the shape of cities comprises a combination of
concentric and multi-nuclei land use patterns (as cited in Barry, Conkling & Ray,
1976, p.140).
Coincident with this concept, Ratcliff (1949), who early addressed in his book
that besides the basic retailing conformation at the CBDs, noted that the other two
noticeable patterns of retailing settlements outside the CBDs are: string-street
development and the other form of nucleation. The string-street development or strip
development is an outlying retail structure located on the side of arteries, stretching
out along the length, and spreading out along street intersections. Ratcliff (1949)
stated that a new nucleation typically located at the junction of two strip
developments (pp.388-389). Ratcliff (1949) went on to subdivide these two types of
outlying centers. The nucleation development was divided into two terms: the
nucleation and the isolated store cluster (low-order nucleation). At the same time, the
string-street development was also classified into two groups: principle business
thoroughfares and neighborhood business streets (lower-grade strip development)

(pp.389-390). Ratcliff s classification of outlying centers was followed by Nelsons
five taxonomies of outlying locations. These five taxonomies were major outlying
shopping districts, neighborhood shopping districts, large outlying shopping centers,
small convenience centers, and isolated (stand alone) locations, which are orderly
arranged from largest to smallest settlements (Nelson, 1959, p.95).
Contributing to Harris and Ullmans (1943) model, Berry and Parr (1967)
conducted an empirical study. Referring to their 1960 study of Chicagos land-use
patterns, they demonstrated the typologies and structures of businesses as being in
four patterns. The first pattern is a hierarchy of business center -a cluster in the CBDs
consisting of grocery stores, drug stores, barber shops, department stores, and a
variety of clothing stores. The second type is a highway-oriented ribbon serving
demands of customers from highway travels. The third group is urban arteries
commercial development (nucleation outside the CBDs). Their last category is a
specialized functional area such as car dealers and special services located at
locations most accessible to their patrons (Berry & Parr, 1967, p.37). Because of its
applicability and its close explanation to existing conditions of urban cities, the
concentric zone model has become one of the principle models often referred to by
scholars in explaining urban shape and land-use hierarchy of urban settlements.
Central Place Theory: Retail Location Selection
Central place theory has a close relationship with the bid-rent theory in terms
of explaining how retail and other urban activities select their locations. The central

place theory articulates the evolution of urban settlement in different perspectives. As
the only theory of the urban hierarchy that explains both size distribution and spatial
distribution of cities, a large number of scholars in both urban economic and urban
land use planning disciplines have studied the central place theory (Evans, 1985,
p.79). This theory introduced the hierarchical system of spatial settlements:
Metropolitan-city-town-village-hamlet, respectively from largest to smallest in size
(Berry & Parr, 1967, p.20). A large number of scholarly researchers have considered
the theory helpful when explaining patterns of retail location, patterns of business
centers, and relationships among cities of different sizes in regional boundaries (Berry
& Parr, 1967, p.49; Cadwallader, 1996, pp. 104-105; Evans, 1985, p.66; Mills &
Hamilton 1974, p.10; Richardson, 1978, p.77; Simmons, 1964, p.2, 24).
The Establishment of Central Place Theory and Its Original Concepts
Early developed by Christaller (1933) and Losch (1945), the central-place
theory was effective under five pre-assumption milieus. The first two restrictions are
similar to those of bid-price theory, which are uniform densities over a homogenous
plain and the same cost per mile travelling over this plain. Other restrictions are that
people are knowledgeable and shop at the closest establishment; the theory also
eliminated spatial differences in raw material and in population distribution. The last
and most significant restriction is the pre-assumption about threshold and range. The
thresholds and ranges of all types of businesses are indifferent (Berry & Parr, 1967,
p.50; Cadwallader, 1996, pp. 108-109; Simmons, 1964, p.24). Berry and Parr (1967)

