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A Probabilistic Analysis of Shopping Center Trade Areas


Author(s): David L. Huff
Source: Land Economics, Vol. 39, No. 1 (Feb., 1963), pp. 81-90
Published by: University of Wisconsin Press
Stable URL: http://www.jstor.org/stable/3144521 .
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Analysisof ShoppingCenter
A Probabilistic
TradeAreast

By DAVID L. HUFF*

FUNDAMENTAL prerequisite in de- for several reasons. First, as will be


A termining the potential market de- pointed out later, gravity models have
mand for the products or services of a a rather extensive historical background
prospective retail firm or of agglomera- in trade area analysis. Consequently,
tions of prospective retail firms, within empirical evidence is available to indi-
an urban area, is a geographical deline- cate that in many cases the use of such
ation of the region containing the prob- models has provided fairly good approxi-
able customers for such goods. Such a mations of the limits of a number of re-
region is called a retail trade area. A tail trade areas. Secondly, such models
thorough knowledge of the characteris- are easy to use and relatively inexpensive,
tics and limits of a trade area is essen- thus adding to their appeal.
tial. The proponents of a proposed re-
Historical Background of Gravity
tail facility must have this information
Models in Retailing
in order to evaluate realistically the
likely success of the venture. Not only One of the first to formally apply
does a knowledge of the retail trade area the gravity concept to retail trade area
provide a basis for estimating potential analysis was William J. Reilly.' Reilly's
sales but it also makes it possible to de- focus, however, was directed toward de-
termine investment requirements for termining the relative retail pulling
land, buildings, and fixtures, as well as power of two competing cities on an in-
the kinds and extent of merchandise of- tervening area rather than on intra-
ferings, promotional activities, etc. urban retail trade area determination.
The methods employed to delineate His hypothesis was that two cities attract
intra-urban retail trade areas of pro- retail trade from an intermediate city or
posed facilities generally involve either
subjective judgments based on observa-
tions of similar conditions from which t The author wishes to acknowledge the Real
Estate Research Program of the Graduate School
generalizations have been drawn or the of Business Administration at the University of
use of empirically derived mathematical California, Los Angeles, as well as Resources for
the Future, Inc., in Washington, D.C. for the fi-
formulations. The latter are often re- nancial assistance which helped to make this study
ferred to as gravity models because of possible. In addition, he expresses his appreciation
to Professors Leo Grebler and Clay Sprowls for
their close similarity to the physical as their suggestions and comments.
* Assistant Professor of Business Administration,
well as to the conceptual properties of
University of California, Los Angeles.
the traditional Newtonian gravity model 1William J. Reilly, Methods for the Study of
in physics. Such models are preferred Retail Relationships (Austin, Texas: Bureau of
Business Research Studies in Marketing, No. 4,
by analysts over subjective evaluations 1929).
82 LAND ECONOMICS

town in the vicinity of the breaking 57 percent, and the remaining 43 per-
point approximately in direct proportion cent would be the proportion attracted
to the populations of the two cities and to city B.
in inverse proportion to the square of Since Reilly's study was published in
the distances from the two cities to the 1929, a number of empirical studies have
intermediate town. The mathematical been conducted using his model. Most
expression of Reilly's hypothesis is as noteworthy of these have been the stud-
follows: ies carried out by P. D. Converse for
various communities in Illinois.2
Ba Pa ) Db)2 In 1947, the Curtis Publishing Com-
Bb Pb (Da pany made a significant adaptation of
Reilly's formula to determine the break-
where Ba = the proportion of the trade ing point between two cities." Such a
from the intermediate city
attracted by city A; boundary line, i.e., where Ba = Bb, or
Bb= the proportion of the trade point of equilibrium, represents the
from the intermediate city point up to which one city exercises a
attractedby city B; dominant trading influence and beyond
Pa = the population of city A; which another city dominates. Another
Pb = the population of city B; way of defining it would be that the
Da = the distance from the inter- breaking point represents the .5 proba-
mediate town to city A; and, bility position between two cities. The
Db = the distance from the inter- mathematical version of this adaptation
mediate town to city B. is indicated below:

