Producer Dynamics in the U.S. Retail Trade Sector

November 10, 2004

Ron Jarmin, Shawn Klimek, and Javier MirandaCenter for Economic Studies, U.S. Census Bureau

Structure of the talk

• Features of the retail trade sector• Brief review of the literature• Data infrastructure• Basic results on the dynamics of retail markets

– Industry Component– Geographic Component– Establishment Level Entry and Exit Statistics– Firm Level Entry and Exit Statistics

Features of the Retail Trade Sector

• Large growth– Absolute terms– Share of total U.S. economic activity

• Technological change– Information technology – Transportation infrastructure

• Complex Establishment and Firm Dynamics– High rates of turnover– Substantial changes in market structure

• Local Markets

19761977

19781979

19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

2000

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

8000000

9000000

Total Retail Employment: By 2-Digit Retail SIC

Year

Em

ploy

men

t

Building

General Merchan-

Food

Automotive Dealers/Gas sta-

Apparel/accessory

Furniture/Home/Equipm

Eeating/Drink ing

M is

Local Markets

• Retail establishments serve local demand• E-commerce?

– Only 1.9% of all retail sales in the 4th Quarter of 2003*– This component is growing much more rapidly than

overall retail sales

*Source: Census Bureau Monthly Retail Trade Survey

Technological Factors

• Transportation– Demand side: greater consumer mobility (strip and

regional malls, fast food joints)– Supply side: interstate highway system permits modern

logistics

• Information Technology– Computers used to monitor demand and manage

inventory– Heterogeneous response to technology – large retailers

invest more, in general, and on IT specifically.

Recent Empirical Work

• Role of IT– Doms, Jarmin and Klimek (2004) show that

large (national chain) retailers benefited more from IT investments, in terms of productivity growth, over the 1990’s.

• Role of Entry and Exit– Foster, Haltiwanger and Krizan (2002)– Basker (2004)

Our Current Empirical Strategy

• Provide a rich set of descriptive statistics using newly available longitudinal establishment data.

• Examine the role of plant and firm experience for entry and exit.

• Extend the measures of entry and exit to include geographic markets.

Data Infrastructure

• Longitudinal Business Database (LBD)– Research dataset developed at the Census Bureau’s

Center for Economic Studies [see Jarmin and Miranda (2002) for detailed description].

– Primary Source data• Business Register (SSEL)

– Primarily administrative records from the IRS

– Other sources include SSA and BLS

• Economic Censuses

LBD – Basic Features

• Longitudinal database of U.S. business establishments with employees

• Firm (enterprise) identifiers available– Firm IDs are not longitudinal

• Current file includes data for 24M establishments (18M firms) from 1976 through 2000 (data construction uses data from 1975 to 2001).

LBD – Basic Features (cont.)

• LBD contains basic information on establishment– Employment– Payroll– Industry (SIC and in recent years NAICS)– Location (state and county)– Firm ownership– Rich set of flags describing establishment status (e.g.,

linkage types, CBP in scope)– Numeric linkages to other Census Bureau

establishment and firm level datasets

Measuring Retail Producer DynamicsPart II: Within Local Retail Markets

• Market defined as a county

• Core Based Statistical Areas– CBSA-Metropolitan Areas

• based on urbanized areas of 50,000 or more population

– CBSA-Micropolitan Areas

• based on urban clusters of at least 10,000 but less than 50,000 population

– Non-CBSA Rural Areas

Map of the US: CBSA-Metro, CBSA-Micro, and Non-CBSA rural

Statistica l AreasCBSA-M icroCBSA-M etroNon-CBS A-Rural

19 7 6

19 7 7

19 7 8

19 7 9

19 8 0

19 8 1

19 8 2

19 8 3

19 8 4

19 8 5

19 8 6

19 8 7

19 8 8

19 8 9

19 9 0

19 9 1

19 9 2

19 9 3

19 9 4

19 9 5

19 9 6

19 9 7

19 9 8

19 9 9

20 0 06.7

6.7 5

6.8

6.8 5

6.9

6.9 5

7

7.0 5

7.1

7.1 5

7.2

R e ta il E m p lo y m e n t: B y S U /M U (lo g s )

S in g le U n it

M u lti U n it

Y e a r

Nationwide Market“Local” vs.. “Chain” Store Employment

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

6.5

6.6

6.7

6.8

6.9

7

7.1

7.2

Retail Employment: Metro by SU/MU (logs)

Single Unit

Multi Unit

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

5.6

5.7

5.8

5.9

6

6.1

6.2

6.3

Retail Employment: Micro by SU/MU (logs)

Single Unit

Multi Unit

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

5.3

5.4

5.5

5.6

5.7

5.8

5.9

6

Retail Employment: Rural by SU/MU (logs)

Single UnitMulti Unit

Year

“Local” vs. “Chain” by CBSA Type

Multi Unit Establishments (i.e., Chain Stores) Increasingly Dominate Retail Activity• The share of retail employment associated with

multi units has increased by 12% in the last several decades. In the late 1990s, MU firms account for over 60% of retail employment.

• Compared to Metro areas, the share of retail employment associated with multi units remains lower in Rural and Micropolitan areas but the growth is higher. Over the last 25 years the share of MU employment has increased by close to 20% in these areas.