gave clear definitions about threshold and range of a retail business aspect in their
book Market Center and Retail Location. These two terminologies (threshold and
range) represented the area of business patronage. While Barry and Parr (1967)
described the threshold as the minimum areas of buying power required by retails to
stay in business, they explained the range of goods as the scope of service of one
retailing business further from its location to the point where none of its customers
exist (Berry & Parr, 1967, p.59; Brown, 1992, p.40; Richardson, 1978, pp.77-78;
Simmons, 1964, p.24). Contributing to these two terms, Cadwallader (1996)
introduced the term nesting principle; he described it as a situation in a CBD where
there are a series of market areas of different sizes from regional to neighborhood
scales associating with each other to form the CBD market area (Cadwallader, 1996,
p. 108). Preceding researchers employed a micro economic theory of profit
maximization to explain the process of acquiring absolute shapes and patterns of
relationships among various size cities. A large number of scholars have known the
concept of profit maximization by the famous example of Hotellings (1929) two ice
cream vendors. Christeller (1933) developed this spatial competition concept to have
hexagonal and rectangular patterns of market areas (as cited in Mills & Hamillton,
1974, pp.15-17).
Christellars hexagonal market area explained that one-order larger spatial
settlement comprised numbers of one-order smaller settlements represented by Ks.
His three numbers of Ks of market patterns were 3, 4 and 7 based on the market

principle, structure of transportation, and administrative principle dominations,
respectively (as cited in Berry & Parr, 1967, p.57). Consequently, Hoover introduced
his squared-shaped market areas, and his numbers of Ks were 2, 4, and 9, respectively
in the same order of domination (as cited in Berry & Parr, 1967, p.65; Richardson,
1978, p.78). Applying Christellars hexagonal model of hierarchical market areas to
explain retailing aspects, Cadwallader (1996) elaborately interpreted the original
concept in three different ways. First, in terms of numbers of shopping centers, the
frequency of the occurrence of different levels of centers is 1-2-6, ordered from
largest to smallest. One regional shopping center has two community shopping
centers in its market area (six community shopping centers that are shared by three
regional centers), and a community center has six neighborhood shopping centers in
its market area. Second, based on the size of trade areas, the ratio from large to small
is 1-3-9. A trade area of a regional shopping center comprises three trade areas of
community shopping centers, while one of a community shopping center consists of
nine trade areas of neighborhood shopping centers combined. Third, considering the
concept in the form of satellite cities, each shopping center is surrounded by a ring of
six shopping centers of the next lower hierarchical order. Six neighborhood shopping
centers confine a community shopping center, whereas six community shopping
centers surround a regional shopping center (Cadwallader, 1996, pp. 10-11).

The Development and Application of Central Place Theory in Empirical Studies
Regarding the theoretical pre-assumptions and its model, there were critiques
in terms of its practicability in explaining real world situations. Since the theory
assumed a homogeneous plain over which resources are uniformly and evenly
distributed, scholars questioned the model and asserted that it might be unrealistic.
Robinson (1978) stated that whether the model can apply its statics to the dynamics of
urban growth is skeptical (pp.78-79). To make the theory become more dynamic and
applicable to real urban settlements, four restricted assumptions have been simplified.
Firstly, cities have different populations and density levels. Secondly, cities have
various types of transportation modes rather than an identical transportation surface.
Thirdly, customers no longer make their trips based on minimizing distance, but
based on their different preferences. Finally, thresholds and ranges of activities at the
same city levels are no long coincident, which allows overlapping and loophole areas
to occur. The results of relaxation of restrictions are that the trade areas vary in size
depending on different population sizes and average incomes. Trade areas vary in
shape due to different levels of accessibility. An overlap of a trade area is caused by
dissimilarity of customers preferences. And opening and closing out of shopping
centers in the market is because of unevenly distributed profits (Cadwallader, 1996,
To follow up on how effective the simplified model is after relaxing restrictive
assumptions, researchers have done a large number of empirical studies. After