Reilly subjected his hypothesis to ex- Dab


tensive empirical examinations and was Bb
so impressed with its predictive ability
that he called it "The Law of Retail
Gravitation." To illustrate the mechanics
involved with operating the model, con-
sider the following hypothetical illus- where Bb = the breaking point between
tration: City A has a population of city A and city B in miles
from B;
100,000 and City B has a population of
Dab= the distance separating city
200,000; and town x is 20 miles from A from city B;
city A and 30 miles from city B. By Pb = the population of city B; and
placing these values into Reilly's formu-
la, we can calculate the proportion of P, = the population of city A.
people in town x that retail stores in
City A and city B are likely to receive.
That is,
2

Ba 30
(100,000 2P.D. Converse, "Retail Trade Areas in Illinois"
Bb 200,000 )2- -= 1.125
(Urbana, Illinois: University of Illinois Bulletin,
Business Studies No. 4, 1946).
The percentage of the population of 8Frank Strohkarck and Katherine Phelps, "The
Mechanics of Constructing a Market Area Map,"
town x attracted to city A would thus be Journal of Marketing, April 1948, pp. 493-96.
SHOPPING CENTER TRADE AREAS 83

The derivation of this model from The modified version of Reilly's for-
Reilly's original formula is as follows: mulation as developed by the Curtis Pub-
lishing Company has also been used ex-
(i) Since Ba = Bb tensively to estimate trading areas of
proposed shopping centers within cities.'
Generally, the square footage of each
(ii) Then (PaDb• retail center is substituted for popula-
Pb Da - 1
tion and the travel time between retail
centers is substituted for physical dis-
tance, i.e., miles. Again, to illustrate
(iii) And Db Pb the use as well as the mechanics of oper-
Da -Pa
ating the model, consider the following
example: Assume that a group of in-
vestors are contemplating financing the
Db _ Pb
(v) Therefore Dab - Db - construction of a proposed shopping
center within a particular section of a
city. The site for the facility has been
chosen and the number as well as the
(vi) And
Dab
Dab I
-D Pa
proximity and size of competing centers
Db 1 Pb has been determined. By using the mod-
-
ified gravity model, the breaking points
Dab from the proposed cented to each of the
(vii) Thus = Db existing centers are calculated. The hy-
J Pa pothetical data used, as well as the re-
Pb sults of such computations are shown in
Table I. These results are also mapped
to delineate the potential trading area
To illustrate the operation of this of the
proposed facility as shown in Fig-
formulation, let us assume that the popu- ure I.
lation of cities A and B are 400,000 and
TABLE I-HYPOTHETICALDATA USED IN
200,000 respectively. Furthermore, let DELINEATING TRADINGAREA OF PROPOSED
us assume that the distance separating CENTER
SHOPPING
these two cities by the most direct route Sq. Footage Travel Breaking Point
Shopping of Selling Time From Shopping
is 80 miles. By substituting these data in Center Space From A Center to A
the formula, we find that the breaking A 200,000 0 0
B 100,000 15 6.2
point from city B is: C 150,000 20 9.3
D 50,000 10 3.3
E 300,000 25 13.8
80
Bb = = 33.3 miles

400,000
1+ 200,000

' Leon W. Ellwood, "Estimating Potential Volume


Correspondingly, the breaking point of Proposed Shopping Centers," The Appraisal
from city A would be 46.7 miles. Journal, October 1954, pp. 581-89.
84 LAND ECONOMICS

