Logistics cost, consumer demand, and retail establishment density

Abstract

This article develops models to formulate the optimal density of retail establishments by considering interactions between logistics cost and consumer demand. Commodities are assumed to be distributed from a depot directly or through single intermediate terminal to many retail establishments. Average logistic cost per item, consumer demand, and the interrelationship between them are analyzed. The optimal density of retail establishments and local terminals are determined by minimizing average logistic cost, or maximizing total supply subject to the demand-supply equality. The envelope curves for the optimal configuration strategies corresponding to different values of total market area and terminal cost are derived.