creating the theory, Christaller (1933) conducted an empirical study. This first study
in this field has proved that the theory can closely represent the actual settlement of
the system of cities in southern Germany (as cited in Evans, 1985, p.68). Berry (1963)
conducted a study of shopping centers in Chicago. The results were coincident to the
principles of the theory. Berry (1963) found a four-tier hierarchy. He introduced his
findings that a larger center contained more ground space and a variety of business
types, but a lower-ranked center outnumbered a higher one, although there were
fewer numbers of neighborhood centers compared with the suggestion of theorys
ratio (cited in Cadwallader, 1996, p.l 12). Consequently, Berry and Parr (1967)
conducted the studies in Iowa and Chicago metropolitan area in the 1960s. They
indicated the tendency of customer preferences toward larger centers by overlooking
smaller ones. This resulted in the growth and accumulation of larger orders of
settlements in size, such as city and metropolitan centers, with the trade-off of a
decreasing number of smaller settlements, such as villages and hamlets. Specifically
the severely shrinking centers were those that had great distances from principal
transportation routes (Berry & Parr, 1967, pp.4, 88). Morrill (1987) has confirmed the
similar outcomes from his study of the Seattle metropolitan area (as cited in
Cadwallader, 1998, p.l 12).
As a result, the outcomes of empirical studies conducted by fellow scholarly
researchers have shown that there was not sufficient evidence to overthrow the
central-place theory. The theory still holds true by closely representing the patterns of

actual urban settlements. It could be inferred that the central place theory has still
been the rational model that explains the spatial and size distribution of cities within
regions (Brown, 1992, p.51; Richardson, 1978, p.78).
Land-Use Succession Theories: Retail Land-Use Change
The land-use succession theory is appropriate to describe the alterations of
urban land value influenced by the appearance of large-format discount stores and the
shift of urban land-use patterns. The land-use succession theory will explain the
impacts of supercenters and changes on land use activities in terms of the urban
growth life cycle and its appropriate period and types of businesses. This will be
discussed in the following paragraphs.
The Establishment of Land-Use Succession and Its Original Concepts
Considering the impacts on land value by the approach of the bid-rent theory,
a large number of scholars unanimously agreed that there were changes in the value
of lands in areas neighboring a large-format discount stores location. Nelson (1959)
addressed in his book that the land value or the rent of land in proximity to big retail
establishments increased tremendously. Locations surrounding the huge business
generators (big department stores and supermarkets at that time) with convenient
accessibility were attractive to smaller-sized suscipient stores. These small shops
gathered around a business generator with the purpose of gaining profitable
advantages from being close to a big retail outlet. The willingness of these small
stores to bid for higher prices of locations adjacent to large-format stores resulted in

increasing land values. With these expensive land prices, Simmons (1964) believed
that only commercial activities could afford these locations (Simmons, 1964, p.l 18).
Contributing to the bid-rent theory, Hanink and Cromley (1998) presented their
concept of second-best land allocation. The concept described the situation of lands
under certain land-use restrictions that prohibited the highest bid activities from
occupying these lands. The result was the second-best retail activities taking over
these lands. These lands might optimally be used if the profit margins expected by the
best uses were compromised by the profits of the second-best uses.
Considering the land-use succession as an explanatory theory of urban land-
use alteration, a great number of scholars have supported this premise. The principal
supporters of this theory are Andrews, Bell, Bourne, Brown, Brueckner, Cromley, E.
M. Fisher, R. M. Fisher, Hanink, Lee, Ratcliff, Schmidt, Simmons, and Wilder. In the
study of city growth, an occurrence of land-use succession has been a common
phenomenon, which indicated a significant sign of new development (Fisher, 1949,
pp.337-338). Ratcliff (1949) provided a concept of succession as the process of
adjustment in a city to the most efficient land use through the competition of uses for
various locations (Ratcliff, 1949, p.369). He further maintained the four
circumstances fostering the occurrence of succession. The first is when the return of a
site after removal of an original structure and its replacement of new use is greater
than the entire property. The second is when the value of cleared land exceeds the
remaining value of the original property. The third is when the net revenue the

