LYON COUNTY COMMERCIAL SECTOR ANALYSIS AND FOCUS

Transcription

1 TECHNICAL REPORT UCED 98/99-06 LYON COUNTY COMMERCIAL SECTOR ANALYSIS AND FOCUS GROUP STUDY UNIVERSITY OF NEVADA, RENO

2 LYON COUNTY COMMERCIAL SECTOR ANALYSIS AND FOCUS GROUP STUDY Study Conducted by: Thomas R. Harris Ann Ball and Loretta Singletary Thomas R. Harris is a Professor in the Department of Applied Economics and Statistics and Director of the University Center for Economic Development at the University of Nevada, Reno. Ann Ball is an Associate Professor in the Department of Applied Economics and Statistics at the University of Nevada, Reno Loretta Singletary is an Extension Educator for Lyon County Cooperative Extension. February 1999 UNIVERSITY OF NEVADA RENO The University of Nevada, Reno is an Equal Opportunity/Affirmative Action employer and does not discriminate on the basis of race, color, religion, sex, age, creed, national origin, veteran status, physical or mental disability, and in accordance with university policy, sexual orientation, in any program or activity it operates. The University of Nevada employs only United States citizens and aliens lawfully authorized to work in the United States. 2

3 This publication, Lyon County Commercial Sector Analysis and Focus Group Study was published by the University Center for Economic Development in the Department of Applied Economics and Statistics at the University of Nevada, Reno. Funds for this publication were provided by the United States Department of Commerce Economic Development Administration under University Centers Program contract # This publication's statements, findings, conclusions, recommendations, and/or data represent solely the findings and views of the authors and do not necessarily represent the views of Lyon County Economic Development Authority, Lyon County Commissioners, the U.S. Department of Commerce, the Economic Development Administration, the University of Nevada, Reno, or any reference sources used or quoted by this study. Reference to research projects, programs, books, magazines, or newspaper articles does not imply an endorsement or recommendation by the authors unless otherwise stated. Correspondence regarding this document should be sent to: Thomas R. Harris, Director University Center for Economic Development University of Nevada, Reno Department of Applied Economics and Statistics Mail Stop 204 Reno, Nevada Phone: 775/ UCED University of Nevada, Reno Nevada Cooperative Extension Department of Applied Economics and Statistics 3

4 Table of Contents Section I. National, State and Lyon County Commercial Sector Trends... 8 Overview... 9 The Changing Structure of the Commercial Sector... 9 Discount General Merchandising Stores Membership Warehouse Clubs Category Killer Stores Factory Outlet Malls Mail Order House and Internet Shopping National Retail Trends State of Nevada Retail Trends Lyon County Retail Trends Synopsis of Research Concerning Factors Influencing Rural Commercial Sector Trade Activity Section II. Market Area Analysis for Lyon County Commercial Sector Trends in Taxable Sales Pull Factor Analysis Interpretation and Use of the Pull Factor Pull Factor Analysis for Lyon County Overall Retail Sales Sales by Sector Potential Sales Analysis Location Quotients and Population-Employment Ratios Location Quotient Procedures Location Quotient Results Population-Employment Ratio Procedures Population-Employment Ratio Results Section III. Results of Focus Group Study of Commercial Sector Activity in Lyon County Result of Focus Group Study for Commercial Sector Activity in Lyon County Results of Yerington Focus Groups Results of Focus Groups Results of Fernley Focus Groups Results of Focus Groups Focus Group and Indicator Results

5 Table of Contents Section IV. Business Development Strategies to Capture Local Commercial Sector Demands Commercial Sector Development Strategies Strategic Planning for Commercial Sector Development in Lyon County References

6 List of Tables Table 1. Lyon County Nominal and Real Taxable Sales, Table 2. Per Capita Real Taxable Sales of Carson City, Churchill, Douglas and Lyon Counties, Table 3. Overall Pull Factor in Lyon County, Table 4. Lyon County, Nevada Taxable Sales and Pull Factors Table 5. Location Quotient Values for Selected Commercial Sectors for Douglas, Churchill, Carson City and Lyon Counties Table 6. Population-Employment Ratios for Selected Commercial Sectors for Douglas, Churchill, Carson City and Lyon Counties

7 List of Figures Figure 1. Lyon County Real Taxable Sales, Figure 2. Per Capita Real Taxable Sales for Carson City, Churchill, Douglas and Lyon Counties, Figure 3. Overall Pull Factor for Lyon County,

8 LYON COUNTY COMMERCIAL SECTOR ANALYSIS AND FOCUS GROUP STUDY Where shopping flourishes, so do the communities that foster it. Where it fades, so do the economic prospects of communities that lose it. - National Council for Economic Development. During the summer and fall of 1998, the University Center for Economic Development and Lyon County Economic Development Authority conducted an analysis of the Lyon County commercial sector. Focus groups of citizens from Yerington,, and Fernley were formed to elicit opinions of the local commercial sector. The report is divided into four sections. The first section provides an overview of national, state and county trends in the commercial sector. The second section of the report completes a market area analysis of commercial sector activity in Lyon County. The third section completes a focus group analysis of the Lyon County commercial sector. The final section develops and suggests strategies for Lyon County to reduce or capture commercial sector sales leakages. 8

