Retail Trade Analysis
The Importance of the Retail Sector to Local Communities
The retail sector is important to local communities for three reasons: it is a barometer of the local economy, it adds to the community’s quality of life, and it is a source of employment and income for residents. Because local retail businesses primarily serve the local population, the performance of this sector is dependent upon the level of wages and income of residents. The retail sector thrives when wages are high and unemployment is low, but it diminishes when wages drop or unemployment rises. Tracking retail sales in a community helps gauge how the local economy is performing. The retail sector also contributes to the quality of life in a community by providing goods and services. By providing a variety of goods locally, retail merchants increase convenience and provide a form of recreation for locals. Lastly, the retail sector creates jobs and income for entrepreneurs and employees, who in turn spend their wages locally. Communities should study their retail sectors to inform their planning and capture these benefits. Extension provides assistance with the following types of analysis to further a community’s understanding of this sector.
Types of Retail Sector Analysis
City Sales Tax Collections: Measuring Retail Activity
Components of a Retail Sales Analysis include historical taxable or retail sales for a city or town. This information is provided by the Oklahoma Tax Commission, which reports annual city sales tax collections for all incorporated cities and towns in Oklahoma.
Trade Area Capture: Measuring Market Size
Trade area capture analysis is used to estimate the number of shoppers who purchase items in a particular economy. This is done by comparing actual reported retail sales for an economy to the expected retail sales for the economy. Expected retail sales are estimated by looking at state spending averages.
Pull Factors: Measuring Attraction
The pull factor is an estimate of how many people are shopping in a local economy compared to the population of the community. For example, a city with a retail pull factor of 1.0 is exactly capturing the retail expenditures of its residents, but it is not attracting any other shoppers to the area. A city with a pull factor that is greater than 1.0 is attracting its own population plus other shoppers. A city with a pull factor that is less than 1.0 is experiencing a sales leakage. Local residents are leaving the city to shop for retail items.
Sales Gap Coefficients: Measuring Sector-Specific Attraction
Gap analysis is pull factor analysis broken down by SIC code for the retail sector. This analysis provides a more detailed look at retail by analyzing each 2- and/or 4-digit SIC code. Such a detailed look aids communities in identifying retail sectors with growth potential.
Threshold Analysis: Measuring the Number of Business
Threshold analysis estimates the number of businesses in a locality, based upon state averages and local population. Using this type of analysis in conjunction with the other retail reports can help communities identify retail sectors for which growth opportunities might exist.