Summary

A thorough understanding of the local retail market is a crucial aspect of any downtown revitalization effort. These tools can help small town revitalization programs in their efforts to assess strengths and weaknesses of the local retail market.

Overview

Many downtowns are struggling. In quite a few places, boarded buildings and empty storefronts now dominate once prosperous streets. Seeking to reverse years of decline, a number of communities are initiating downtown revitalization programs.

A few simple tools can help inform business people, community leaders and other citizens of your community of the history and current status of the local retail sectors. By knowing the relative strengths and weaknesses of the local retail market compared to those of neighboring communities, it is hoped that businesses will develop improved business plans and capitalize on areas of opportunity for business development. It is also hoped that by better understanding the performance of the local retail sector, community leaders can foster an environment more conducive to local business development.

While consultants may be better positioned to provide in-depth analyses of your local retail sector, there are a few low-cost tools that your community can adopt to increase your understanding of current and recent retail trends. These tools include:

· Per Capita Sales measure total retail sales per person in a county. When compared to other counties or the state, communities can identify local retail strengths and opportunities. Used over time, it helps you better understand long-term performance trends.

· Pull Factors are another measure of the relative strength of the community's retail market. The pull factor is calculated by dividing a county's per capita sales by the state average, adjusting for income differences. If the community's income-adjusted per capita sales are greater than the state average, then the pull factor is greater than one. This indicates any area of local retail strength.

In addition to introducing tools, we provide some suggestions on actions a community might consider as it tries to enhance its retail abilities.

Methods

1. Per Capita Sales Analysis Provides a Basic Understanding of the Local Retail Sector

Per Capita Sales is perhaps the simplest measure of local retail market performance. It measures the average amount of retail sales per person in a county. These ratios are relative and vary by size of the community. They are especially helpful when comparing retail sectors across communities.

You can adopt this worksheet for your community.

On-line per capita analysis for New York and Pennsylvania is available here.

On-line analysis for New York is forthcoming.

Example

Valencort County is interested in learning about its apparel and accessory retail sector. Some people feel there is little room for expansion in this field. Others argue the county could support more apparel stores or existing apparel stores should expand. Valencort's downtown development group uses the per capita sales ratio to compare its retail apparel sector with similar counties.

Data Needed

1. The total sales in a particular retail sector, defined by SIC code, for each county of interest. This data is available from the Census of Retail Trade, which is conducted every 5 years by the US Census Bureau. The most recent available year is 1997. Definitions are provided at the end of this document.

2. An estimate of the local population is needed, as well as population estimates for three or four comparison communities for each of the years for which you gather retail sales data. Annual population estimates are available from the Bureau of Economic Analysis (BEA).

How to Calculate the Per Capita Sales Ratio

The total retail sales in a particular place divided by the number of people who live in that place yields the per capita sales ratio.

Per Capita Sales = Total Sales in a County/County Population

The following table shows an example for computing the ratios:

Valencort Per Capita Sales ratio = $1,000,000 / 5,000 = $200

State Per Capita Sales ratio = $13,750,000,000 / 5,000,000 = $275

Interpretation

For the state average, retail apparel sales total $275 per person. However, in Valencort retail sales per person are only $200 per person. Why does Valencort have such a low ratio? If the community is selling less per person than the state average, it might mean that local residents are making many purchases outside the community. Such an instance would be a retail leakage, and could indicate a new opportunity.

Per Capita Sales ratios have no single critical value. Rather, the critical value is the average of several similar?sized communities. A Per Capita Sales ratio larger than the average indicates each the county is selling more customers than the average for similar?sized communities.

2. Pull Factors Help You Determine the Export Strengths of Your Local Retail Market

One method to estimate if a community is drawing retail sales from outside its municipal boundaries is a ratio called the pull factor. A merchant can look at the change in pull factors over time to determine their success in attracting customers from outside the local boundaries. Pull factors should be compared over several time periods to determine trends.

You can adopt this worksheet for your community.

On-line per capita analysis for Pennsylvania is available here.

On-line analysis for New York is forthcoming.

Example

Valencort County's revitalization group wants to know what portion of its automobile customers are coming from outside its boundaries. They are interested if they have improved on their ability to attract outsiders between the years 1992 and 1997.

Data Needed

1. Per Capita Sales Ratios for a particular sector for two time periods (e.g., Valencort per capita auto sales for 1992 and 1997).

2. An estimate of per capita income (total income divided by total population) for each county of interest and the state, for each of the years for which you gather sales data. This information is also available from the Bureau of Economic Analysis (BEA) (http://fisher.lib.virginia.edu/reis/).