Such a delineation is usually superim- facility varies from zone to zone. For
posed over a census tract map as illus- example, suppose that an analyst consid-
trated in Figure 1 to determine the num- ers using the breaking point formula to
ber of persons within the confines of delimit the trading area of a proposed
the trading area. This information is shopping center located in an area which
then used as a basis for determining the includes a preponderance of so-called
purchasing power potential of such a light industries and non-competing com-
region and, as a consequence, the po- plementary commercial activities. Since
tential sales and profitability of a shop- such a trading area would be determined
ping center. solely on the basis of calculating the
breaking points between competing cen-
ters, the resulting evidence is likely to
FIGURE 1-HYPOTHETICAL TRADE AREA MAP OF A be highly distorted. On the other hand,
PROPOSED SHOPPING CENTER if the analyst had conducted a cross-sec-
tion analysis of residential areas and
tried to determine the proportion of
c households that were likely to patronize
the proposed center as well as compet-
ing centers, the resulting trading area
would probably be considerably differ-
ent and much more realistic. The situa-
tion just described applies particularly
to cases where the breaking point for-
mula has been used to delineate the trad-
ing area of the central business district.
----- TRADE AREA BOUNDARY Second, the vast majority of market
O COMPETING SHOPPING CENTERS analysts who have used the gravity model
e PROPOSED SHOPPING CENTER
to delineate intra-urban retail trade areas
have naively assumed that the exponent
2 which Reilly had originally estimated
for intra-urban trade movements would
Limitations of Gravity Models
possess the same value within urban
Despite the contribution that the grav- areas. Such an assumption appears ques-
ity model has made to retail trade area tionable. Studies have shown that the
analysis, there are a number of limita- exponent has ranged from 1.5 to over 3,
tions associated with its use." First, the depending on the trip type being ana-
calculation of breaking points to deli- lyzed as well as the geographical setting
mit a retail trade area conveys an im- involved."
pression that a trading area is a fixed
boundary circumscribing the market po-
tential of a retail facility.
Sufficient empirical evidence is avail- 6 David L. Huff, "A Note on the Limitations of
able, however, to indicate quite clearly Intra-Urban Gravity Models," Land Economics,
that a trading area represents a series February 1961, pp. 64-66.
6See, for example, Gerald A. P. Carrothers,"An
of radial zones in which the proportion Historical Review of Gravity and Potential Models
of Human Interaction," Journal of American In-
of consumers patronizing a given retail stitutes of Planners, vol. 22, No. 2, 1956.
SHOPPING CENTER TRADE AREAS 85

Finally, the gravity model possesses to discover and specify only a few rele-
very little theoretical content. That is, vant variables that will enable predic-
it does not reveal why observed regulari- tions to be made reasonably well and
ties occur as they do. Throughout its consistently.
thirty-three year history, the model has Empirical evidence suggests that two
been used primarily as a tool and, as a variables exert such an influence on a
consequence, little has been done in the consumer's choice of a shopping center
way of examining the behavioral impli- that they may be the only variables need-
cations associated with its use. ed to predict such behavior according
to the criterion cited above." These two
Purpose and Scope of this Study variables include: (1) the number of
In view of these limitations this study items of the kind a consumer desires that
are carried by various shopping centers;
attempts to develop an improved formu-
lation for delineating trade areas of pro- and, (2) the travel time that is involved
in getting from a consumer's travel base
posed shopping centers. The analysis
will utilize the conceptual properties of to alternative shopping centers.
the gravity model but its focus will be Impact of Merchandise Offerings. A
on the consumer rather than on the re- large number of consumer shopping de-
tail firm per se. Since the consumer is cisions are made under conditions of
really the primary object of any trade uncertainty, i.e., a consumer does not
area analysis, an explicit understanding know in advance whether a particular
is needed not only of the factors affect- shopping center will definitely fulfill a
ing his choice of a shopping center but specified purchase desire. However, a
also of the choice process itself which consumer does have an a priori knowl-
gives rise to observable spatial behavior.' edge of the probability that various shop-
It is felt that once these conditions are ping centers might satisfy his shopping
known, considerably greater insights will demands. Such a probability is based,
have been achieved concerning the dy- for the most part, on the number of
namic characteristicsof retail trade areas. items of the kind that he desires and
Furthermore, knowledge of such condi- feels are carried by various shopping
tions should make it possible to prepare centers. Presumably, the greater the
more reliable estimates of intra-urban number of items carried by such centers,
retail trade areas. the greater is the consumer's expecta-
tion that his shopping trip will be suc-
Measuring a Shopping Center's Utility cessful.' Therefore, consumers will show
The utility of a shopping center to
a consumer is based upon a host of dif-
ferent factors. Any attempt to measure
the relative intensity or weight of all
7Spatial Behavior will be used throughout this
of these factors would be doomed to fail- study to refer to the observable courses of action
ure. Furthermore, the difficulty would that consumers take with respect to their choice
of a shopping center. A shopping center will
become compounded if an attempt was refer to complementary and competing agglomera-
tions of retail firms which are geographically con-
made to ascertain the variations among tained. A shopping center, according to this defi-
such weights that would inevitably exist nition, may be either planned or unplanned.
from consumer to consumer. Conse- A. P. Carrothers, op. cit.
9SGerald
William J. Baumol and Edward A. Ide, "Variety
quently, what is desired in this study is in Retailing," Management Science, October 1956.
86 LAND ECONOMICS

