TABLE 1.-Occupancy expenses of large and small retailers by size of city-33 trades, 1939

NOTE. Where the figure is the same for several consecutive volume groups within a city-size group it represents the average of these volume groups.

TABLE 1.-Occupancy expenses of large and small retailers by size of city-33 trades, 1939-Continued

NOTE. Where the figure is the same for several consecutive volume groups within a city-size group it represents the average of these volume groups.

separately by size of city and store. Another reason is that a high occupancy expense ratio may yield a larger total dollar profit than a low ratio, if the sales volume is sufficiently greater.

Trading Areas of Towns

In small towns a store may expect to draw customers from rural areas, a fact which must be considered in estimating the buying power of potential customers. The drawing power is, however, not the same for all commodities. It was found in one study 5 that towns within a 40-mile radius of other communities twice their size lose to the larger cities a substantial amount of potential trade in jewelry, silverware, clocks and women's apparel, whereas in furniture they gain from smaller towns more trade than they lose to the larger ones.

As the distance between the smaller cities and the larger ones increases, the drawing power of the smaller cities grows for certain commodities. Towns within 40 to 70 miles of other urban centers at least twice their size can successfully compete with the larger cities for area business in jewelry, clocks, silverware, and women's apparel.

To locate the boundaries of retail trading areas and thereby estimate the amount of retail trade which a town will draw from the surrounding area, one of several methods can be used. For example, figures on newspaper circulation are often used to define a town's market area. Or license numbers of automobiles driven by shoppers may be checked at the state highway department for ownership of the car and residence of the owner.

The method which requires the least work, however, is Reilly's Law of Retail Gravitation. This law was developed by Dr. William J. Reilly of the University of Texas in 1929 and is stated as follows: "Two cities attract retail trade from an intermediate city or town in the vicinity of the breaking point approximately in the direct proportion to the populations of the two cities and in inverse proportion to the square of the distances from these two cities to the intermediate town." Although this law applies only to shopping goods such as wearing apparel, furniture, household furnishings, it can be used to some advantage for specialty goods as well.

When the data have been thoroughly analyzed the final choice of town is still largely a matter of "go-look-see." Most of the location specialists will not choose a town until they have driven and walked around in it, talked with a banker, a newspaper editor, a real estate broker, competitors; observed the buying habits of the citizens; and "gotten the feel of the town.”

Selecting an Area or Community

After the type of business, the amount of capital to be invested, and the town have been decided upon, the next step is to determine in what part of the town to locate.

5 "A Statistical Study of the Drawing Power of Cities for Retail Trade" by John Adams Pfanner, Jr., The Journal of Business of the University of Chicago, April 1940, Number 2. Commodities studied are: Jewelry, silverware and clocks, women's apparel, and furniture.

In the small town, of course, there is usually no problem of choosing the best section in which to start a certain type of store. There is only one shopping center-only one Main Street. Obviously it is there that the prospective merchant will locate if there is a site available.

Central and Outlying Shopping Centers

As the small town develops into a city certain patterns become evident and its economic activities become increasingly varied and specialized. There is no longer a Main Street or single shopping center. Outlying shopping centers appear. In fact, most cities of more than a half million population have a major outlying commercial district as well as outlying shopping centers. In or near the commercial core itself specialized districts develop such as wholesale, financial, and automobile sales areas.

The trend toward decentralization of business districts is widespread and well recognized. In many of the larger cities, a majority of the volume of a city's retail business is conducted outside the central shopping district. According to a study in Baltimore, in 1929 only 6.1 percent of the stores and 28.1 percent of the retail sales of that city were in the central shopping district. Similarly, in Philadelphia in 1935, only 9.2 percent of the stores and 37.4 percent of the retail trade were in the central business district. According to the 1935 census records for Chicago, 44 percent of the total retail business was conducted outside of the central Chicago business district. The percentage of sales in the central shopping district as compared with that for areas outside the district varies greatly by lines of trade. example, in Philadelphia in 1935, the major volume of business of general merchandise and apparel stores was carried on in the central shopping district, whereas for the other groups the larger proportion of trade was conducted in secondary shopping centers, as is shown in the following table.

Percent of total stores and sales in central business district, Philadelphia, 1935 ®

Percent of Percent of

For

6 "Intra-City Business Census Statistics for Philadelphia," Bureau of the Census, United States Department

of Commerce, May 1937.

In Chicago the kinds of stores which were the most successful in each type of location were listed as follows: 7

Outlying center

A study of retail business costs in St. Louis shows that the operatingexpense ratio (including rent) for all retail business combined is lower at locations outside of the central shopping district (27 percent) than at ones inside (29.9 percent). See table 2. The kinds of stores for which this is not true are: Department, variety, millinery, custom tailors, radio and electrical shops, and the highly specialized types, such as those dealing in coffee, tea, and spices. Separate tables by kinds of business are presented in the appendix.

Although, in many instances, actual dollar rentals are much higher in the central shopping district, in proportion to sales they are lower for the general merchandise, restaurant, and second-hand store groups.

Consideration should be given to the relation between the type of proposed store and its rent-paying capacity. One study shows the following very general classification of stores according to whether they usually pay a high or low rent per square foot regardless of the type of shopping center in which they are located.

"Selection of a Business Site," by Malcolm J. Proudfoot, Journal of Land and Public Utility Economics, November 1938.