1999 Retail Market
Analysis
Van
Wert City, Ohio
and
Surrounding Areas
September 2000
prepared by
Dr. Elena Irwin
Assistant Professor
Department of Agricultural,
Environmental,
and Development Economics
and
Erdogan Ozturk
Graduate Research Assistant
Department of Agricultural,
Environmental,
and Development Economics
Table of Contents
Summary of Analysis................................................................................................. 2
Discussion of Results................................................................................................. 4
Appendix 1: Methodology......................................................................................... 5
Appendix 2: Tables and Graphs
Table 1: Retail Sales by Sector for Van Wert and
Surrounding Areas, 1999............................................................................... 7
Table 2: Estimated Surplus/Leakage by Sector for Van Wert
and Surrounding Areas, 1999........................................................................ 8
Table 3: Retail Sectors for which Van Wert has a Surplus/Leakage................. 9
Figure 1: 1999 Retail Sales for Van Wert Trade Area................................... 10
Figure 2: 1999 Retail Sales for Van Wert Trade Area................................... 11
Figure 3: Estimated Surplus/Leakages for Van Wert by Sector..................... 12
Appendix 3: Maps
Van Wert Trade Area and Surrounding Trade Areas.................................... 13
Surplus and Leakage Maps by Retail Sector................................................ 14
Introduction
Retail market analysis is a tool for identifying market trends within a local community, including the degree of surplus or leakage of dollars within specific retail sectors. Estimation of retail surpluses and leakages provides a means to identify the relative strengths and weaknesses of an area’s retail markets and thereby inform economic development strategies for local communities. A retail market analysis is not a detailed plan of action, but rather provides facts and analysis for input into the community’s decisionmaking process about future business development.
This report is produced by The Ohio State University Department of Agricultural, Environmental, and Development Economics Department and The Ohio State University Extension Service. For more information, please contact Elena Irwin at irwin.78@osu.edu or 614-292-6449.
Definition of Terms
Trade area: A geographic area that contains most of the customers for a downtown or regional shopping district. The Van Wert trade area is defined as the primary area in which the majority of customers live who shop in Van Wert City.
Region: The larger geographic area that includes the target trade area (in this case, Van Wert) and its surrounding trade areas (see Map 1 for an illustration).
Potential sales: An estimate of sales that could be achieved in a trade area if all the population living within the trade area shopped within the trade area. See the Methodology section for a more detailed description of this calculation.
Summary of Analysis
With an estimated population of 10,608,[1] Van Wert City is the largest city in Van Wert County. Between 1990-98, population is estimated to have declined by approximately 3%, from 10,922 in 1990 to 10,608 in 1998. In 1990, median household income was $25,324 and is estimated to have increased 8.6% between 1990-97 to $27,500 in 1997.[2] The number of people with less than a high school education is estimated to have increased from 1,658 in 1990 to 2,172 in 1997. The number of people with some education beyond high school is estimated to have decreased, from 2,172 in 1990 to 2,089 in 1997. Despite the slight decrease in population, the number of housing units is estimated to have increase slightly from 4,736 in 1990 to 4,936 in 1997.[3]
Retail sales total $161.4 million in the Van Wert City trade area in 1999. The average amount of retail sales per person living in the Van Wert trade area (i.e. per capita retail sales) is $6,885, which is 65% of the regional average ($10,626) and 63% of the state average ($10,929). The top three sectors in 1999 retail sales in the Van Wert trade area are, in order of total sales, motor vehicles ($31.5 million), grocery stores ($30.4 million), and department stores ($25.1 million). Figure 1 illustrates total sales by each retail sector for the Van Wert trade area and Figure 2 illustrates the percentage that each sector comprises of total sales.
Tables 1 and 2 list the actual retail sales and surplus/leakage calculations for each retail sector by trade area for the study region. The Van Wert trade area has eleven retail sectors for which a surplus is estimated and eighteen sectors for which a leakage is estimated. The sectors with the largest estimated surpluses are grocery stores ($8.3 million surplus), restaurants ($3.1 million), recreational vehicles ($2.9 million), and general variety stores ($2.4 million). The sectors that are estimated to have the largest leakages are department stores (-$20.2 million), motor vehicles (-$16.9 million), gas stations (-$13.1 million), and drugstores (-$12.1 million). In comparison to surrounding trade areas, Van Wert has a higher than average number of sectors that have surplus sales, but nonetheless is experiencing an overall leakage of retail sales. The Van Wert trade area is estimated to have lost $67.3 million in total retail sales to other trade areas within the study region. Put in terms of population, this is equivalent to approximately 27% of the population that live within the Van Wert trade area shopping outside the trade area.[4] Of the surrounding trade areas, the Lima trade area has the largest number of sectors with surplus retail sales (twenty-four) and the largest overall surplus of retail sales ($50.5 million) within the study region. Of the retail sectors within the Van Wert trade area that have a surplus, the grocery and hardware sectors are the two sectors that have the most competition from other trade areas: five other trade areas also have a surplus in these sectors (Table 3). On the other hand, only two other trade areas have a surplus for book store sales and general variety store sales (Table 3). There are four sectors for which Van Wert and all the other trade areas except for Lima have leakages: electrical goods, shoes, camera, and paint. See Table 2 and the maps of specific retail sectors for a full description of surpluses and leakages for all trade areas within the study region.
