Retail Trade Research Paper

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The term ‘retail geography’ describes the spatial structure of retailing, especially its transformation. The dominant methodology of the retail geography literature combines analyses of spatial demand patterns, producer behavior, and travel patterns, within the broader spatial patterns of economic activities. The geography of retailing is related to ‘marketing geography’ and the two terms are used somewhat interchangeably, although marketing geography encompasses the geographic patterns of consumption more broadly.

Explanations of the geography of retailing have traditionally been based on the conceptual frameworks of location theory, especially the classical models of central place theory (Christaller 1933, Losch 1941). Two themes, differentiated by the type of locational system investigated, developed early. The first studies the spatial pattern of periodic markets. The second focuses on regional systems of permanent retail outlets. A corollary of the difference between the two themes is their different regional foci. Studies of periodic markets are mostly centered in Asia, Africa, and Latin America, while the second theme has more of an Anglo-American focus. The third theme in the retail geography literature presents analytical methods of studying travel patterns to retail stores and of determining optimal locations.

1. The Geography Of Periodic Markets

Periodic markets, which continue to be an important element of rural retail trade in many parts of the world, meet periodically at specific locations with set schedules, separated by market-less days or by days with limited trading activities. Such periodic markets are the basic component of the spatial structure of rural retailing in Asia, Africa, and Latin America. Skinner (1964) posited that periodic markets cor- respond to the lowest levels of the hierarchy of central places that serve the need for goods and services in an economy. The markets associated with each level possess distinctive size, functionality, and periodicity characteristics (Berry and Parr 1988). Central place theory is a leitmotif in most studies of the geography of periodic markets.

1.1 Models Of Periodic Market Systems

Stine (1962) was the first to develop a theoretical model to explain why markets are periodic. In low-density areas the level of demand is often too low to cover the fixed cost of a permanent store. Traders can overcome this constraint by visiting several marketplaces in a regular, periodic sequence to aggregate demand from a wider geographical area. Hay (1977) and Ghosh (1982), among others, extended Stine’s analyses. They outline the conditions under which a trader will adopt one of the following strategies— mobile or itinerant trading, part-time trading from a fixed location, or full-time trading from a fixed location. Traders may choose an itinerant strategy even when the expected profit at a fixed location exceeds the cost of operating a permanent store, if the incremental net earnings from a new location are greater than the sum of relocation and overhead costs. Similarly, mobility may allow traders to reduce prices and forestall competition. In general, the lower the relocation and overhead costs in relation to demand, the greater the likelihood of mobile systems. This is one reason why in many rural areas one tends to find large numbers of itinerant traders in markets that do not have a single permanent outlet.

1.2 Spatio-Temporal Organization Of Markets

An important geographic characteristic of periodic marketing systems is their integration of both the spatial and temporal dimensions of demand. Consumers perceive the adjacent marketplaces held on consecutive days—the market ring— as belonging to a particular spatio-temporal set of markets that serve their needs. According to a number of observers, the location and timing of markets have evolved to maximize access to consumers within a specified interpurchase interval. This leads to an inverse relationship between the location of two markets and the time interval between their market meetings. Markets that meet simultaneously or are separated by only a short time interval should be more geographically dispersed (Fagerlund and Smith 1970). A counter-hypothesis is that itinerant traders develop a sequence that minimizes their travel costs (Hill and Smith 1972). Empirical studies provide only partial support for the hypotheses.

2. The Morphology Of Urban Retail Outlets

The organization of retail centers within cities follows a hierarchical pattern characterized by greater functional complexity of centers as one moves to higher levels of the hierarchy. The geographic reach of the center expands as one moves up the hierarchy due to its centrality, and retail businesses locate in different levels of the hierarchy depending upon the sizes of the market area required to generate adequate economic returns. The result is a hierarchical structure of retail locations similar to the tenets of central place theory. Much of the early literature on retail geography comprises empirical studies of urban retail hierarchies in North America and Europe conducted to test central place theory. Later the emphasis shifted to investigating the dispersion of retailing from urban areas by combining the analyses of spatial demand patterns with that of the changes in the social and economic conditions as well as changes in the organizational structure of the retail sector.

2.1 The Transformation Of Urban Retail Geography

The dominant feature of the transformation of the post-World War II retail geography in North America and Europe is the shift of retail activities from city centers to suburbs. Before World War II, the central business district (CBD) ranked as the pre-eminent metropolitan shopping district, offering a vast array of goods and services and attracting shoppers from throughout the metropolitan region. That premier position started to fall in the 1950s and 1960s in large urban areas, and later in smaller cities too. While retail activity declined in the metropolitan core, however, it grew rapidly on the suburban periphery both in North America and Europe, reflecting the spatial redistribution of population and income in metropolitan areas (Davies and Rogers 1984). The suburb’s share of retail sales increased significantly, and major shopping centers started to rival the CBD in retail sales volume.