9 LYON COUNTY COMMERCIAL SECTOR ANALYSIS AND FOCUS GROUP STUDY EXECUTIVE SUMMARY This study was commissioned by the Lyon County Development Authority to estimate current activities of the Lyon County commercial sector as well as potential and further development for Lyon County commercial sector. Section I. National, State and Lyon County Commercial Sector Leakages During the 1980 s and 1990 s, there have been rapid changes in the national commercial sector. Growth has occurred in commercial sector segments such as discount general merchandisers, membership warehouse clubs, category killer stores, factory outlet malls, specialty mail order and Internet stores. Nationally, the retail sector employed 18% of non-agricultural employment in 1992, which represents 1 in 5 Americans in the workforce. In the state of Nevada, the retail sector employed 16% of Nevada s total employment in In Lyon County, the retail sector employed 19% of total employment in Section II. Market Area Analysis for Lyon County Commercial Sector Nominal taxable sales in Lyon County increased from $72.2 million in 1987 to $158.7 million in Real taxable sales, taxable sales adjusted for inflation, in Lyon County increased from $86.9 million in 1987 to $142.2 million in 1997 or a 64 percent increase from 1987 to

10 Per capita real taxable sales in Lyon County have been relatively stable from 1987 to 1997, increasing by 3 percent during that ten year period. During the same time period Carson City per capita and taxable sales increased by 7.3 percent. Lyon County per capita real taxable sales have been lower than the values of three comparison counties (Douglas, Carson City and Churchill) from 1987 to In comparison, per capita taxable sales for Lyon County were 47.2 percent, 57.5 percent and 36.3 percent of per capita taxable sales for Douglas, Carson City and Churchill Counties, respectively. An analytical procedure to estimate commercial sector activity for a county or community is the pull factor. Pull factors can be used to evaluate the commercial sector activity through time for a given county or to make cross-county comparisons of a county s commercial sector. What does the pull factor tell us? If the pull factor is greater than one, then the county is attracting consumers from outside its county s boundaries. However, if the pull factor is less than one, then the county is not capturing the commercial sector purchases of its residents. When the pull factor is less than 1.0, the county is said to have commercial sector leakages. Lyon County pull factor values have declined slightly from 0.40 in 1987 to 0.39 in Therefore in 1997, Lyon County is currently losing approximately 61 percent of potential taxable sales. All Lyon County retail sectors were losing taxable sales. All retail sectors had pull factors of less than one with the two highest being 0.87 for Building Materials and Hardware Stores and 0.75 for Food Stores. Additional analytical procedures to estimate local commercial sector activity and import substitution possibilities are location quotients and population-employment ratios. 10

11 Location quotient is the ratio of the share of local employment in a particular sector to the share of national employment in that sector. For import substitution targeting, location quotient values less than 1.0 signify potential expansion or development in the given sector. When comparing location quotient values of Lyon County to values in Churchill, Carson City and Douglas Counties, Lyon County commercial sectors with low location quotient values and therefore potential commercial sector targets are: Department Stores; Apparel and Accessory Stores; Home Furniture and Furnishings Stores; Eating and Drinking Places; Hotels and Other Lodging Places; Services to Dwellings and Other Buildings; Computer Programming; Data Processing and Other Related Services; Offices and Clinics of Doctors, Dentists and Osteopaths; Nursing and Personal Care; and Legal Services. Population-employment ratio is calculated by dividing a county s population by the employment in a selected commercial sector. Population-employment ratios are used for inter-county comparisons. A relatively high population-employment ratio indicates that each employee in the given commercial sector serves more people than average which implies a potential to expand. 11

12 When comparing population-employment ratio of Lyon County to values in Churchill, Carson City and Douglas Counties, commercial sectors for potential expansion, development or relocation in Lyon County are: Department Stores; Apparel and Accessory Stores; Home Furniture and Home Furnishings Stores; Eating and Drinking Places; Hotels and Other Lodging Places; Services to Dwelling and Other Buildings; Computer Programming, Data Processing and Other Related Services; Other Business Services; Motion Pictures; Offices and Clinics of Doctors, Dentists and Osteopaths; Nursing and Personal Care Facilities; and Legal Services Section III. Results of Focus Group Study of Commercial Sector Activity in Lyon County During the months of June and July, 1998, a series of focus group meetings were held in Yerington,, and Fernley to elicit opinions regarding commercial sector trade in Lyon County. If enough participants attended the focus group meetings, the participants were split into four groups: long-time residents (5 years residency or more); short-time residents (less than 5 years residency); business owners; and teenagers. Focus groups were asked six questions: 1. Services Provided 2. Personnel 3. Quality of Goods and Services Provided 4. Price 5. Selection Available 12