a willingness to travel further distances origin to a given shopping center. Since


for various goods and services as the the effort and expense involved with a
number of such items available at various
shopping trip are inextricably linked
shopping centers increases. In the pres- with time, a suitable measure for these
ent study, the preceding condition is
assumed to be solely a linear function. factors would be the travel time involved
Since it would be extremely time con- in making a given journey.
suming and laborious to ascertain the Formal Expression of Utility Ele-
number of different types of goods of- ments. Now that the two variables af-
fered by various shopping centers in any
fecting a shopping center's utility have
empirical analysis, this factor can be ap- been described, they can be formally
proximated by using the square footage
of selling space devoted to the sale of expressed as follows:
such items.
Impact of Travel Time. The utility SJ
of a shopping center to a consumer is
also influenced significantly by the ef- Tu
fort and expense that is perceived to be P (Cu) =
involved in traveling to various shopping n S3

centers. The anticipated costs of trans-


portation, the effort involved in prepar- j=1 \T1/
ing for as well as making the trip, and
other opportunities that must be fore- where P (Cu) = the probability of a con-
gone, tend to detract from the utility of sumer at a given point of
a shopping center the further it is from origin i travelingto a giv-
the consumer's travel base. en shopping center j;
As a consumer perceives his journey, SJ the square footage of sell-
=
the disutilities or dissatisfactions associat- ing space devoted to the
sale of a particular class
ed with a given shopping expedition rise of goods by shopping cen-
rather markedly with incremental in- terj;
creases in distance, taking the form of a Ti = the travel time involved
parabolic function. This condition sim- in getting from a consum-
er's travel base i to shop-
ply reflects the notion of opportunity
costs. That is, the consumer has only ing center j; and,
X = a parameter which is to
so much time that he can devote to be estimated empirically
various activities in any given time pe- to reflect the effect of
riod if he is going to accomplish any one travel time on various
of them. Consequently, if the consumer kinds of shopping trips.
devotes more time to one activity at the
expense of others, the costs of these fore- The Use of the Model in Determining
gone opportunities rise sufficiently to a Shopping Center's Trading Area
act as a check against further time losses. Once having estimated X for both
Therefore, a shopping center's utility or
value to consumer is inversely related clothing and furniture shopping trips,
to the effort and expense involved in it is possible to determine the trading
getting from the consumer's point of area of a shopping center for any given
SHOPPING CENTER TRADE AREAS 87