How to Calculate Pull Factors

Pull factors look at how local retail sectors fare relative to the state average. Thus, the method can help you identify strengths and opportunities. Realizing that some regions are wealthier than others, and that per capita retail sales are usually higher in wealthier areas, the method takes into account relative differences in per capita income.

Calculating the pull factor for a retail sector involves two parts. First, divide the county per capita sales ratio by the state per capita sales ratio for the same year. Second, adjust for income differences by multiplying the per capita sales ratio by the ratio of state per capita income to local per capita income. These steps are shown in the following formula.

Valencort's per capita auto sales was $2,500 in 1992 and $3,000 in 1997. The State's per capita auto sales was $2,700 in 1992 and $2,900 in 1997.

Valencort's per capita income was $21,000 in 1992 and $22,000 in 1997. The State's per capita auto income sales was $22,000 in 1992 and $25,000 in 1997.

Using the above formula and the county and state data, it is possible to calculate a pull county pull factor for 1992 and 1997 auto sales.

1992 Valencort Auto Sales Pull Factor = 0.97
1997 Valencort Auto Sales Pull Factor = 1.17

[The 1997 calculation is: 1.17 = ($3,000 / $2,900) * ($25,000 / $22,000)]

Interpretation

Strictly, interpreting a pull factor of one (1) means the community is drawing all of its customers from within its boundaries but none from the outside. Because the 1992 pull factor for Valencort auto sales is less than one, it seems Valencort was losing auto sales to other counties that year. The 1997 Valencort auto sales pull factor is 1.17. It means the county attracted outside purchases equal to 117 percent of the Valencort population.

Together, the 1992 and 1997 pull factors of 0.97 and 1.17, respectively, indicate the community improved its ability to attract outsiders. Valencort might want to ask itself why this occurred. It should also ask similar questions if the pull factor declines. A pull factor less than one suggests that the community is not even capturing the shoppers within its municipal boundaries or they are spending relatively less than the state average.

Remember, additional insights can be gained by comparing your county to neighboring counties.

How this Information is used in Community Development

The tools provided here point to the ability of the community to capture retail dollars. An inevitable question, then, is what steps can a community take to improve its capacity to keep retail dollars at home.

If the community wishes to improve its capacity to attract local dollars, it might want to focus its efforts on the trade and services sector. In some cases, a merchant group may need to be activated to address the problem. In other cases, action may require education, better marketing or the development of special financial packages for retailers. Each community will have a distinct approach reflecting local conditions in addressing its ability to capture local dollars.

A partial list of things that can be done includes:

· Identify market potential of retail outlets through survey of consumer needs and buying habits. Improve share of retail market captured through a downtown analysis and renewal through consumer and merchant surveys.

· Aid employers in developing employee-training programs to improve quality of service.

· Expand purchases by non-local people (tourists, neighboring citizens) through appropriate advertising. Encourage local citizens and businesses to buy locally through informational programs about locally available goods and services.

· Take collective action through the formation of organizations such as a downtown revitalization group or chamber of commerce.

A Few Caveats

The tools just described are used mainly for comparison purposes to help communities to assess growth or decline. However, these tools do not tell us why the causes of growth or decline, or what can be done to do to alter the situation. The community needs to conduct further analysis after they have used the pull factors and trade area capture. Another limitation is there is no definite standard for a community to judge whether it has a "good" or "bad" pull factor or trade area capture because these tools were only intended for comparative purposes.

For More Information

While this tool offers fundamental suggestions for revitalization efforts, communities may be interested in alternative materials. Here are some other available training resources and networking organizations.

Pennsylvania agencies offering assistance:

Pennsylvania Main Street and Commercial Reinvestment Programs
Department of Community and Economic Development
576 Forum Building
Harrisburg, PA 17120
Phone: 717-720-7300

The Main Street program is designed to help a community's downtown economic development effort through the establishment of a local downtown revitalization organization and management of downtown revitalization by a professional downtown coordinator. The Commercial Reinvestment program works in conjunction with the Main Street program by using business district strategies to support eligible commercial related projects located within a central business district.

Pennsylvania Downtown Center (PDC)
1230 North Third Street
Harrisburg, PA 17120-2020
Phone: 717-233-4675

The PDC is a statewide, non-profit organization, which advocates for the preservation and economic vitality of the Commonwealth's downtowns and business districts, and advises communities on economic development. The Pennsylvania Downtown Center is committed to helping communities through education, training, strategic partnerships, and advocacy efforts.

New York agencies offering assistance:

New York State Main Street Alliance
43 Warren Hall
Cornell University
Ithaca, NY 14853
Phone: 607-255-9510
Contact: Rod Howe

The New York Main Street Alliance (NYMSA) is a not-for-profit statewide organization dedicated to Main Street revitalization.

