Leakage & Retention AnalysisTrade Area Analysis

Arthur C. Nelson, Ph.D., FAICPPresidential Professor & DirectorMetropolitan Research CenterUniversity of Utah

February 2010

Trade Area Sales AnalysisProvides an estimate of the number of people

drawn to a community for retail purchases of a particular good

Assumptions Local people will buy goods at the same rate as

the state/metro/other regional average Income causes a variation in spending

Drawback: Easy to measure capture for major retail groups but not specialized ones.

Trade Area Sales Analysis

Commonly called a “Capture” and “Leakage Study”

Shows whether a community is capturing its full sales potential or whether that money is leaking out to other communities

Potential Sales

Income Capita Per State

Income Capita Per Local

Population State

Sales StatePopulation

AreaTrade Sales Potential

Sales and sales tax data from Department of Taxation: http://tax.utah.gov/esu/sales/calendaryear/index.htmlPer capita income from Regional Economic Information System:http://www.bea.gov/regional/bearfacts/action.cfm?fips=49045&areatype=49045http://www.governor.utah.gov/dea/State Population from Census estimates: http://www.governor.utah.gov/dea/

Potential Sales AnalysisBox Elder County – Furniture

Data:2008 Box Elder County Population: 49,0152008 Box Elder County Furniture Sales: $6,409,744 2008 Utah Furniture Sales: $1,700,318,619 2008 Utah Population: 2,736,424 2008 Box Elder County Per Capita Income: $26,5022008 Utah Per Capita Income: $28,196

Potential Sales

State per capita sales average = $621County per capital sales average = $131

Economic Development Implications?

Potential Sales = [(49.015) x ($1,700,318,619/ 2,736,424) x (26,502/28,196)]

= $28,626,422

Actual Sales = $6,409,744 Capture (Leakage) = ($22,216,678)

Reilly’s Law of Retail Gravitation

Provides estimate of maximum distance customers will travel to shop for a specific good or servicePremise is that people are attracted to larger places to shop, but time and distance influence these decisionsThe town being analyzed should be the largest in the analysisWorks best for goods and services where quality, price, etc., are factors influencing purchases

Reilly’s Law

(Y)Community Small of Population(X)Community Larger of Population

1

City Y and XCity Between Distance

Distance from

Smaller Community (Y)

Distance data can be obtained from Internet mapping sites such as MapQuest, Yahoo, etc.: http://www.mapquest.com

State Population by Place from Census estimates: http://www.census.gov/main/www/cen2000.html

Price Trade Area

Distance Data (Mapquest)

Distance between Price and: Mileage

Helper 5.5

Wellington 5.0

Population Data

City Population

Price 8,039

Helper 1,876

Wellington 1,571

Price Trade Area

Helper will draw residents from 1.79 miles toward PriceWellington will draw residents from 1.54 miles toward

PrioceWhat does this mean in practical terms?

Helper:Distance = (5.50 miles) / (1+ 8,039/1,876) = 1.79 miles

Wellington:Distance = (5.00 miles) / (1+ 8,039/1,571) = 1.54 miles

Price Trade Areas

Reilly’s Law LimitationsAssumes homogeneous populationOnly use for independent communities

surrounded by countrysideShould only be used for similar sized

communitiesAssumes everyone shops locally –

overestimates shopping populationEstimate average trade boundary;

individual goods or services will have different boundaries

Sources

Hustedde, Ronald J., Ron Shaffer, and Glen Pulver. Community Economic Analysis: A How To Manual. North Central Regional Center for Rural Development. Ames, IA. November 2001.

Kathy Tweeten, North Dakota State University; Alan Barefield, Southern Rural Development Center; Randy Reynolds Piedmont Community College “Community Economic Analysis” nd.