FIGURE 2-EQUIPROBABILITY CONTOURS


product class." The steps involved in SHOPPING CENTER J1
CIRCUMSCRIBING
making such a delineation are as follows:
J14
1. Divide the area surrounding any exist-
ing or proposed shopping center into .01
small statistical units. These units could
be Census enumeration districts, if they
are not too large, or they could be simply
squares within a constructed grid. Such
units represent the i's in the model.
*.70
2. Determine the square footage of retail
selling space of all shopping centers .90

(the j's) included within the area of


.99
analysis.
3. Ascertain the travel time involved in so
getting from a particular statistical unit
i to each of the specified shopping cen-
ters j.
4. Calculate the probability of consumers
in each of the statistical units going to
the particular shopping center under
investigation for a given product pur-
chase. That is,
but rather a series of zonal probability con-
Si tours radiating away from a shopping cen-
ter.
However, a retail trade area map por-
Tij
P (Cij) = (For all i's) trayed solely in terms of probability con-
tours is insufficient in making a market
n
Sj analysis. In addition to the likelihood of
consumers from various statistical units
J=1 Tij ) patronizing a proposed shopping center, it
is necessary to know the expected number
of such consumers from each of the units.
where P (CiU)= the probability of con- For example, it might be that a given con-
sumers from each of the tour possesses a high probability value but
ith statistical units going the consumers within its confines may be
to a specific shopping few in number. As a consequence, the ex-
center j; and,
pected number of consumers from contours
A = the parameter estimate possessing lower probability values may be
appropriate to the type much higher and thus should be given more
of product class, e.g., 3.191 significance. The following step reflects
for clothing and 2.723 for this point.
furniture.

5. Map the trading area of the shopping


center in question by drawing lines con-
necting all statistical units having like
probabilities. 10The results of a recent empirical study estimated
An illustration of a partial retail trade Xfor clothing and furniture shopping trips. These
area map pertaining to a shopping center estimates were 3.191 and 2.723 respectively. David
L. Huff, Determination of Intra-Urban Retail Trade
for clothing purchases is shown in Figure 2. Areas (Los Angeles, California: Real Estate Re-
It can be seen that a retail trade area is not a search Program, Graduate School of Business Ad-
fixed line circumscribing a shopping center ministration, University of California, 1962).
88 LAND ECONOMICS

6. Calculate the number of households 7. Determine the annual average per house-
within each of the statistical units. Then, hold incomes of each of the statistical
units. Compare such figures to corres-
multiply each of these figures by their
ponding annual household budget ex-
appropriate probability values to deter- penditure figures in order to determine
mine the expected number of consumers the average expected amounts spend by
(expressed in households) who will pa- such families on various classes of prod-
tronize the shopping center in question ucts, e.g., clothing and furniture. Esti-
for a particular product purchase. That mate annual sales for the shopping cen-
ter under investigation by multiplying
is, each of the product budget figures by
expected number of consumers from each
statistical unit who are expected to pa-
Si tronize the shopping center in question.
Then, sum these individual estimates to
Tu arrive at a total annual sales potential
E (Cl) = Ci (For all i's) by product class for the selected shop-
n ? ping center. Such a sales potential can
Sj( be expressed in terms of the basic model
j=I Tij as follows:

Si
where E (CU)= the expected number of
consumers from each of
the ith statistical units go- Tij
ing to a particular shop- E (Au) -- Ci Bik (For all i's)
ping center j; and n Sj
Ci = the number of consum- S
ers in the ith statistical j=I \ Tij
unit.