original use produces falls below the site rent that could be produced under new uses.
The last condition is when the net revenue of an existing project has declined below
the site rent that could be produced by alternative uses (Ratcliff, 1949, pp.403-405).
Sharing a similar idea, Fisher and Fisher (1949) interpreted the succession concept as
new establishments crowded in upon old ones: ...other establishments go out of
business or break up. They may either replace smaller structures or occupy sites
which were formerly vacant... (Fisher & Fisher, 1949, p.337). They went on to
maintain that the result of the succession was a more intensified average land use of
urban areas (Fisher & Fisher, 1949, p.350).
Regarding the patterns and process of land-use succession, Fisher and Fisher
(1949) and Ratcliff (1949) were among the first to study the process of succession.
Ratcliff (1949) roughly mentioned process of land-use succession as three levels of
urban internal shifts. These three levels consisted of the alteration of existing
structures for new uses, the demolition and replacement of existing buildings, and the
replacement of activities in the same structures (Ratcliff, 1949, pp.398-399). Fisher
and Fisher (1949) in the same year provided a more elaborate description of the level
of land-use succession. Their three theoretical stages of succession process were:
first, changes in size of the spatial unit without and change in the major type of use;
second, changes in types of use without demolition or modification of the structure;
third, changes with result from demolition and rebuilding new structures (Fisher &
Fisher, 1949, pp.338-339). Andrews (1971) has confirmed the creditability of the

three levels of succession. He further indicated the two additional succession
activities that did not fall into one of the previous three classifications. These two
were 1) the shift of vacant land possession or the developments on the previous
vacant lands, which is called land-use conversion by Wilder (1985), and 2) the
situation that replaced a structure was identical to the previous one in both land-use
activities and physical structures (Andrews, 1971, p.96).
Contributing to their predecessors premises, Andrews (1971) and Simmons
(1964) affirmed land-use succession as a necessary process in the life cycle of the
growth of cities. Simmons (1964) named this cycle as a ring of mature and decline:
growth-maximization-truncation-decay; Andrews called the succession process the
life cycle of land-use succession: development-decline-succession or birth-growth-
maturity-decline (Andrews, 1971, p.101; Simmons, 1964, pp.144, 149). It was
Andrews (1971) who conveyed a clear explanation of this cycle (Andrew, 1971,
pp. 101-135). According to Andrews life cycle approach, the pre-assumptive
conditions were that the subject city has normal economic and population growth, the
social structure is generally upwardly mobile, the city spreads on flat plain, and no
drastic change has occurred. His completion of the land-use succession cycle
comprised four phases: growth phase, maturity phase, decline phase, and new growth
phase sequentially. He clarified his concept of land use development, decline, and
succession cycle as a graph in the chart (Figure 2.2) (Andrew, 1971, p.100)

Figure 2.2: The Andrews urban land use development decline and
succession cycle
The growth phase can be initiated by two circumstances. In low density areas,
growth will start from raw lands, while in built-up areas, the growth will succeed
previous uses of old structures (Andrews, 1971, pp. 102-103). The land value in this
period tended to rise. The obvious indicators of this period were low vacancy rates,
young dwellers or new families with increasing incomes, and high rates of investment
return. Following the growth phase, the maturity phase was considered as a period of
stability of urban land use. The growth rate was close to zero, and the new
developments have reached the market capacity. The noticeable signs were mature
families (parents with children), maximum structure density, well maintained urban
structures and excellent public facilities, and strict land-use controls (Andrews, 1971,
Sequentially, the city has reached the decline phase. Andrews (1971) asserted
that the decline phase was desirable as it led to land-use succession and eventually to
urban change. Indicators of this phase were: a negative investment return, low

