The Board of Regents of the University of Wisconsin System

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 .
Accessed: 11/01/2011 13:34

Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless
you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you
may use content in the JSTOR archive only for your personal, non-commercial use.

Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at .
http://www.jstor.org/action/showPublisher?publisherCode=uwisc. .

Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed
page of such transmission.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.

The Board of Regents of the University of Wisconsin System and University of Wisconsin Press are
collaborating with JSTOR to digitize, preserve and extend access to Land Economics.

http://www.jstor.org
 Analysisof ShoppingCenter
A Probabilistic
TradeAreast
By DAVID L. HUFF*
FUNDAMENTAL prerequisite in de-
A termining the potential market de-
mand for the products or services of a
prospective retail firm or of agglomera-
tions of prospective retail firms, within
an urban area, is a geographical deline-
ation of the region containing the prob-
able customers for such goods. Such a
region is called a retail trade area. A
thorough knowledge of the characteris-
tics and limits of a trade area is essen-
tial. The proponents of a proposed re-
tail facility must have this information
in order to evaluate realistically the
likely success of the venture. Not only
does a knowledge of the retail trade area
provide a basis for estimating potential
sales but it also makes it possible to de-
termine investment requirements for
land, buildings, and fixtures, as well as
the kinds and extent of merchandise of-
ferings, promotional activities, etc.
The methods employed to delineate
intra-urban retail trade areas of pro-
posed facilities generally involve either
subjective judgments based on observa-
tions of similar conditions from which
generalizations have been drawn or the
use of empirically derived mathematical
formulations. The latter are often re-
ferred to as gravity models because of
their close similarity to the physical as
well as to the conceptual properties of
the traditional Newtonian gravity model
in physics. Such models are preferred
by analysts over subjective evaluations
for several reasons. First, as will be
pointed out later, gravity models have
a rather extensive historical background
in trade area analysis. Consequently,
empirical evidence is available to indi-
cate that in many cases the use of such
models has provided fairly good approxi-
mations of the limits of a number of re-
tail trade areas. Secondly, such models
are easy to use and relatively inexpensive,
thus adding to their appeal.
Historical Background of Gravity
Models in Retailing
One of the first to formally apply
the gravity concept to retail trade area
analysis was William J. Reilly.' Reilly's
focus, however, was directed toward de-
termining the relative retail pulling
power of two competing cities on an in-
tervening area rather than on intra-
urban retail trade area determination.
His hypothesis was that two cities attract
retail trade from an intermediate city or
t The author wishes to acknowledge the Real
Estate Research Program of the Graduate School
of Business Administration at the University of
California, Los Angeles, as well as Resources for
the Future, Inc., in Washington, D.C. for the fi-
nancial assistance which helped to make this study
possible. In addition, he expresses his appreciation
to Professors Leo Grebler and Clay Sprowls for
their suggestions and comments.
* Assistant Professor of Business Administration,
University of California, Los Angeles.
1William J. Reilly, Methods for the Study of
Retail Relationships (Austin, Texas: Bureau of
Business Research Studies in Marketing, No. 4,
1929).
82
town in the vicinity of the breaking
point approximately in direct proportion
to the populations of the two cities and
in inverse proportion to the square of
the distances from the two cities to the
intermediate town. The mathematical
expression of Reilly's hypothesis is as
follows:
Ba Pa ) Db)2
Bb Pb (Da
where Ba = the proportion of the trade
from the intermediate city
attracted by city A;
Bb= the proportion of the trade
from the intermediate city
attractedby city B;
Pa = the population of city A;
Pb = the population of city B;
Da = the distance from the inter-
mediate town to city A; and,
Db = the distance from the inter-
mediate town to city B.
Reilly subjected his hypothesis to ex-
tensive empirical examinations and was
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
100,000 and City B has a population of
200,000; and town x is 20 miles from
city A and 30 miles from city B. By
placing these values into Reilly's formu-
la, we can calculate the proportion of