National agencies offering assistance:

National Main Street Center
1785 Massachusetts Ave., NW
Washington, DC 20036
Phone: 202-673-4219

The Main Street program is designed to improve all aspects of the downtown or central business district, producing both tangible and intangible benefits. The National Main Street Center assists states, communities and others in the revitalization of business districts within a preservation context. Delivers consultation and information services to states and communities under contract. Provides information and consultation on downtown revitalization through technical assistance, the National Main Street Network, conferences, products and Main Street Certification Institute.

Some Useful Written Materials:

Revitalizing Downtown
Explains successful main street methodology, a comprehensive strategy to improve downtown's image and management. Contains important information on organization, promotion, design and economic restructuring, plus an extensive bibliography and useful list of organizations. Published by the National Trust for Historic Preservation. Washington, DC: National Main Street Center, National Trust for Historic Preservation, Rev. 1988.

Strategic Retail Market Analysis
Success in revitalizing downtowns can be improved with a better understanding of how the markets function. Provided are ways to conduct a productive retail market analysis, an essential part of any revitalization effort. Dolores Palma. Washington, DC: Hyett Palma Publications, 1991.

Retail Data Sources and Definitions

Every 5 years (years ending in 2 and 7), the U.S. Department of Census conducts an Economic Census. Censuses are prepared for most sectors of the economy, and businesses are required to participate. The survey provides substantial information on a variety of business characteristics, including payroll and sales. One of the most important of these censuses is the Census of Retail Trade, which reports county level retail sales for 10 categories, in addition to total retail sales. These categories are defined as:

Automotive Dealers
Included are retail outlets selling automobiles--new and used, domestic and imported. In addition to these categories, sales for auto and home supply stores (tire dealers and parts and accessories stores), boat dealers, motorcycle dealers, and miscellaneous automotive dealers selling aircraft, dune buggies, snowmobiles, and utility trailers are also included.

Drug Store Sales
Totals here reflect sales form establishments engaged in the retail sale of prescription drugs, proprietary drugs, and nonprescription medicines. Stores in this category also carry a number of related items, such as cosmetics, toiletries, tobacco, and novelty items.

Eating and Drinking Places
Includes establishments selling prepared foods and drinks for consumption on the premises or for takeout, as well as lunch counters and refreshment stands selling prepared foods and drinks for immediate consumption. Also under Eating Places are caterers and institutional food services; concession stands at stadiums, amusement parks, and airports; fast-food restaurants and commissaries and other miscellaneous eating places. Drinking Places include bars, cocktail lounges, nightclubs, and other miscellaneous establishments.

Food Stores
Retail stores primarily engaged in selling food for home preparation and consumption. Included in this category are grocery stores; meat and fish markets; fruit and vegetable markets; candy, nut, and confectionery stores; bakeries; and miscellaneous food stores such as health food, coffee, spice, vitamin, and poultry stores.

Home Furnishings
Sales from a broad array of subgroups including furniture stores; floor covering stores (carpet, rug, and tile); drapery, curtain, and upholstery stores; home furnishings stores (bedding, china, cookware, lamps, pottery, etc.); and household appliance stores (air conditioners, freezers, sinks, cabinets, stoves, etc.). Perhaps the most important subgroup, however, is that of radio, television, consumer electronics, and music stores, which includes computer and software stores as well as record and tape stores.

General Merchandise Stores
This category includes retail stores that sell a number of lines of merchandise, such as dry goods, apparel and accessories, furniture and home furnishings, housewares, hardware, and food. Stores included in this group are department stores, limited-price variety stores, and miscellaneous general merchandise stores such as general stores, catalog stores, although catalog and mail-order operations are not included in this category.

Building Materials and Hardware Stores
This category includes retail stores such as lumberyards, floor-covering stores, paint, glass and wallpaper stores and general-purpose hardware stores. Also included in the category are retail nurseries, lawn and garden supply stores.

Gas Service Stations
Gasoline service stations primarily engage in selling gasoline and lubricating oils. These establishments frequently sell other merchandise, such as tires, batteries, and other automobile parts, or perform minor repair work.

Apparel & Accessories Stores
This major group includes retail stores primarily engaged in selling new clothing,shoes, hats, underwear, and related articles for personal wear and adornment. This would include men's clothing stores, women's clothing stores and family clothing stores.

Miscellaneous Retail
This category includes retail establishments not elsewhere classified and is generally comprised of specialty stores such as sporting good stores, book stores, jewelry stores, camera stores, gift, novelty, and souvenir stores and liquor stores.

*Martin Shields is Assistant Professor of Agricultural and Regional Economics, Dept of Agricultural Economics and Rural Sociology, Penn State University