property turnover rates, high vacancy, and decreases in structure density. Andrew
(1971) also called this phase a critical turning point in the land-use succession life
cycle. The different actions of land-use development could determine the success or
failure of a succession life cycle. With intensive analysis, this phase could be broken
down into two intervals: zone of uncertainty interval, and late decline phase. Andrew
(1971) explained the zone of uncertainty as the period of hesitation of developers and
land owners. Without clear directions of future development trends, developers and
land owners movements split into two groups. One group tended to fall in a wait-
and-see category, while the other group acted as a pioneer, an experimenter. There
was no guarantee whether certain types of development or land-use activities will be
successful (Andrews, 1971, pp. 123-124).
The late decline phase was an undesirable consequence shown as a dotted
line in Figure 1.2. It resulted from the poor decisions made during the uncertainty
interval. This dotted line represented omnipresent deteriorated structures and blight
areas. Consequently, unwanted commercial succession took place, engendering
unwanted structures such as liquor stores, taverns, and hock houses. This adverse
incidence had not brought up urban renewal and property values. This late decline
phase could happen under the two conditions. One was a large number of failures by
pioneering projects. The other was an excessive amount of wait-and-see investors,
which could later be called bubbles by OFlaherty (2005). The bubble situation
happened when investors and/or speculators bought properties just in hope of

reselling them to other people at a higher price without developing those lands
(Andrews, 1971, pp. 129-131; OFlaherty, 2005, pp. 118-119).
The new growth phase, the desirable phase, would only have occurred if the
sound land-use activities and developments had been made during the decline phase.
A few successful developments that enjoy an increase in their rate of appearance and
returns paved the way for other investors. This phase brought about a rapid increase
of urban land value. This occurrence completed the life cycle of land-use succession
(Andrew, 1971, pp. 132-133). Later on, Brown (1992) in his book referred to the land-
use succession life cycle as the perpetually existing spatial patterns of retail activities
The Development and Adaptation of Land-Use Succession Theory in
Empirical Studies
The land-use succession theory and its life cycle have been widely accepted
and referred to by a number of fellow scholars (Bourne, Brown, Brueckner, Lee,
Schmidt, Wilder, and so forth). Researchers have conducted empirical studies based
on the theorys principles. Bourne (1969) was one of the very first researchers to
apply the land-use succession theory to his study of the city of Torontos land uses in
1952 and 1962 in order to project the citys land uses in 1972 and 1982. He then
employed a regression model and transition probability matrices to explain the
change and to forecast a future land-use trend (Bourne, 1969, 1971, 1976). Referring
to Ratcliffs three levels of succession and Andrews life cycle of land-use

succession, Lee (1974) further developed probability transition matrices in connection
with the theory of the Markov chain to conduct three studies. The purpose of these
studies was to test the validity of the land-use succession process. The foci of these
three studies were on the allocation of commercial businesses in the Denver
metropolitan area (Lee, 1974; and Schmidt & Lee, 1978). He pointed out in his
research that the only weak point of a land-use succession study was to address the
lack of chronological databases in the areas of study.
Subsequently, Brueckner (1975, 1978) conducted two empirical studies based
on the land-use succession theory to measure residential land-use changes. His focus
was on urban land-use patterns created by the takeover of high-income and low-
income groups in a particular area. Brueckner (1975, 1978) successfully came up with
the life cycle of residential succession where low-income people tended to occupy
high-income areas farther away from the city, while high-income households tended
to leap back to the central city area (Brueckner, 1975, 1978). Margaret G. Wilder
(1985) concentrated her land-use succession research in the relationship between
distance from the CBD and land-use changes. Wilder (1985) introduced the definition
of the two distinct land-use successions activities. First, the succession meant
changes in already built-up lands. Second, conversion meant new developments from
vacant lands. She exhibited her two findings that the distance from CBD had an
inverse relationship with the occurrence of succession, but it had direct relationship
with the incidents of conversion.