people in town x that retail stores in
City A and city B are likely to receive.
That is,
2
Ba 30
(100,000
Bb 200,000 )2-
The percentage of the population of
town x attracted to city A would thus be
LAND ECONOMICS
57 percent, and the remaining 43 per-
cent would be the proportion attracted
to city B.
Since Reilly's study was published in
1929, a number of empirical studies have
been conducted using his model. Most
noteworthy of these have been the stud-
ies carried out by P. D. Converse for
various communities in Illinois.2
In 1947, the Curtis Publishing Com-
pany made a significant adaptation of
Reilly's formula to determine the break-
ing point between two cities." Such a
boundary line, i.e., where Ba = Bb, or
point of equilibrium, represents the
point up to which one city exercises a
dominant trading influence and beyond
which another city dominates. Another
way of defining it would be that the
breaking point represents the .5 proba-
bility position between two cities. The
mathematical version of this adaptation
is indicated below:
Dab
Bb
city A and city B in miles
from B;
Dab= the distance separating city
A from city B;
Pb = the population of city B; and
P, = the population of city A.
2P.D. Converse, "Retail Trade Areas in Illinois"
-= 1.125
(Urbana, Illinois: University of Illinois Bulletin,
Business Studies No. 4, 1946).
8Frank Strohkarck and Katherine Phelps, "The
Mechanics of Constructing a Market Area Map,"
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-
posed over a census tract map as illus-
trated in Figure 1 to determine the num-
ber of persons within the confines of
the trading area. This information is
then used as a basis for determining the
purchasing power potential of such a
region and, as a consequence, the po-
tential sales and profitability of a shop-
ping center.
FIGURE 1-HYPOTHETICAL TRADE AREA MAP OF A
PROPOSED SHOPPING CENTER
c households that were likely to patronize
----- TRADE AREA BOUNDARY
O COMPETING SHOPPING CENTERS
e PROPOSED SHOPPING CENTER
Limitations of Gravity Models
Despite the contribution that the grav- areas.
ity model has made to retail trade area
analysis, there are a number of limita- exponent
tions associated with its use." First, the depending
calculation of breaking points to deli- lyzed
mit a retail trade area conveys an im-
pression that a trading area is a fixed
boundary circumscribing the market po-
tential of a retail facility.
Sufficient empirical evidence is avail-
able, however, to indicate quite clearly
that a trading area represents a series
of radial zones in which the proportion
of consumers patronizing a given retail
facility varies from zone to zone. For
example, suppose that an analyst consid-
ers using the breaking point formula to
delimit the trading area of a proposed
shopping center located in an area which
includes a preponderance of so-called
light industries and non-competing com-
plementary commercial activities. Since
such a trading area would be determined
solely on the basis of calculating the
breaking points between competing cen-
ters, the resulting evidence is likely to
be highly distorted. On the other hand,
if the analyst had conducted a cross-sec-
tion analysis of residential areas and
tried to determine the proportion of
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.
Second, the vast majority of market
analysts who have used the gravity model
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
possess the same value within urban
Such an assumption appears ques-
tionable. Studies have shown that the
has ranged from 1.5 to over 3,
on the trip type being ana-
as well as the geographical setting
involved."
6 David L. Huff, "A Note on the Limitations of
Intra-Urban Gravity Models," Land Economics,
February 1961, pp. 64-66.
6See, for example, Gerald A. P. Carrothers,"An
Historical Review of Gravity and Potential Models
of Human Interaction," Journal of American In-
stitutes of Planners, vol. 22, No. 2, 1956.
 SHOPPING CENTER TRADE AREAS
Finally, the gravity model possesses
very little theoretical content. That is,
it does not reveal why observed regulari-
ties occur as they do. Throughout its
thirty-three year history, the model has
been used primarily as a tool and, as a
consequence, little has been done in the
way of examining the behavioral impli-
cations associated with its use.
Purpose and Scope of this Study
In view of these limitations this study
attempts to develop an improved formu-
lation for delineating trade areas of pro-
posed shopping centers. The analysis
will utilize the conceptual properties of
the gravity model but its focus will be
on the consumer rather than on the re-
tail firm per se. Since the consumer is
really the primary object of any trade
area analysis, an explicit understanding
is needed not only of the factors affect-
ing his choice of a shopping center but