13 6. If you could add, delete or change a couple of things in the local commercial sector, what would it be? From the focus groups, commercial sectors identified for development or relocation are: Department Stores; Apparel and Accessory Stores; Home Furniture and Furnishings Stores; Eating and Drinking Places; and Computer Programming, Data Processing and Related Services. Section IV. Business Development Strategies to Capture Local Commercial Sector Demands In developing more efficient commercial sector strategies, the following program can be used: i.) ii.) iii.) iv.) v.) vi.) vii.) Analyze the local business sector to identify the needs and opportunities to be pursued by the program. Provide management assistance and counseling to improve the efficiency and profitability of local businesses. Assist new business start-ups and entrepreneurial activity by analyzing potential markets and local skills and matching entrepreneurs with technical and financial resources. Provide assistance in identifying and obtaining financing. Develop a one-stop permit center. Involve active local organizations and the media. Promote the development of home based enterprises. To develop strategy for local commercial sector development, Lyon County should investigate completing a strategic plan for Lyon County commercial sector development. 13

14 Steps for commercial sector targeting initiative should involve the following steps: i.) Develop a commercial sector targeting committee; ii.) Complete a visioning and goal setting exercise; iii.) Data gathering and analysis of local commercial sector; iv.) Potential project identification; and v.) Review and update targets. 14

15 SECTION I: NATIONAL, STATE AND LYON COUNTY COMMERCIAL SECTOR TRENDS 15

16 SECTION I NATIONAL, STATE AND LYON COUNTY COMMERCIAL SECTOR TRENDS OVERVIEW The primary objective of Section I is to provide analysis of the changing national, state and county commercial sectors. By understanding these commercial sector changes, Lyon County decision makers may be able to better target or position local commercial sector development activities to take advantage of these national, state and county trends. Section I is divided into five sub-sections. The first sub-section discusses the different types of commercial businesses that exist currently in the nation and their influence on contemporary and future commercial sector trends. The second sub-section presents in bullet form trends in the national commercial sector. The third sub-section presents in bullet form state of Nevada commercial sector trends. The fourth sub-section presents in bullet form trends in Lyon County commercial sector. The final sub-section of Section I presents in bullet form a summary of research findings pertaining to rural commercial sector activity and opportunities. THE CHANGING STRUCTURE OF THE COMMERCIAL SECTOR During the 1980 s and 1990 s, structure of the national commercial sector changed more rapidly than during the period from the 1950 s to 1970 s. Shopping malls became powerful attractions and fundamentally changed shopping patterns. Commercial sector consumers abandoned downtown shopping areas in large numbers and shopped in malls (usually in suburban areas) where the climate is controlled; there is plenty of free parking; there are gigantic anchor stores, lots of specialty stores and convenient shopping hours all under one roof. In fact shopping at large mall has become a tourism activity for many vacationers. Most downtown areas did not respond in a competitive way to these suburban malls. Most downtown areas left parking meters in place; continued to close at 5:00 or 5:30 p.m.; continued to allow store workers to park in front of the store; and in general, had very little 16

17 coordination or cooperation in establishing policies or promoting downtown shopping. Many downtown areas are losing their former function as a central community shopping area and meeting place, and are evolving to be a blend of service type businesses such as real estate offices, lawyers, accountants, insurance agents and a small mix of retailers. During the late 1980 s and 1990 s, the commercial sector in the nation has realized rapid growth in several segments of the commercial sector such as discount mass merchants. These segments are discount general merchandisers, membership warehouse clubs, category killer stores, factory outlet malls, specialty mail order and/or Internet stores. Discount General Merchandise Stores Discount general merchandisers encompass such national chains as Wal-Mart, K-Mart and Target, as well as several regional chains such as Shopko. These stores range in size from 30,000 to 140,000 square feet, depending on the age of the store and market area served. These stores typically have 30 or more departments and relatively low prices due to a lower level of service than traditional department stores, and also due to continual improvement of operating efficiency. Discount general merchandisers usually carry 40,000 to 80,000 stock keeping units, that is, separate items of merchandise. Membership Warehouse Clubs The first membership warehouse clubs were often referred to as warehouse clubs. These early clubs primarily targeted small retailers but as time went on, an increasing numbers of consumers started shopping in these warehouse clubs as they became aware of the cost savings due to low overhead. Membership warehouse clubs are usually large stores, ranging from 80,000 to 140,000 square feet. Warehouse clubs are typically austere with bare concrete floors, unfinished ceilings and warehouse shelving. Much of the merchandise is placed on shelves in pallets by forklifts. Most of these stores have evolved to a point where about half of their sales are groceries. Substantial merchandise is sold in large packs, such as 24 roll packages of toilet tissue or 12 roll packages of paper towels. 17