Recently, Dean M. Hanink et al. (2002) took the land-use succession into
consideration with the contribution of the GIS program. The GIS program allowed
them to construct land-use change research by using a raster technique. While a
number of scholars supported the theory of land-use succession, Clapp (1977)
indicated a potential weakness of the theory. Clapp (1977) criticized the process of
the land-use succession life cycle. He stated that with wrong decisions made by
investors, the succession might happen before the buildings or land uses had reached
their mature stages. This premature succession could result in the devaluation of
properties by the replacements of new uses on the current uses (Clapp, 1977, pp.74-
Nowadays, scholars have continually deployed the land-use succession
theory. While a few recent researchers have focused on commercial land use
allocation, a large majority of researchers have utilized this theory to conduct studies
in regarding changes in ecological systems, forestation, agriculture, and rural-to-
urban areas. For instance, two studies in China integrated new technology (GIS) with
traditional models to analyze the urbanization of land uses (Verburg et al., 1999;
Weng, 2002). The weak points of these two research articles were the inconsistency
and unavailability of databases. Some other ecological studies concentrated on agro-
ecological land-use succession; such as Emilio F. Moran et al.s (2000) study in the
Amazonia basin, Woldeamlak and Stroosijders (2003) study in the Blue Nile Basin,
and Charawis study (2006) in the central Sudan. The common aspect among these

studies was that they focused on the macro scale (national or regional levels) with an
exemption of Qihao Wengs research that utilized the Markov chain technique to
study succession at a smaller scale in southeastern China (Weng, 2002).
According to Andrewss (1971) statement, land use succession theory is one
of the lost thinly developed areas within the field of urban land economics (p.95),
Lees (1974) claim is similar: A much neglected area of inquiry in geography is the
analysis of spatial processes (p.95). These statements still hold true. A small number
of studies employed the land-use succession theory to scrutinize the effects on urban
physical forms and land use activities. The great benefit of land-use succession theory
is that it helps predict not only approximate timing but also the nature of the change.
All aforementioned concepts and approaches of the land use succession theory
will be great beneficial to this dissertation The dissertation will use land use
successions concepts to clarify the precise physical land-use impacts of large-format
discount stores in their service areas, the apt commercial land-uses and business
activities co-existing with large-scale retailers, and the trend of land values in
proximity to hypermarket stores.
Other Supporting Theories: Retail Location Selection and Land-Use Change
Beside the three principal theories (bid-rent theory, central place theory, and
land use succession theory) that provide the best explanations of retail location
selection and retail land use alteration, there are other outstanding theories and
concepts of commercial land use activities. These concepts and theories are the

convenient goods and comparison goods concept, principle of cumulative attraction,
interception strategies, concept of suscipient stores and self-generator stores, principle
of compatibility, and agglomeration economies and economies of scale. This part of
Chapter 2 will briefly discuss each main idea of all outstanding premises and how
they can help explain location selection and land-use change.
Concept of Convenient Goods and Comparison Goods
Regarding goods and services, merchandise could be categorized into two
groups: convenience goods and comparison goods. While comparison goods or high-
order products (such as jewelry, watches, cars, and so forth) are expensive and bought
less frequently, convenience goods or low-order products are low-price and
frequently bought goods (such as grocery goods, gasoline, daily products, and so
forth). These two groups of merchandise require different patterns of urban settings.
The consumers of comparison goods prefer comparing and contrasting the qualities,
styles, and designs of products before making their purchasing decisions. They spend
a longer time shopping but have less frequent trips. The consumers of convenience
goods spend less time shopping for these goods and tend to shop at the establishment
closest to their locations (work places and residences) with high frequency. While
comparison goods desire locations adjacent to similar types of establishments with a
distance from CBD, convenience goods prefer locations within CBDs or residential
communities without competitors (Ghosh & McLafferty, 1987, p.51; Nelson, 1959,