Map 1 illustrates the location of Van Wert City relative to other regional centers, including the metropolitan areas of Fort Wayne, Indiana and Lima, Ohio. Given its relative close proximity to these larger urban centers, Van Wert is expected to experience some retail leakages. In particular, it is not surprising that Van Wert has retail leakages in more specialized sectors that typically require larger population centers to support, such as optical goods, camera and photography, and hobby shops. Leakages in sectors that have a larger regional market (in other words, goods for which consumers are willing to travel further), such as motor vehicles and department stores, are also common for smaller population centers such as Van Wert City. However, there are other sectors for which Van Wert currently has leakages that are “everyday-type” goods that typically have very localized markets (in other words, individuals do not usually travel longer distances for these goods). These include sectors such as gasoline service stations, drug stores, bars, and bakeries. Although Van Wert is not expected to have as many specialty shops as the larger urban centers within the study region, several sectors with specialized goods have retail surpluses within the Van Wert trade area, including books and jewelry stores. In addition, several sectors that have a larger, regional market also have surplus sales within the Van Wert trade area, including recreational vehicles and furniture stores. Lastly, several sectors that tend to have more localized markets have experienced a surplus, including grocery stores, restaurants, and variety stores.
Discussion of Results
Based on this initial retail market analysis, several strategies emerge that may warrant further research and discussion:
(1) Pursue those retail sectors that are “everyday goods” for which the Van Wert trade area currently has a leakage. These are goods and services that have localized markets that should be able to capture much of the local demand from consumers living within the trade area. Because the market for these goods is local, other trade areas that have a surplus in these sectors are less of a competitive threat than for goods that have regional markets.
(2) Pursue niche markets that either strengthen or complement existing surpluses in sectors with specialized goods. Potential niche (or specialized) sectors for which Van Wert trade area currently has a surplus, such as books, are important in attracting outside customers to the Van Wert trade area. These more specialized markets can be strengthened through marketing efforts and by increasing the sales of goods that complement these sectors. Complementary goods or services are different goods that appeal to the same set of consumers. For example, bookstore customers may combine their visit to the bookstore with lunch or dinner at a nearby restaurant. This strategy of pursuing the right “mix” of businesses within an area is very dependent on the proximity of businesses to each other. Only if the complementary businesses are within easy walking or driving distance will consumers be willing to make multiple stops.
(3) Strengthen regional markets for which Van Wert currently has a strong surplus. Big purchase items, such as cars, furniture, and other durable goods, draw consumers from a larger region. Van Wert has a relatively strong surplus in one of these regional markets -- recreational vehicles. Efforts to sustain and strengthen this surplus could be pursued, although careful attention should be paid to the location of competing trade areas that also have a surplus in this sector, since it is a regional market. In this case, the Decatur and Celina trade areas both have larger surpluses of sales in recreational vehicles. Both these areas are direct neighbors to the Van Wert trade area (see the map for recreational vehicles), which suggests that strengthening the surplus of sales within this sector in the Van Wert trade area may be a challenge.
Additional research, including a survey of consumers living within the Van Wert trade area and region, is recommended in order to augment the analysis provided by this report and to provide further insights into the potential strategies identified here.
Methodology
Determining the Study Region: The definition of the relevant region surrounding Van Wert City is very important in properly analyzing regional retail market trends. The region should include all surrounding areas that either help (i.e. are complementary) or hinder (i.e. are competitive) retail sales activity within the Van Wert trade area. The relevant region was identified for this study by calculating an outer boundary that was 35 road miles from the center of Van Wert City.[5] This is a distance that is easily driven within an hour. We reasoned that many people are willing to drive up to an hour to shop at a regional mall or other destination site. Towns or cities with population of 8,000 or more that fell within this 35-mile radius were then selected as neighboring retail centers. Using this approach, we identified the following eight neighboring centers: Defiance, Fort Wayne, Delphos, Decatur, Lima, Celina, St. Marys, and Wapakoneta.
Defining Trade Area Boundaries: The boundaries for each of the trade areas were determined based on several factors: (1) population of the retail center, (2) distance to the retail center, and (3) U.S. Census block group boundaries. In general, the larger the population of the retail center, the larger the trade area that corresponds to the center. However, because our data is available at the block group level, the delineation of trade areas was constrained to correspond to block group boundaries.[6]
Calculating Retail Sales: Data on retail sales is available to us at the block group level. Once the trade areas were determined using the procedure outlined above, sales for each retail sector within each trade area were calculated by summing over all the block groups that fall within that trade area.
Estimating Surplus/Leakages: Surplus and leakage calculations were performed for each retail sector within each trade area. For the purposes of this report, potential sales of retail sector R in trade area A is defined as:
Potential Sales = (Population of A) x (Income ratio of A) x
(Regional per capita consumption of R)
The income ratio is the ratio of per capita income in trade area A to the regional per capita income. This gives an indication of the relative spending power of residents in trade area A. The regional per capita consumption is the total regional sales of sector R divided by the population of the region. Because these values are dependent on the geographic extent of the regional boundary, they are relative measures that are specific to the Van Wert study region.[7] Surplus/leakage numbers are reported in raw form (in hundreds of thousands of dollars) as well as in percentage form. This percentage is the percentage of the potential sales for the trade area, which indicates the size of actual sales relative to the estimated potential sales. For example, a 50% surplus implies that the actual sales are 50% larger than the estimated potential sales. A –100% surplus results if actual sales are zero.
Sources of Data: Retail sales data comes from Applied Geographic Systems, a private market research company that compiles estimates of retail sales data on a yearly basis. These data are estimated at the block group level using several sources of data, including a geocoded business list file from Acxiom and retail data from the Bureau of Labor Statistics and County Business Patterns. Because these data are estimates, they do not always capture all retail sales activity within an area. However, they are accurate enough to provide an overall description of retail sales activity at a relatively detailed level of geography. For more information on these data, see: http://www.appliedgeographic.com/BusinessCounts%201999.pdf.
1997 estimates of housing, income, and other U.S. Census of Population variables were taken from Community 2020 GIS software, a program developed by the Department of Housing and Urban Development. Geographic files used to determined and map the trade areas also came from Community 2020.