18 Warehouse clubs operate on a very thin gross profit margin, ranging between 8 to 12% of sales. Therefore operating costs are kept low by austere facilities and by shipping merchandise directly from the manufacturer to the store. Because of limited selection of goods at these membership warehouse clubs, their impact on other commercial sector merchants is less when compared to discount general merchandise stores. Category Killer Stores Large retail stores that specialize in a fairly narrow line of merchandise are called category killer stores. These stores have a large selection within a narrow category of merchandise and often smaller stores can not compete in categories where they have a limited selection. In most cases, store personnel are very knowledgeable about the merchandise. These stores typically require a high traffic count. This means stores such as Home Depot, Circuit City, The Good Guys, Office Depot, Staples, Oshman s Sporting Goods, Sportsmart, etc. normally locate in mid- to large-sized cities. However, these chains are now experimenting with smaller format stores in smaller communities. Factory Outlet Malls Factory outlet malls originated on the East Coast but have now migrated across the nation. The first factory outlet malls were located downtown in vacant factories and warehouses. Now most of the malls are located along interstate highways and within the commuting distance of population centers. Factory outlet malls vary in size from 8 to 10 stores to up to 75 to 100 stores. Most stores in factory outlet malls are apparel stores but more specialty stores such as bookstores or houseware stores are appearing in these malls. We could not find a good study showing the sales of factory outlet malls. However, where shopping malls have located in states with good sales tax data such as Iowa, shopping malls generate $20 to $60 million per year in retail sales (Stone 1995). 18

19 Mail Order Houses and Internet Shopping Mail order houses have evolved from general catalog sales like Sears, Montgomery Wards and JC Penney s to specialty sales. Currently, there are thousands of specialty mail order houses that cover computers and supplies, office supplies, apparel for the whole family and sporting goods, just to mention a few. However, with improved telecommunications, the Internet and delivery services, mail order house sales in the future are forecast to increase. Specialty mail order businesses seem to appeal to busy people, hobbyists and those located in remote areas. NATIONAL RETAIL TRENDS The Consumer Science and Retailing Department at Purdue University (1998) lists the following items concerning national retail trends. The national retail sector employs approximately 18% of all non-agricultural employment in 1992, which represents approximately 1 in 5 Americans in the workforce. In 1992, the national retail sector has more employment than the national manufacturing sector. Nationally, the retail sector in 1992 had sales of $2.3 trillion and employed 21 million people in 1.4 million establishments. The national retail sector in 1992 generated $102,000 per employee with average compensation of $21,000 per employee. Nationally, 41% of all retail firms generated less than $250,000 in sales in Nationally, 80% of total retail stores generated sales of less than $1,000,000 in ,000 shopping centers generated $893 million in sales in Retail employment is expected to grow by 300% between 1995 and 2005 representing 3 million new jobs. 19

20 Average retail sector area in 1945 was 15 miles. Average retail sector area in 1995 was 50 miles. In the 1960 s the U.S. had 4 square feet of retail space per capita. In the 1990 s the U.S. had 19.3 square feet of retail space per capita. Based on available dollars for retail, about 7.5 square feet per capita of retail space is required. STATE OF NEVADA RETAIL TRADE From the Regional Economic Information System (1998) and U.S. Census of Retail Trade (1994), the following trends in state of Nevada retail trade are enumerated. Retail trade sector employed approximately 16% of Nevada employment in Retail trends in the state of Nevada accounted for $11.5 billion in sales, employing 99,000 people in 7,500 establishments in Retail trade in the state of Nevada generated sales of $116,000 per employee with an average wage of $14,300 in LYON COUNTY RETAIL TRENDS From the Regional Economic Information System (1998) and U.S. Census of Retail Trade (1994) the following trends in Lyon County, Nevada retail trade are enumerated. The retail trade sector employed 19% of total Lyon County employment in Retail trade in Lyon County accounted for $68.4 million in sales, employing 613 people in 101 establishments in Retail trade in Lyon County generated sales of $111,543 per employee with an average wage of $12,382 per employee in

21 SYNOPSIS OF RESEARCH CONCERNING FACTORS INFLUENCING RURAL COMMERCIAL SECTOR TRADE ACTIVITY This is a list of short synopses of research findings concerning factors influencing rural commercial sector trade activity. The objective of this sub-section is to provide concise findings of academic and professional articles that may provide assistance to Lyon County decisionmakers in formulating strategies and targets for local commercial sector development activities. Most rural retail studies have been completed in the mid-west and southern states of the nation. However, their findings are transferable to the mountain and Pacific states. Stone (1988) found that if a shopping mall is present in a county, total retail sales for that county increased by $75 per additional square foot of retail space. However, when a shopping mall is located outside the county and is within 25 miles of the county seat, total county retail sales decreased by $4.86 for each additional square foot of mall space. When a mall is located outside the county and within 26 to 50 miles of the county seat, county retail sales realized a loss of $0.61 for each additional square foot of mall space. Yanagida et al. (1991) developed an analytical framework for explaining pull factors across counties in the state of Nebraska. They found that lower retail sales leakages may be attributed to counties that are situated farther from trade centers, have large federally adjusted gross incomes and experience lower county population decreases than average rural Nebraska. Specifically for Nebraska counties, the smaller the population of the largest town, the more significant the sales leakage. Ayers et al. (1992) completed a study of rural retail businesses in 37 communities in the three states of Indiana, Iowa and North Dakota. Their analysis identified both supply and demand factors in capturing local demands. Factors capturing additional local demands were a more diverse local economy, providing business management training and technical assistance, establishing a mechanism to increase transfer of business operations to new owners, developing financial assistance programs for new and aspiring businesses and developing extension and outreach programs that assist communities to understand and cope with a changing economy. 21

