Retail and Service Demand Thresholds for Wisconsin

Understanding the ability of a local market to support a particular type of establishment is a prerequisite to designing effective development strategies. While several factors contribute to the vitality of the local retail market, the most fundamental factor is the relative size of the market in terms of potential customers. Specifically, given a retail market of a particular population size the natural question is what types of establishments can it support. In this paper we review the underlying economic theory and empirical approaches used to lend insight into this question. We also provide the reader with an updated set of empirical estimates for Wisconsin that can be used by local economic development practitioners and entrepreneurs. Introduction In recent years, economists, sociologists, political scientists and planners have conducted applied research and extension programs throughout the nation directed toward helping local economic development practitioners develop a stronger set of self-development strategies (Daniels, 1989). One of the more popular strategies suggested and adopted focuses on the promotion and retention of retail and service businesses. In several states, extension programs are established which help communities better understand their retail and service markets. Prepared with a fundamental understanding of their local market, community leaders can better implement effective development policies while entrepreneurs can make more informed business development decisions. A common set of tools used to assess local retail and service markets is referred to as Trade Area Analysis (Stone and McConnon, 1980 and 1984; Shaffer, 1989). The power of the Trade Area Analysis method is its ability to estimate market population and market surplus/leakage, by sector, in a dynamic framework with computational simplicity. Details of the method is available from a variety of sources such as Hustedde, et al. (1984), Harris et al. (1990) and Deller et al. (1991) and the reader is referred to those references. Another market analysis tool, though less commonly used, is demand threshold analysis. The demand threshold is defined as the minimum market size required to support a particular type of retail or service business and still yield an acceptable rate of return for the business owner (Berry and Garrison, 1958a and 1958b; Parr and Denike, 1970; Salyards and Leitner, 1981; King, 1984; Schular and Leistritz, 1991; and Deller and Harris, 1993). The concept is based on the