Capture & Leakage, and Trade Area Analysis Arthur C. Nelson, Ph.D., FAICP Presidential Professor & Director Metropolitan Research Center University of Utah February 2010

Trade Area Sales Analysis Provides 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 Sales and sales tax data from Department of Taxation: Per capita income from Regional Economic Information System: =49045&areatype= State Population from Census estimates:

Potential Sales Analysis Box Elder County – Furniture Data: 2008 Box Elder County Population: 49, Box Elder County Furniture Sales: $6,409, Utah Furniture Sales: $1,700,318, Utah Population: 2,736, Box Elder County Per Capita Income: $26, Utah Per Capita Income: $28,196

Potential Sales State per capita sales average =$621 County 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)

Potential Income Analysis Box Elder County – Information Data: 2007 Box Elder County Population: 47, Box Elder Per Capita Income: $25, Box Elder County Information Payroll: $2,007, Utah Population: 2,668, Utah Information Payroll: $1,821,617, Utah Per Capita Income: $29,831

Potential Income State per capita information average =$683 County per capital information average= $42 Economic Development Implications? Potential Income = [(47,790) x ($1,821,617,000/ 2,668,930) x ($25,898/$29,831)] = $28,317,000 Actual Income= $2,007,000 Capture (Leakage) = ($26,310,528)

Reilly’s Law of Retail Gravitation Provides estimate of maximum distance customers will travel to shop for a specific good or service Premise is that people are attracted to larger places to shop, but time and distance influence these decisions The town being analyzed should be the largest in the analysis Works best for goods and services where quality, price, etc., are factors influencing purchases

Reilly’s Law Distance from Smaller Community (Y) Distance data can be obtained from Internet mapping sites such as MapQuest, Yahoo, etc.: State Population by Place from Census estimates: 00.html

Price Trade Area

Distance Data (Mapquest) Distance between Price and:Mileage Helper5.5 Wellington5.0

Population Data CityPopulation Price8,039 Helper1,876 Wellington1,571

Price Trade Area Helper will draw residents from 1.79 miles toward Price Wellington will draw residents from 1.54 miles toward Prioce What 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 Limitations Assumes homogeneous population Only use for independent communities surrounded by countryside Should only be used for similar sized communities Assumes everyone shops locally – overestimates shopping population Estimate 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 Kathy Tweeten, North Dakota State University; Alan Barefield, Southern Rural Development Center; Randy Reynolds Piedmont Community College “Community Economic Analysis” nd.