RETURNS TO LOCATION IN RETAIL: Investigating the relevance of market size and regional hierarchy

This paper investigates returns to location in the retail sector and further analyzes the systematic variations across central and peripheral retail markets, as well as across different types of retailing activities. The empirical design utilizes individual level data, where the earnings of individuals working in the retail sector are used as a proxy for retail performance, which allows for a comparison across different types of retailing activities, although the sector as a whole is highly heterogeneous. In order to capture the urban-periphery interaction in retail markets, an accessible market potential measure is used, which allows for capturing the impact from potential demand in close proximity, in the region and from outside of the region separately. In the analysis, the impacts of spatial, store, and individual characteristics are analyzed for four types of retailing activities: food retailing, clothing, household retailing and specialized stores. The results are in line with previous theoretical arguments that rely on traditional location theories. There is a distinct variation between urban and peripheral retail markets, as well as between different types of retailing activities. Market size in close proximity is found to play an important role for stores selling goods for frequent purchase, whereas the relevant market extends beyond municipal borders for retailers selling goods for less frequent purchase. The competition effect is evident for non-central markets, driven from close proximity to large central markets.