The Principle of Cumulative Attraction
The principle of cumulative attraction is the most suitable to explain the
incidence of comparison goods clustering together. The gathering of high-order
establishments helps them become more attractive to their potential customers who
are usually willing to travel for a long distance for a wider range of merchandise. The
merchants who carry comparison goods in the clustered settlement will also have
larger service areas than those in stand-alone locations (Berry & Parr, 1967, p. 184;
Brown, 1992, p.71; Ghosh & McLafferty, 1987, p.51; Nelson, 1959, pp.58-61;
Ratcliff, 1949, p.377; Simmons, 1964, pp.29-30). With these results, the clusters
could settle at locations at a great distance from the CBDs. The intersection of arteries
with a high volume of population and substantial amount of traffic flows are their
preferred locations (Nelson, 1959, p.58; Simmons, 1964, p.31).
The Interception Strategy
The interception strategy is appropriate to explain the pattern of convenience
goods. Stores purveying convenience goods by their nature could only capture a
considerably small market area. These stores cannot induce consumers to make their
single long-distance trips to purchase the stores products. Since the convenience
goods establishments have considerably small catchment areas, they ought to site at
the intercepting positions. The interception position means being adjacent to the trip
generators establishments such as the CBDs, the clusters of comparison outlets, and
groupings of office buildings (Nelson, 1959, p.58; Ratcliff, 1949, p.382; Simmons,

1964, pp.30-31). Ratcliff (1949) also referred to this type of establishments as
parasitical outlets: drawing consumers from the traffic stream composed of
individuals who may have primary missions on other stores (p.382).
A Concept of Self-Generator Stores and Suscipient Stores
Nelson (1959) introduced the retailing business concept of self-generator
stores and suscipient stores. Ghosh and McLafferty (1987) further elaborated this
concept. The concept is about the benefits suscipient stores will obtain when making
the decision to locate in proximate distance to self-generator stores. In other words,
this concept asserted that with the greater drawing power of the large stores, there is a
high potential that these customers may exercise their extra monetary expense on
surrounding small retailers (Nelson, 1959, pp. 104-105).
The self-generator store represents a large store in size that provides a wide
range of products from convenience goods to comparison goods. The self-generator
store can draw customers to its site. The suscipient store means a small-local store
selling a limited range of products with a small amount of goods. Since the store
cannot draw business, it generates profits by catching business from the flow of
customers. Ghosh and McLafferty (1987) described the benefits of small retailers
located close to the generators as the concept of spill-over trade (p.51). The self-
generator stores represent large-format discount stores, hypermarkets, or
supercenters, while the suscipient stores could stand for the small retailers and local
grocery stores.

The Principle of Compatibility
Introduced by Nelson (1959), the principle of compatibility describes the
benefits of increasing number of customers between two stores located in close
proximity. These two stores usually do not provide the exact range of products with
respect to one another, but their products or services are relevant to each other. For
instance, construction firms and home and decoration stores locate side-by-side
(Nelson, 1959, pp.63-63; Simmons, 1964, p.25). Additionally, Ghosh and McLafferty
(1987) addressed an interesting point that for merchants to gain competitive
advantages, each merchant in the cluster location strives for a unique value platform
by differentiating merchandise prices or service levels (Ghosh and McLafferty, 1987,
A Concept of Agglomeration Economies and Scale Economies
Mills (1972) introduced and described a concept of agglomeration economies
as the advantages of spatial concentration resulting from scale economies (as cited in
Mills & Hamilton, 1974). A large number of researchers employed this concept to
explain location selections of industrial, retail, and service firms. The benefits of this
concept can happen in three different levels of operations: internal economies of
scale, localization economies, and urbanization economies (Mills & Hamilton; 1974,
p. 18; OFlaherty, 2005, p.16; Richardson, 1978, pp.42-43). First, the level of internal
economies of scale represents benefits within an individual plant or firm. Firms
gained benefits when producing a large amount of products or services that lower the

cost of production per unit. Second, the level of localization economies refers to the
same type of firms grouping together in particular areas. Sharing facilities among
firms can reduce costs of production. Third, the level of urbanization economies
means the accumulation of a large number of people or various types of firms at the
physical locations (city or region). People or firms can gain benefits from sharing new
ideas and resources, exchanging knowledge and technologies, and increasing
potential new customers.
OFlaherty (2005) pointed out two windfall benefits from agglomeration
economies, which demand smoothing and low search costs. Demand smoothing is a
result of sharing facilities in production and service lines. The two patterns of demand
smoothing are a toll both system (each service or production has its own line) and a
common-line system (one line assigned to all service and production points. This
provides faster services and/or production, which lower costs of production and
maintenance. O Flaherty described lower search cost as a large number of
alternatives of the same types of service from which to choose. This prevents a
monopoly in the market on the supply side (ex post opportunity) and guarantees
standard quality of services (OFlaherty, 2005, pp. 18-23).