22 Gruidl and Andrianacos (1994) found that demand factors played a central role in rural commercial sector capture. County population and income levels were found to have significant impacts on rural commercial sector expansion. However, elements underlying the supply side of the rural retail market such as access and adoption of new commercial sector technologies were important components to rural commercial sector trade. Darling and Tubene (1996) investigated commercial sector activity for 87 rural Kansas cities. Their results showed that city population alone explained significant variation in taxable commercial sector sales. Kansas cities with population over 5,000 consistently showed an inflow of commercial sector trade. Gale (1996) used time series data to investigate trends in rural commercial sector activity. Gale found that from 1982 to 1992, rural counties were losing their capture of local commercial sector trade. Factors influencing retention of commercial sector trade capture were high population density, lower farm reliance, larger county size and access to interstate highways. Bhuyan (1996) found through disaggregated analysis of commercial sector trade in North Dakota that niche markets for specific goods and services exist within rural counties where the firms may effectively compete. Gruidl and Andrianacos (1994) concluded their paper by calling for better understanding of the forces influencing rural commercial sector markets. If demand is found to be a major factor underlying rural commercial sector markets, then public policy efforts should focus on expanding basic or export sector employment and income. However, if declines result from supply side factors, such as efficiency of local retail trade sector, customer relations, etc., then efforts to improve competitiveness of rural commercial sector owners must be a primary objective. Therefore, extension education programs in small business efficiency, customer relations, tax strategies, etc. can increase local retail sector sustainability and expansion. 22

23 Harris and Shonkwiler (1997), Shonkwiler and Harris (1996) and Ebai and Harris (1997) found that commercial sector firms are interrelated and that number and type of commercial sector firms greatly impact the probability of existence of other types of commercial sector activities. 23

24 SECTION II: Market Area Analysis for Lyon County Commercial Sector 24

25 SECTION II: Market Area Analysis for Lyon County Commercial Sector A community s concern with market area analysis derives from the influence of the availability of goods and services on the quality of life and the role that trade and service activities play in the community s economy. Some of the basic questions addressed in the community s market area analysis are: 1. What goods and services are being offered locally? 2. What is the sales potential? 3. How much of the potential sales are actually being captured? 4. How can sales be increased? Section II is divided into four sub-sections. The first sub-section completes an analysis of taxable sales trends. A trade area analysis of Lyon County is completed in the second subsection. The third sub-section employs location quotient procedures and population-employment ratios to identify impact substitution potentials. The fourth sub-section uses demand threshold procedures to identify commercial sector potentials in Lyon County. Trends in Taxable Sales Nominal taxable sales in Lyon County increased between 1987 and As shown in Table 1, total nominal taxable sales increased from $72.2 million in 1987 to $158.7 million in When nominal taxable sales were adjusted for inflation, real taxable sales have shown volatility but have rose annually since Total real taxable sales in Lyon County increased by approximately 64 percent from 1987 to 1997 (Table 1 and Figure 1). From Table 2 and Figure 2 when taxable sales are adjusted for both inflation and population, real per capita taxable sales in Lyon County have been somewhat stable from 1987 to Per capita taxable sales in Lyon County increased by 4 percent from 1987 to During this same time period, Carson City real per capita taxable sales increased by 7.3 percent 25

26 from 1987 to 1997, while per capita taxable sales in Douglas County decreased by 17.6 percent from 1987 to When real per capita taxable sales for Lyon County are compared to neighboring Carson City, Churchill and Douglas Counties (Figure 2) values for Lyon County are lower. In comparison, per capita taxable sales for Lyon County are 47.2 percent, 57.5 percent and 36.3 percent for Douglas, Carson City and Churchill Counties, respectively. Table 1. Lyon County Nominal and Real Taxable Sales, Year Nominal Taxable Sales Real Taxable Sales* ($1,000) ($1,000) ,175 86, ,479 91, ,002 94, ,630 88, ,093 87, ,607 92, , , , , , , , , , ,213 *Real taxable sales derived using implicit price deflator where 1992 =

27 Figure 1. Lyon County Real Taxable Sales, Lyon County Real Taxable Sales, Real Sales in Thousands of Dollars Years Real Sales ($1,000,000) 27

28 Table 2. Per Capita Real Taxable Sales for Carson City, Churchill, Douglas and Lyon Counties, Counties Year Douglas County Carson City County Churchill County Lyon County 1987 $11, $10, $7, $4, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

29 Per Capita Real Taxable Sales Thousands Douglas Carson City Churchill Lyon Year Figure 2. Per Capita Real Taxable Sales for Carson City, Churchill, Douglas and Lyon Counties,

