Factors Influencing Trade Area Capture in the Great Basin Area

Abstract

Tobit estimation procedures were used for pull factors of eight retail sectors to determine factors which influence the capture of local and non-local retail demands. These significant factors were derived and discussed as elements to be implemented into future retail extension/outreach programs. Introduction Undertaking goals of economic development, there are numerous strategies from which a rural community can use. Industrial recruitment and downtown revitalization continue to be the two most common economic development strategies employed by communities (Daniels). A community employing only industrial recruitment may however be restricting its economic development options. One such strategy is for a community to improve its ability to capture local retail expenditures. This strategy has focused on estimating rural retail sector activity and performance. Recently, economists and planners have conducted applied local retail development research extension, and outreach programs across the nation. The intention of these programs is to help local economic development practitioners adequately address problems in their local retail sector. In addition, the extension service of the USDA has targeted programs to increase the viability of rural retail sector as a national program priority. A potentially successful extension program which encompasses the strategy of capturing local retail dollars is rural retail sales potential and retention. Sales retention is an indirect measure of locally available goods and services assuming local people buy locally if possible (Goldstucker et al.). An approach to measure potential retail sales is trade area analysis. Trade area analysis estimates the number of persons buying locally and yields information as to retail sales capture or leakage for a community. However, trade area analysis does not yield information as to the impacts of exogenous variables on rural retail activity. An understanding of the influences of exogenous factors on trade area would provide additional behavioral information in the formulation and development of extension or outreach rural retail sector programs. The intention of such extension or outreach programs would be to strengthen the local retail sector. Therefore, the primary objective of this paper is to develop analytical procedures to explain variations in rural retail trade capture in the Great Basin Region. The Great Basin Region is defined as the states of Nevada and Utah. The Great Basin Region depicts a water basin as designated by the Water Resurces Council. Trade Area Analysis Trade area analysis is rooted in central place theory. The varieties of retail goods offered by a community depend upon demand and supply conditions locally as well as the distance a consumer would normally travel to obtain a particular good. The adoption of central place theory to estimate rural commercial sector activity requires application of trade area analysis. A trade area as defined by Hustedde, Pulver, and Shaffer is a geographical area for which a commodity captures the majority of its customers. The trade area analysis procedures used in this study are the trade area capture and the pull factor. Trade area capture has been used widely to estimate sales potential for local economies (Chase and Pulver; Stone and McConnon; Hustedde et al.; Shaffer; Harris). Trade area capture is based on the assumption that, after accounting for income differences, local tastes or preferences are similar to that of the state or reference area. The trade area capture measure is a surrogate estimate for the number of customers or customer equivalents who purchase a specific type of merchandise (merchandise type i) in a given locality. With application to a county, the standard approach used to derive trade area capture is presented by the following equation: (1) TAC RS RS POP PCI PCI ij ij