Agglomeration: Why Retailers Should Stop Fearing Their Competitors

There's an old instinct in retail: find a gap, plant your flag, and keep your distance from anyone selling the same thing. It feels like common sense. Less competition, more customers for you.

It's also wrong, more often than not.

The concept that explains why is called 'agglomeration', the tendency of similar or complementary businesses to cluster together, and for that clustering to make every business in it better off. It sounds like an economics lecture, but you've experienced it a hundred times without naming it. It's why car dealerships line the same strip, why every op shop in a town somehow ends up on the same street and why a single furniture store in an empty industrial estate struggles, but the same store next to five competitors does a roaring trade.

The logic is simple once you see it. Shoppers don't wake up wanting "a sofa." They want to compare sofas. A cluster of stores turns a single destination into a comparison-shopping trip, which pulls in customers who wouldn't have bothered visiting just one store on its own. Everyone's slice might be smaller in theory, but the pie gets so much bigger that most retailers come out ahead. Agglomeration also cuts a shopper's effort — one trip instead of five — which matters more than most retailers give it credit for.

Chadstone: The Anchor Strategy at Scale

You can see this playing out at full scale at Chadstone, in Melbourne's south-east. It's Australia's largest shopping centre, home to around 530 stores, anchored by David Jones, Myer, Kmart, Target and full-line supermarkets. No single one of those anchors needs the others to survive. Myer would do fine as a standalone store. But put them together under one roof, and each one becomes a reason for a shopper to make the trip who might have otherwise chosen a different centre entirely. The hundreds of smaller specialty retailers filling the space between those anchors are the real beneficiaries. They couldn't independently generate the foot traffic that Myer or Kmart pulls in, but they get to sit inside it for free.

The Homemaker Centre Playbook

Australia's bulky goods precincts make the strategy even more deliberate. Drive past Home Focus at Pimpama on the Gold Coast, or the Browns Plains precinct in Brisbane's south, and you'll find Bunnings, Officeworks, The Good Guys, Fantastic Furniture and half a dozen others sitting metres apart, on purpose.

These aren't retailers who lost a real estate lottery and ended up next to their rivals. Landlords design these precincts this way, because they know a customer who drives out to buy a fridge is a customer who might also need a desk, a drill, and a rug. The developer isn't hedging against competition, they're manufacturing a destination that no single retailer could create alone.

The Same Trick Works in Miniature

Agglomeration doesn't need a shopping centre or a 20-hectare precinct. It works at the scale of a single wall.

A lone vending machine in a corridor is easy to walk past. It offers one category, take it or leave it. But group a handful of machines together (snacks next to drinks next to a coffee machine, the way you'll find in office break rooms, uni campuses and transit hubs) and something changes. Suddenly there's a reason to stop rather than walk past. This is exactly why "vending islands" have been a fixture of the industry for decades: cluster several machines with different product ranges in one spot and you don't just add their individual sales together, you lift all of them, because the cluster itself becomes worth a detour. The same principle that fills Chadstone's car park fills a break room vending alley. Scale changes; the mechanism doesn't.

What This Means For Your Next Location Decision

If you're a retailer weighing up a site, the question shouldn't only be "who else is nearby." It should be "does being nearby make my customer's trip more worthwhile." A shoe shop next to five other shoe shops isn't diluting its market, it's helping create the reason shoppers came to that strip in the first place. A standalone store in a quiet spot, free of competitors, can just as easily mean free of customers too.

Agglomeration is one of the few genuine free lunches in retail strategy. You don't need a marketing budget to benefit from it, you need to be standing next to the right neighbours.

Simon Dell is the CEO of Cemoh, Australia's fractional marketing network, connecting businesses with experienced fractional CMOs and marketing professionals. Find out more at cemoh.com.