30 Pull Factor Analysis Because of differences in population and income, it is often difficult to compare one county s sales with another. One method of measuring sales is to measure sales per resident of a large region, such as a state, and then assume that local sales should follow the same pattern if local tastes and preferences are the same. The procedure used in this analysis to derive local commercial sector activity is pull factor. The formula for computing the pull factor is as follows 1 : Pull Factor = County Taxable Sales County Population State Taxable Sales State Population (1) The data used for this analysis is county retail sales from 1987 through 1997 as reported by the Nevada State Taxation Department. This data reports taxable sales in thirty-two different categories. The pull factor measures how much a county is selling of a particular commodity versus how much it should sell if its residents were buying as much as the state average. Thus a pull factor of 1.00 means that the county is drawing all of resident s buying power but none from the outside. A pull factor of over 1.00, say 1.50, means that the county is drawing non-local customers equal to approximately 50 percent more than the county population. Finally, a pull factor less than one means the county is not capturing the shoppers within its boundaries or they are spending less than the state average. The next section discusses how pull factors can be used to give local decision-makers insights as to local retail sales activity and potential. 1 There are alternative procedures to derive county pull factors as presented by Harris (1985), Hustedde et al. (1984) and Woods (1991). However, these procedures require county income information, which is usually available two to three years later. In order to derive pull factors in a more timely fashion, procedures developed by Darling and Tayyem (1991) were employed. 30

31 Interpretation and Use of the Pull-Factor For economic development, the pull-factor analysis can help identify selected retail sectors that may be targeted for retail sector development. Most often a pull-factor below 1.00 indicates a retail sector opportunity. However, this assumes that the low pull-factor is due to local residents shopping outside the county, which is not always true. Analogously, if a pullfactor is above 1.00 it may suggest that the county is drawing in residents from neighboring counties to shop. A pull-factor above 1.00 indicates that the county sells more of a product than would be expected given its population and income. The most likely reasons for this volume of sales are either the local economy is specialized in a particular economic sector, or residents are shopping outside their own communities. If an economy is specialized in a particular economic sector it may buy more of a given retail product or products. For example, Churchill County has a pullfactor for farm implement products well above This does not necessarily mean however, that it has excess supply or is selling to neighboring county residents. Rather, in light of its local economy specializing in irrigated agriculture, it has a higher than average demand for such products. In this case, understanding the cause of the pull factor may suggest that a farm implement store may be needed in Churchill County, while a county with a low pull factor for farm implement stores may not be suitable for such an operation because of a lack of natural resources. The second reason for a high pull-factor is that the county is pulling in residents from neighboring counties. For example, in Carson City, its high pull-factor for automobiles and general merchandise stores probably reflects its role as a regional shopping area for the neighboring counties of Douglas, Lyon and Storey. Many communities have actually pursued a strategy of becoming a regional shopping center in much the same way that the nations try to increase their exports. If a county is exporting its retail products, the local retail sector is bringing outside dollars into the local or regional economy which, like a basic sector yields respending opportunities which increase overall local or regional economic activity. If a county has a pull factor below 1.00, this means that either the local economy does not demand this product, or local residents are purchasing the product outside the county. Churchill County, for example, is an economy dominated by agriculture and the local military base, as 31

32 opposed to tourist economies of Reno or Las Vegas or the mining economy in Elko County. Therefore, Churchill County, which has a relatively small mining industry, would have a low pull factor for mining supplies. In the context of demands of the local economy, these low pullfactors reflect low demand, not necessarily indicators of opportunities for a restaurant or mining supply store. Especially in rural counties, a low pull-factor often indicates that local residents are shopping in neighboring counties. For example, Lyon County had a pull factor of in the General Merchandise Store Sector while neighboring Carson City had a pull factor of nearly People driving through will drive to Carson City to shop at general merchandising stores there. In this case, it is likely that Lyon County is importing retail products from Carson City as its residents retail demand is leaking out of the county. By examining specific sectors such as general merchandising stores or apparel and accessory stores, which have particularly low pull-factors, it is possible to identify which types of retail stores might be the most successful in a county s economic development as part of an import substitution plan. In such a case, a low pull-factor may be used to estimate the current amount of local demand that is currently being lost and might be recaptured by a new retail operation. Pull Factor Analysis for Lyon County Overall Retail Sales In 1997, the pull factor for Lyon County was 0.39, indicating that the county was losing approximately 61% of potential taxable sales. As shown in Figure 3, the pull factor peaked in for Lyon County has been decreasing slightly from 0.40 in 1987 to 0.39 in

33 Table 3. Overall Pull Factor in Lyon County, Year Pull Factor Sales by Sector Table 4 disaggregates taxable sales to show the amount of taxable sales and pull factors for each particular taxable sale category for The table shows that twelve of the eightythree taxable sales category sectors had pull factors greater than All sectors with pull factors greater than 1.00 are classified as exporting sectors while all of those with pull factors below 1.00 are importing sectors. All of the importing sectors are those in which Lyon County is purchasing less than expected inside the county. Presumably, the balance of Lyon County residential purchases is made up of establishments outside Lyon County, such as Carson City and Reno/Sparks. 33