Ratio of “Local” to “Chain” Stores and Companies: Nationwide

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

1.5

2

2.5

3

3.5

4

4.5

5

5.5

Ratio of SU/MU Establishments

Metro

Micro

Rural

Year

Pro

port

ion

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

2.5

5

7.5

10

12.5

15

17.5

20

Ratio of SU/MU Firms Metro

Micro

Rural

Year

Pro

po

rtio

n

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

200000

400000

600000

800000

Number of Establishments: Metro by MU/SU

Single Unit

Multi Unit

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

020000400006000080000

100000120000140000160000

Number of Establishments: Micro by SU/MU

Single Unit

Multi Unit

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

20000

40000

60000

80000

100000

120000

140000

Number of Establishments: Rural by MU/SU

Single Unit

Multi Unit

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0100000200000300000400000500000600000700000800000900000

Number of Firms: Metro by SU/MU

Single Unit

Multi Unit

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

20000

40000

60000

80000

100000

120000

140000

160000

Number of Firms: Micro by SU/MU

Single Unit

Multi Unit

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

20000

40000

60000

80000

100000

120000

Number of Firms: Rural by SU/MU

Single Unit

Multi Unit

Year

Absolute Drop in Number of “Local” Stores

The absolute number of single unit establishments has gone down.

Between 1976 and 2000 the number of SUs has dropped by 2.53%.

Marked differences across CBSAs. Metro areas increased by 1.62% but Micropolitan and Rural areas experienced a drop of 12.40% and 17.65% respectively.

Large Growth in Number of “Chain” Stores

• The growth of MUs establishments is considerable, 60.11% between 1976 and 2000. Growth is stronger in Micropolitan areas followed by Metro:

• micro= 63.24%, metro=60.81% rural= 46.17%

• In 2000, approximately 37% of all retail establishments in Metro areas belong to MUs. Up from 27%. Micro and Rural areas are following similar trends.

• micro= 21% to 33% rural=16% to 25%

Establishment size distributions by CBSA Type

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

5

10

15

20

25

30

35

40

Establishment Size Statistics: Metro

Emp_m

Emp_10

Emp_50

Emp_90

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

5

10

15

20

25

30

35

40

Establishment Size Statistics: Micro

Emp_m

Emp_10

Emp_50

Emp_90

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

5

10

15

20

25

30

35

40

Establishment Size Statistics: Rural

Emp_m

Emp_10

Emp_50

Emp_90

Year

Firm Size Distributions by CBSA Type

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

5

10

15

20

25

30

35

40

Firm Size Statistics: Metro

femp_m

femp_10femp_90

femp_50

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

5

10

15

20

25

30

35

40

F irm Size Statistics: M icro

fem p_m

fem p_10

fem p_90

fem p_50

Year

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

0

5

10

15

20

25

30

35

40

Firm Size Statistics: Rural

femp_m

femp_10

femp_90

femp_50

Year

Significant Growth in Average Firm and Establishment Size

• Firm size has increased considerably over this period. On average firms were 55% bigger in 2000.

• Firm growth is considerably higher in Rural and Micropolitan Areas. Firm size is still smaller but approaching that of firms in Metro areas.

• Firm growth: metro =33%, micro= 65%, rural=89%

• Firm growth su/mu: metro= 32/33%, micro=46/71%, rural=49/95%

• Firm growth is most important for MUs but also significant for SUs.

Firm entry and exit into local markets

• Same exercise as in the case of industry– Does a retail firm have an establishment in

given local market (i.e., county)?

– Distinguish between chain stores and local stores

Overall entry and exit ratesFirm Entry and Exit: Avg over CBSA

0.06

0.08

0.1

0.12

0.14

0.16

0.18

8081

8182

8283

8384

8485

8586

8687

8788

8889

8990

9091

9192

9293

9394

9495

9596

9697

9798

9899

9920

0

Year

F_ER

F_XR

Employment share of entrants and exiters

Firm Entry and Exit Share: Avg over CBSA

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

8081

8182

8283

8384

8485

8586

8687

8788

8889

8990

9091

9192

9293

9394

9495

9596

9697

9798

9899

9920

0

Year

F_ESH

F_XSH

Firm entry and exit rates by CBSA type: “Local” vs. “Chain”

Entry/Exit Rates: SU Metro

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

80818182828383848485858686878788888989909091919292939394949595969697979898999920

Year

SU_ER

SU_XR

Entry/Exit Rates: MU Metro

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

80818182828383848485858686878788888989909091919292939394949595969697979898999920

Year

MU_ER

MU_XR

Entry/Exit Rates: SU Micro

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

80818182828383848485858686878788888989909091919292939394949595969697979898999920

Year

SU_ER

SU_XR

Entry/Exit Rates: MU Micro

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

80818182828383848485858686878788888989909091919292939394949595969697979898999920

Year

MU_ER

MU_XR

Entry/Exit Rates: SU Rural

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

80818182828383848485858686878788888989909091919292939394949595969697979898999920

Year

SU_ER

SU_XR

Entry/Exit Rates: MU Rural

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

80818182828383848485858686878788888989909091919292939394949595969697979898999920

Year

MU_ER

MU_XR

Just a start...

Aggregate dynamics are interesting, but the focus of our work will be to untangle the behavior of firms and establishments at the micro level.

Now we want to exploit heterogeneity in local market conditions and firm characteristics to model firm behavior.

Main findings

• Chain stores increasingly dominate retail activity

• Marked differences in establishment and firm dynamics across different types of CBSA's.

• Significant growth in average firm and establishment size

• Differences in entry and exit rates, marked differences across CBSA areas.