The content of this chapter consists of three sections: the selection of research
methodologies, the description of site selection, and the data collection procedures.
The first section will elaborate on how research analytical methods based on the
review of methods relevant to the theories presented in the preceding chapter were
selected. The selected methods, in terms of the methods evolutions and the methods
benefits to the dissertations analyses and conclusions, will be discussed as well. The
section will elaborate on preceding studies and research that utilized this
dissertations selected methods as analytical tools. In the second section, the
processes of site selection will be discussed in detail. The explanation will begin with
the existing circumstances of hypermarket locations in Thailand. This will be
followed by an introduction of sets of criteria pertaining to the study site selection in
order to find the explicit outcomes that can clearly answer this dissertations research
questions. Based on this set of criteria, the process of recruiting the case studies will
be elaborately described. In the last section the plans of data and information
collection will be discussed. According to this dissertations data collection
procedures conducted in 2009-2010, the difficulties of obtaining data in terms of their

availability and accessibility will be examined. The research will further explain
adjustments to the data collecting process in response to these difficulties. These
adaptations will be elaborated on how significant datasets were acquired. Details of
these three sections will be discussed in the following paragraphs.
Analytical Methodologies
Regarding the review of relevant theories in chapter 2, the two theories that
provide great benefits to the dissertations areas of interest are bid-price theory and
land-use succession theory. While researchers who conducted empirical studies of
bid-price theory employed land-value multiple regressions or hedonic pricing models
as reliable methodologies to obtain their findings, scholars who performed studies of
land-use succession used probability transition matrices together with Markov chain
analysis to acquire their outcomes. As a result, this dissertation will employ the
hedonic pricing model to scrutinize the influences of hypermarket locations on prices
of lands in neighboring areas; consequently, the dissertation will utilize transition
probability matrices to find the effects of hypermarket locations on types of
commercial land-use alteration over times.
Hedonic Pricing Model (Multiple Regression Analysis)
Considered as one of the richest academic fields in terms of the number of
scholarly contributions and continually-developed analytical methods, the studies of
the hedonic pricing model provide a vast scope of resources. Known among scholarly
researchers for more than half of a century, the hedonic pricing model has dominated

in the studies of the change in land and property values according to influences of city
centers or magnet points. A large number of scholars have perceived the hedonic
pricing model as the most reliable method that yields creditable findings to research.
Because of its long history of use, preceding researchers have developed the uses and
applications of the hedonic pricing model from generation to generation of
researchers to be the most suitable for the studies in recent and specific
circumstances. Not only have a wide range of studies adopted the standard and then
applied it to various property and land/rent values affected by a variety of sources, but
hedonic models have also been important statistically analytical tools in a wide range
of academic fields such as agriculture, environment, transportation, economics, and
planning (Ahlfeldt & Maenning, 2007; Bailey, Muth & Nourse, 1963; Bartholomew
& Ewing, 2011; Benson, Hansen, Schwartz Jr., & Smersh, 1998; Brown, 1980; Choy,
Lee, Lee & Kim, 2010; Colwell & Munneke, 1997; Du & Mulley, 2006; Furlan,
1998; Ihlanfeldt, 2007; Kim & Zhang, 2005; Li & Sasaki, 1989; Malpezzi, 2002;
Neupane & Gustavson, 2008; Polinsky & Shavell, 1976; Sivitanidou, 1994 & 1996;
Tse, 2002; Tu, 2005; Voicu & Been, 2008; Yeates, 1965). This chapter will discuss
the context of the hedonic pricing model in three principal aspects: 1) the history of
initiation and development of the model; 2) the models structure and its significantly
required datasets; and 3) the application of the model to measure the impacts of
hypermarkets on land values in neighboring areas. The following paragraphs will
provide rich discussion details based on the three aspects.