34 Pull Factor Overall Pull Factor Lyon County Year Pull Factor Figure 3. Overall Pull Factor for Lyon County,

35 Table 4. Lyon County, Nevada Taxable Sales and Pull Factors Pull Taxable Potential Lost Sector Title Factor Sales Sales Sales 1997 Agricultural Production-Crops ,902 98,869 95,967 Agricultural Production-Livestock ,661 54,742 20,081 Agricultural Services , , ,776 Forestry ,141 1,387 N.A. Fishing, Hunting and Trapping ,593 2,902 N.A. Metal Mining ,741 3,707,240 3,600,499 Coal Mining ,136 1,136 Oil and Gas Extraction , , ,552 Mining and Quarrying of Nonmetals , ,874 N.A. Building Construction-Gen Cont ,503 3,359,184 3,220,681 Heavy Construction other than ,025 2,154,717 1,994,692 Construction-Special Trade Con ,227,002 12,634,751 9,407,749 Food and Kindred Products , , ,328 Tobacco Products ,183 13,097 11,914 Textile Mill Products , ,577 N.A. Apparel and Other Finished Products ,659 23,348 20,689 Lumber and Wood Products, Exce , ,539 N.A. Furniture and Fixtures , , ,891 Paper and Allied Products ,797 96,600 85,803 Printing, Publishing, and Alli , , ,119 Chemicals and Allied Products ,695 1,505,311 1,229,616 Petroleum Refining and Related ,989, ,890 N.A. Rubber and Misc Plastic Products ,661 96,617 N.A. Leather and Leather Products ,334 19,595 N.A. Stone, Clay, Glass, and Concrete ,478,318 2,598,038 N.A. Primary Metal Industries , ,901 Fabricated Metal Products, Ex ,586 1,098, ,766 Industrial and Commercial Machinery ,214,933 4,416,815 1,201,882 Electronic and Other Electrical ,877 2,769,531 2,334,654 Transportation Equipment ,330, ,239 N.A. Meadings, Analyzing, and Contr , , ,293 Misc Manufacturing Industries ,278,036 1,973,046 N.A. Railroad Transportation ,895 30,939 27,044 Local and Suburban Transit and ,685 90,685 Motor Freight Transportation A , , ,122 United States Postal Service ,630 23,576 Water Transportation ,683 34,375 N.A. Transportation by Air , ,342 Pipelines, Except Natural Gas ,131 17,192 N.A. Transportation Services ,030, ,776 N.A. Communications ,400 3,365,546 2,700,146 Electric, Gas, and Sanitary Services ,256,662 3,167,343 1,910,681 Wholesale Trade-Durable Goods ,401,011 30,868,936 19,467,925 Wholesale Trade-Nondurable Goods ,771,124 4,824,970 2,053,846 35

36 Table 4. Continued Pull Taxable Potential Lost Sector Title Factor Sales Sales Sales 1997 Building Materials, Hardware, ,733,334 33,087,363 4,354,029 General Merchandise Stores ,182,126 29,791,832 27,609,706 Food Stores ,116,764 18,783,327 4,666,563 Automotive Dealers and Gasoline ,975,090 53,149,839 27,174,749 Apparel and Accessory Stores ,395 14,369,333 13,861,938 Home Furniture, Furnishings and ,419,960 20,712,756 16,292,796 Eating and Drinking Places ,097,477 65,092,552 51,995,075 Miscellaneous Retail ,100,157 42,250,969 33,150,812 Depository Institutions , , ,163 Nondepository Credit Institutions ,231,021 3,851,651 2,620,630 Security and Commodity Brokers ,831 5,831 Insurance Carriers ,486 13,852 Insurance Agents, Brokers ,072 15,230 13,158 Real Estate , , ,497 Holding and Other Invest Offices ,041 7,041 Hotels, Rooming Houses, and Camps , , ,908 Personal Services ,518 1,636, ,610 Business Services ,127,391 15,319,278 10,191,884 Automotive Repair, Services and ,890,006 10,676,882 7,786,876 Miscellaneous Repair Services ,724,687 2,266, ,933 Motion Pictures , , ,611 Amusement and Recreation Services ,177,433 8,589,170 6,411,737 Health Services , , ,154 Legal Services ,572 31,952 29,380 Educational Services ,392 65,249 58,857 Social Services ,779 5,951 N.A. Museums, Art Galleries, and B ,192 5,192 Membership Organizations , , ,244 Engineering, Accounting, Research, ,480, ,326 N.A. Private Households Miscellaneous Services , , ,355 Executive, Legislative and Gen Justice, Public Order and Safety Public Finance, Taxation, and Administration of Human Resources Administration of Environment ,229 4,229 Administration of Economic Pro National Security and International Nonclassifiable Establishments , , ,726 Total ,666, ,913, ,246,941 36

37 Specifically for the retail sectors, the pull factor for the Building Materials, Hardware and Gardening Sector, the General Merchandising Sector, the Food Stores Sector, the Automotive Dealers and Gasoline Service Station Sector, the Apparel and Accessory Stores Sector, the Home Furniture and Furnishing Sector, the Eating and Drinking Sector and the Miscellaneous Retail Sector are of interest. All retail sectors, had a pull factors less than The two highest were 0.87 for Building, Materials and Hardare Sector and 0.75 for Food Stores. Potential Sales Analysis As a final measure of the potential areas for commercial sector development, an estimate of lost sales is presented in Table 4. Lost sales are defined as the difference between actual sales and potential sales (calculated based on a pull factor of 1.00 and assuming people purchase items at the statewide average.) When broken down by selected retail sector, the four retail sectors losing most of taxable sales are the General Merchandising Sectors (losing over $28 million), the Automobile Dealers and Gasoline Service Station Sector (losing over $27 million) and the Eating and Drinking Places Sector ($52 million) and the Miscellaneous Retail Sector ($33 million) 2. These estimates of potential and lost commercial sector sales are useful in identifying particular economic development and commercial sector recruitment strategies. Information from Table 4 can also help economic development officials and private companies attempting to prepare feasibility studies for particular locations. 2 Establishments within the Miscellaneous Retail Sector are drug stores, liquor stores, used merchandise stores, miscellaneous shopping goods stores, nonstore retailers, fuel dealers, and miscellaneous retail stores not elsewhere identified. (Executive Office of the President, 1987). 37