where E (Au) = the expected annual sales


As was true in the case of the probability potential for shopping
contour map, calculating the expected num- center j with respect to a
ber of consumers from each of the statis- given product class from
tical units is also inadequate per se in as- each of the ith statistical
certaining the market potential of a pro- units; and,
posed shopping center. It could be, for B =k the annual amount bud-
example, that a given contour possesses the geted by consumers in the
largest expectation in terms of the number ith statistical unit for prod-
of consumers who are likely to patronize uct class k.
the proposed center. However, in terms
of purchasing potential, another contour
possessing a much smaller expected number The kinds of predictions afforded by
of consumers may have a greater disposable the basic model can be extended even
income level and thus greater purchasing further by incorporating additional vari-
potential. Since the level of consumer in- ables. For example, if the average num-
come is a primary determinant in affect-
ber of shopping trips that consumers
ing the kinds as well as the volume of prod-
uct sales, it is obvious that such data must make with respect to various types of
be included if a realistic appraisal of the product purchases within particular time
market is to be made. Step 7 demonstrates
how such information is used in arriving periods is known and included in the
at a sales expectation for a proposed shop- model, it is possible to estimate the ex-
ping center. pected number of consumer shopping
SHOPPING CENTER TRADE AREAS 89

trips that are likely to be made to a pro- hood patronizing the proposed center
posed shopping center in a given time has been calculated from the model to
period. The basic model would be modi- be .80. In addition, let us imagine that
fied to provide such an estimate as fol- there are 1000 households within this
lows: particular neighborhood. Finally, let us
assume that statistics indicate that, on the
Si average, consumers make two shopping
trips per month for clothing purchases.
Tij The expected number of shopping trips
E (Sam) = Ci Sm (For all i's) from neighborhood i to the proposed
center j per month would thus be:
j=I ($Ti)
E (StUm)= (.80) (1000) (2)
where E (SiQm)= the expected number of
shopping trips from E (Sijm)= 1600
neighborhood i to shop-
ping center j for a given
product purchase in a It is possible to carry the preceding
given time period m;
and, operation a step further to determine the
Sm= the average number of expected sales of a given product class
shopping trips S that from a particular neighborhood within
consumers make with a specified period of time. Again, if
respect to a given pro- we know the annual amount budgeted by
duct purchase within a
given time period m. consumers of a particular income stra-
tum (Bik) for a given product class and,
As an illustration, suppose the devel-
if AS indicates the annual number of
opers of a proposed shopping center are
interested in determining the expected shopping trips made for such goods;
then, would indicate the amount
number of clothing shopping trips that Ba,/AS
consumers from a particular neighbor- spent per shopping trip; and,
(Ba,/AS)
hood are likely to make to such a center (Sm) would indicate the amount spent
within a given time period of less than
per month. Let us assume that the prob- one year. The model would now appear
ability of consumers from this neighbor- as:

Sj

E (Dim) =
jn
n
I TO c*
Ci Bi,
AS
Sm (For all i's)

j \-I TiJ
90 LAND ECONOMICS

where E (Dijm) = the expected dollar sales Conclusions


D made at shoppingcen- The model provides a sound concep-
ter j from neighborhood tual and operational basis for under-
i for a particular prod-
uct class in a given time standing and determining the retail trade
area of a shopping center. The retail
period m; and, trade area of an existing or proposed
AS = the averageannual num-
shopping center can be ascertained by:
ber of shopping trips
(1) dividing the surrounding area into
made by consumers to small statistical units; (2) calculating
shopping centers for a the probability of consumers from each
particularproduct class. of these units going to a particular shop-
ping center; and (3) drawing lines
Again, using the values cited in the around all statistical units having like
last illustration, let us assume that each probabilities. A retail trade area is not
consumer from neighborhood i spends, a fixed line circumscribing a shopping
on the average, $1,200 annually for cloth- center but rather a series of radial zonal
contours.
ing items. Therefore, the expected probability
amount spent monthly for clothing pur- Because of the model's simplicity and
versatility it should be capable of being
chases by all consumers from neighbor-
extended still further in providing a
hood i at shopping center j would be: number of different kinds of valuable
estimates associated with market analyses.
In spite of the model's attributes, ex-
tensive empirical tests are necessary to
ascertain reliable estimates of the para-
E(Dijm) = (.80) (1000) (
$1,200 meters. In an effort to meet this objec-
tive, a large scale empirical study is pres-
E (Dijm) = $80,000 ently being undertaken by the author.