The decentralization of sales was linked closely to the emergence of new retail formats. Shopping centers, housing diverse retail stores under one roof, represented a dramatic departure from earlier retail formats. Unlike the traditional downtown shopping district, they were planned, integrated complexes developed and marketed as a unit (Dawson and Lord 1985). Initially suburban shopping was concentrated along highways in strip malls and in neighborhood convenience centers. This was followed by the development of large, regional shopping centers, which became the focal point of the metropolitan retail structure, drawing shoppers from a wide geographical area. Thus, the new geography of retailing is much more dispersed than in the past, comprising a well-developed retail network focused on various levels of regional and neighborhood shopping centers and shopping districts.

2.2 The Context Of Change

The suburbanization of population and the evolving transportation infrastructure provided the motive force for the spatial dispersion of retailing. But institutional, financial, and governmental policies also shaped this new geography. The establishment of shopping centers was greatly encouraged by suburban municipal governments, who viewed shopping centers as an important source of tax revenues. Small municipalities on the outskirts of larger towns encouraged the establishment of shopping centers within their jurisdictions to attract shoppers from the larger towns, and, thereby, increase tax revenues. The growth of shopping centers was also facilitated by easy access to financing and financial arrangements that greatly reduced the developer’s risk. The consolidation of the retail industry and the growth-oriented philosophies of department and specialty store chains further fueled the expansion.

While local governments in suburban communities actively encouraged the growth of shopping centers, their counterparts in urban areas viewed them as grave threats. Retailers in older, urban shopping districts faced two competitive disadvantages. First was the lack of population, income, and employment growth. Second was the general deterioration of the shopping environment, which reduced the CBD’s ability to attract middle and upper-income shoppers. Concerned by the erosion of urban retail business and its impact on city finances, a number of governmental programs and policies were initiated to encourage retailing in CBDs. Some of these new downtown retail projects included pedestrian shopping malls, retail facilities built within large downtown office complexes, and anchorless centers housing entertainment, recreation, food, and specialty retailing. They all represented departures from the traditional hierarchical structure of retail organization.

3. Analytical Models Of Store Location

3.1 Retail Forecasting Models

The rapid expansion of suburban outlets created the need for a systematic approach to determining store locations, resulting in an array of techniques for site selection and retail sales forecasting. The key to forecasting retail sales is to delineate accurately the store’s trade area—the geographic area from which the store draws most of its customers. The foundation of contemporary approaches to delineating trade areas was laid by Applebaum (1968) in his ‘customer spotting’ method. Huff ’s spatial interaction model extended the approach by looking at the complex interactions within the total system of retail trade areas in a region (Huff 1963). Underlying spatial interaction models is the premise that the share of customers a retail outlet attracts from an area is inversely proportional to distance and directly proportional to the attraction of the store. These models develop an empirical basis to determine the relative impact of distance and attraction on store choice, and conceive trade areas as probabilistic rather than deterministic, with each store in an area having some probability of being patronized. Huff ’s probabilistic revealed preference approach to modeling store choice was extended with more sophisticated analytical techniques and the definition of a broader set of variables to measure store attractiveness (Ghosh and McLafferty 1987).

3.2 Location-Allocation Models

Determining the optimal locations for a network of retail outlets is a complex task, requiring decisions on the number of stores to locate, their locations, and their characteristics. All the decisions must be integrated within a single decision-making framework, taking into consideration the geographical pattern of demand, transportation, and corporate objectives. Location-allocation models systematically evaluate a large number of locations to find sites that optimize objectives such as market share or accessibility, taking into consideration system-wide store-location interactions (Ghosh and McLafferty 1987). Because the models can look at the impact of each store on the entire network of stores, they are ideally suited to analyzing the location decision of retail chains operating multiple outlets in the same market area (Achabal et al. 1982). Location-allocation is a flexible analytical system in that a variety of objective functions and constraints can be incorporated (Ghosh and Harche 1993). The combination of machine-readable economic and geodemographic data, geographical information systems software, and location-allocation models create effective location decision support systems (Birkin et al. 1996).

4. Conclusion

The structure of retail trade, like most economic activities, is shaped to a large extent by geography. Indeed, it is often said that the three secrets to retailing are location, location, and location. Although this of repeated adage is somewhat of an exaggeration, even in the era of e-commerce and electronic retailing, the geographical pattern of retail trade is shaped by the relationship between the patterns of consumer demand and store locations, mediated by consumer travel patterns. The literature on retail trade provides frameworks for understanding how these forces, mediated by public and corporate policies, shape the observed pattern of retail trade and presents empirical studies from diverse regions of the world. It also presents analytical methods for locating retail outlets.

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