38 Location Quotients and Population-Employment Ratios Trade area analysis presumes that the assortment of goods and services offered by the community remains fixed and only their quantities vary. Community market analysis provides guidance on costs to the firm, access to alternative sources, and consumer demands. Temporarily ignoring cost differences among merchants, the question becomes, what goods or services currently purchased outside Lyon County (imported) by Lyon County residents can be provided locally (import substitution)? Location Quotient Procedures One procedure that can be used for import substitution analysis is location quotient procedures. Location quotients can indicate if a community produces more than what is needed for its own use and is selling the excess to non-local markets. It can also tell us which type of businesses are not accommodating local demands and are a source of consumption leakages. Location quotient procedures identify import substitution potentials (Shaffer, 1989). The location quotient is the ratio of the share of local employment in a particular sector to the share of national employment in that sector. Location Quotient = % of Local Employment in Sector i % of National Employment in Sector i For import substitution targeting, location quotient values less than 1.0 signify that the county has less employment in that particular commercial sector than the national average. One interpretation of location quotients is that a value of 1.0 measures self-sufficiency. If the county s location quotient value is less than 1.0 when it is at least 1.0 for similar communities, there is a potential local market for that commercial sector market. Location Quotient Results From Table 5, commercial sectors with location quotients less than one indicate some possibility for import substitution. Also comparing location quotients between the counties of 38

39 Douglas, Carson City, and Churchill may provide additional information to target local commercial sector activities. From Table 5, of the 26 commercial sectors investigated only 9 commercial sectors had location quotient values larger than one. This alone may indicate a large number of commercial sectors to be investigated for potential expansion or development. However, when comparing location quotient values of Lyon County with the other three Nevada rural counties, additional information is derived. When compared to other counties, commercial sectors with lower location quotient values are Department Stores; Apparel and Accessory Stores; Home Furniture and Furnishings Stores; Eating and Drinking Places; Hotels and Other Lodging Places; Services to Dwellings and Other Buildings; Computer Programming, Data Processing and Other Related Services; Nursing and Personal Care; Offices and Clinics of Doctors, Dentists and Osteopaths, and Legal Services. However, location quotients should not be used alone for import substitution strategies. Population-employment ratios should also be employed for this analysis. Population-Employment Ratio Procedures In a previous study by Murray and Harris (1998), population-employment ratio estimates were used to supplement location quotient analysis for import substitution strategies. Population-Employment ratio is calculated by dividing a county s population by the employment in a selected commercial sector or: P:N = Population in a selected county Employment in a selected commercial sector Since there are no critical values for population-employment ratios, such as location quotients of less than one, population-employment ratios require intercounty comparisons to determine whether a county s employment in a selected commercial sector is high or low. A relatively high population-employment ratio indicates that each worker in the commercial sector serves more people than average, which implies a potential to expand employment. The population-employment ratio circumvents reliance on national averages that may not be appropriate for the local situation. Also population-employment ratios incorporate total 39

40 population, not just those employed. Counting just employed people as done with location quotients may produce distorted results if the community has a high proportion of younger and/or older residents. Population-Employment Ratio Results From Table 6, commercial sector population-employment ratios for twenty-six commercial sectors in Douglas, Churchill, Carson City and Lyon Counties are presented. Commercial sectors that may be targeted by population-employment ratios are Department Stores; Apparel and Accessory Stores; Home Furniture and Furnishings Stores; Eating and Drinking Places; Hotels and Other Lodging Places; Services to Dwellings and Other Buildings; Computer Programming, Data Processing and Other Related Services; Other Business Services; Motion Pictures; Offices and Clinics of Doctors, Dentists and Osteopaths; Nursing and Personal Care Facilities and Legal Services. Also combining the three indicators discussed in this section would suggest that nine commercial sectors discussed should be evaluated in terms of targeting for local commercial sector development. Taxable sales trends, pull factors, location quotients and population-employment ratios are only the first step in local commercial sector analysis. The county must also examine local conditions. What are unique local demands? What are the productivity factors affecting the number of workers in this particular commercial sector? What are the alternative sources of supply in the area? To answer these specific questions regarding Lyon County resident impressions of the local commercial sector, a focus group analysis of Lyon County commercial sector was conducted. Results of the focus group provide information regarding positive and negative attributes of Lyon County s commercial sector as well as opportunities for local commercial sector growth. 40