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Retail Leakage/Surplus Analysis 2008 <br />Overview <br />A sales gap analysis is a method used to estimate how well a community or trade area meets the retail <br />needs of its residents. Sales gap analysis involves the following steps: <br />1. First, by using a defined trade area it estimates the amount of money people in it are likely to <br />spend on retail goods or at stores, which will be referred to as potential sales. <br />2. It then measures the difference between the potential sales and the actual retail sales captured <br />by the community's businesses. If residents are spending more than local businesses capture, it <br />means that they are most likely shopping outside the community or trade area, meaning there is <br />sales leakage. Alternatively, if local businesses are selling more than residents are spending, the <br />community has a sales surplus. <br />In many cases, a sales leakage suggests that there is unmet demand in the community for the <br />product/service or store -type being measured and that the community or trade area can therefore most <br />likely support additional store space of that type of business. If there is enough demand the community <br />may be able to support an additional store(s). <br />In some instances, leakage does not translate into opportunity. While a sales leakage suggests that there <br />is unmet demand in the community, it does not necessarily mean that the community can support <br />additional businesses. For example, there could be a strong competitor in a neighboring community that <br />is so popular that a new business would not be able to compete. There could also be a cultural reason <br />why local customers might not be likely to patronize certain types of retail, despite the presence of <br />sufficient sales potential. Or, there could be any number of other causes of why the existence of a sales <br />leakage might not necessarily translate into a business opportunity. <br />Similarly, a sales surplus does not necessarily mean that a community cannot support additional <br />businesses. Many communities have become well known within their regions for having a strong cluster <br />of home furnishings stores, restaurants, antiques, or other specialties that attract shoppers from a broad <br />geographic area. The trade area for these stores will thus be larger than those of other local retailers. <br />Having established regional dominance in a niche, they are often able to attract even more customers <br />from that region, and therefore to support additional businesses within those categories or related <br />categories. <br />For these reasons the sales gap analysis should be used as a guide and not a final answer to indicate <br />unconditional opportunity or the lack thereof. By combining the analysis with the knowledge of local <br />norms, trends, and other retail and customer analytics, one can identify the retail needs of the trade area. <br />Sales Gap Index <br />A sales gap index is used to compare the strengths and weaknesses of a community's retail market. The <br />index provides a relative comparison of leakage/surplus across all categories of products or store -types. <br />It is calculated by dividing actual sales by sales potential. If the index is greater than 1 that means the <br />trade area is attracting retail dollars from outside the trade area. In contrast, if the index is less than 1 <br />there is sales leakage, which indicates retail dollars are being spent outside the trade area. <br />Buton® <br />IDavitying Casinmers <br />