A RETAIL MARKET ANALYSIS FOR ELIZABETHPORT

Report to Brand New Day, Inc.

May 29, 1996

ESTIMATING EXPENDITURES

Employing traditional methodology, we conducted a study of population and income, and made an estimation of expenditures and "capture rates" (percentage of local dollars spent at local businesses) to identify the types of businesses that could be supported by Elizabethport residents.

Taking into account information gathered in the survey, the inventory of existing businesses, and fieldwork, we estimated that Elizabethport residents spend over $28 million on retail goods and services annually, of which nearly $5 million is currently spent in the community. Our study shows that an additional $9 million in expenditures could realistically be captured by new businesses in the community.

We used data from the 1990 U.S. Census of Population to estimate the number of households in the primary and secondary market areas. As the population and the number of households in Elizabethport remained fairly steady from 1980 to 1990, it can be reasonably assumed that the number of households remained steady from 1990 to 1996 as well (see Table 5). The lack of major redevelopment projects or major economic losses during this period makes this assumption even more realistic.

Our research team used consumer expenditure estimates for 1993 released by the U.S. Department of Labor, Bureau of Labor Statistics to determine the amount spent by residents of the Elizabethport trade area. The Bureau of Labor Statistics, conducts a nationwide survey of consumer units, also referred to as households, to determine the average amount spent by households of varying characteristics. In 1990, the median household income of the primary trade area was $24,461, nearly half the state median ($42,160). Given this disparity and the pattern that consumer expenditures vary greatly according to the income of a household, we used income specific expenditure estimates to determine the amount residents of the market area spend.

The 1990 Census of Population, adjusted for 1995 income levels, served as the primary source of data for the population and income study. We obtained the number of households in particular income categories from the 1990 Census for the primary and secondary trade areas. We then computed a redistribution of the number of households falling into each category. The U.S. Department of Housing and Urban Development estimated that the median family income of Union County residents increased by 23.8 percent from 1990 to 1995. We assumed that all household incomes in Elizabethport increased at this rate and that all households were evenly distributed within income ranges. Based on those assumptions, we estimated a distribution of households by income for 1995 (see Table 6). All household incomes were updated by 23.8 percent because it was impossible to disaggregate the Census data and know the exact income level of each household. However, since the neighborhood has a higher proportion of households on fixed incomes than does Union County as a whole we realize that the incomes of some households in Elizabethport did not grow at such a high rate.

We multiplied the number of households within each income range by the average amount spent by similar households for six major categories of goods and services. The data were then aggregated to determine the total amount spent by Elizabethport residents on specific types of goods and services. In order to determine the market potential of the Elizabethport trade area, we calculated the percentage of current expenditures that neighborhood residents made on goods and services in Elizabethport. We estimated the existing capture rates (percentage of local dollars spent at local businesses) based on information of the spending patterns of Elizabethport residents, which was culled from the survey. We developed maximum capture rates taking into account industry standards and adjusting for Elizabethport's characteristics, such as population size, business inventory, and geographical isolation.

The 3,305 households in the primary and secondary trade areas of Elizabethport spend $28 million on retail goods and services each year (see Table 7). Over $9 million is spent on groceries and other food to be consumed at home, while nearly $6 million is spent on apparel and related services such as laundromats and dry cleaning.

Residents in the secondary market areas have higher incomes than those in the primary market area. Consequently, expenditure levels in the secondary market areas are higher than those in the primary trade area. This is particularly true for nonessential items, such as household furnishings where expenditure levels are highly dependent on income levels.

However, based on the results of the survey and the inventory of existing businesses, it was estimated that only 10 percent to 25 percent of expenditures, depending on the retail category, were made by Elizabethport residents in businesses in the community, amounting to less than $5 million per year. We estimated that no more than 10 percent of expenditures on apparel and related services and only 25 percent of spending on food to be consumed at home were made in neighborhood businesses (see Table 8).

Estimated maximum capture rates vary between 40 and 60 percent depending on the type of product sold. Convenience items such as food at home (such as groceries) and personal care products (such as cosmetics) are typically purchased at stores close to an individual's place of residence. Despite Elizabethport's large number of small and medium grocery stores, the results of the survey suggest that the major grocery stores and drug stores outside of Elizabethport attract a sizable percentage of residents' expenditures. The small number of businesses selling furniture and clothing in Elizabethport and the survey findings suggest that only a small number of these items are purchased within the community. Individuals are typically willing to travel to buy primary and secondary shoppers goods such as apparel items. Competition from stores in existing malls and in Elizabeth's planned Metromall (discussed below) makes it likely that approximately 60 percent of the expenditures made by neighborhood residents on apparel and household furnishings will be made outside of the community.

The potential growth in rates of capture could result in significant amounts of expenditures being returned to the Elizabethport neighborhood. We multiplied the rise in estimated capture rates from current to maximum levels by the estimated total expenditures of Elizabethport residents to determine the market potential. We estimated that over $9 million in expenditures by Elizabethport residents could be captured by new businesses locating within the community (Table 8). Nearly $2 million in expenditures in apparel and related services and over $3 million on food to be consumed at home could be captured by neighborhood businesses.

We used data from the Urban Land Institute's Dollars and Cents of Shopping Centers for 1993 to estimate the sales per square feet. To account for the low level of retail rents in Elizabethport, we deflated these estimates slightly. We then divided the market potential estimates by these sales per square feet estimates to determine the amount of new square feet of retail space that could be supported in the Elizabethport neighborhood.

We estimated that the neighborhood could support 68,000 square feet of new retail activity (see Table 9). The unmet demands are distributed across all categories of businesses and there is potentially room in the market for each. However, in addition to the data collected, it is important to understand other factors that influence future retail development in Elizabethport. We investigated existing programs and planned development projects so that we could incorporate their effects in our recommendations.