also of the choice process itself which
gives rise to observable spatial behavior.'
It is felt that once these conditions are
known, considerably greater insights will
have been achieved concerning the dy-
namic characteristicsof retail trade areas.
Furthermore, knowledge of such condi-
tions should make it possible to prepare
more reliable estimates of intra-urban
retail trade areas.
Measuring a Shopping Center's Utility
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
of these factors would be doomed to fail-
ure. Furthermore, the difficulty would
become compounded if an attempt was
made to ascertain the variations among
such weights that would inevitably exist
from consumer to consumer. Conse-
quently, what is desired in this study is
85
to discover and specify only a few rele-
vant variables that will enable predic-
tions to be made reasonably well and
consistently.
Empirical evidence suggests that two
variables exert such an influence on a
consumer's choice of a shopping center
that they may be the only variables need-
ed to predict such behavior according
to the criterion cited above." These two
variables include: (1) the number of
items of the kind a consumer desires that
are carried by various shopping centers;
and, (2) the travel time that is involved
in getting from a consumer's travel base
to alternative shopping centers.
Impact of Merchandise Offerings. A
large number of consumer shopping de-
cisions are made under conditions of
uncertainty, i.e., a consumer does not
know in advance whether a particular
shopping center will definitely fulfill a
specified purchase desire. However, a
consumer does have an a priori knowl-
edge of the probability that various shop-
ping centers might satisfy his shopping
demands. Such a probability is based,
for the most part, on the number of
items of the kind that he desires and
feels are carried by various shopping
centers. Presumably, the greater the
number of items carried by such centers,
the greater is the consumer's expecta-
tion that his shopping trip will be suc-
cessful.' Therefore, consumers will show
7Spatial Behavior will be used throughout this
study to refer to the observable courses of action
that consumers take with respect to their choice
of a shopping center. A shopping center will
refer to complementary and competing agglomera-
tions of retail firms which are geographically con-
tained. A shopping center, according to this defi-
nition, may be either planned or unplanned.
A. P. Carrothers, op. cit.
9SGerald
William J. Baumol and Edward A. Ide, "Variety
in Retailing," Management Science, October 1956.
86 LAND ECONOMICS
a willingness to travel further distances
for various goods and services as the
number of such items available at various
shopping centers increases. In the pres-
ent study, the preceding condition is
assumed to be solely a linear function.
Since it would be extremely time con-
suming and laborious to ascertain the
number of different types of goods of-
fered by various shopping centers in any
empirical analysis, this factor can be ap-
proximated by using the square footage
of selling space devoted to the sale of
such items.
Impact of Travel Time. The utility
of a shopping center to a consumer is
also influenced significantly by the ef-
fort and expense that is perceived to be
involved in traveling to various shopping
centers. The anticipated costs of trans-
portation, the effort involved in prepar-
ing for as well as making the trip, and
other opportunities that must be fore-
gone, tend to detract from the utility of
a shopping center the further it is from
the consumer's travel base.
As a consumer perceives his journey,
the disutilities or dissatisfactions associat-
ed with a given shopping expedition rise
rather markedly with incremental in-
creases in distance, taking the form of a
parabolic function. This condition sim-
ply reflects the notion of opportunity
costs. That is, the consumer has only
so much time that he can devote to
various activities in any given time pe-
riod if he is going to accomplish any one
of them. Consequently, if the consumer
devotes more time to one activity at the
expense of others, the costs of these fore-
gone opportunities rise sufficiently to
act as a check against further time losses.
Therefore, a shopping center's utility or
value to consumer is inversely related
to the effort and expense involved in
getting from the consumer's point of
origin to a given shopping center. Since
the effort and expense involved with a
shopping trip are inextricably linked
with time, a suitable measure for these
factors would be the travel time involved
in making a given journey.
Formal Expression of Utility Ele-
ments. Now that the two variables af-
fecting a shopping center's utility have
been described, they can be formally
expressed as follows:
SJ
Tu
P (Cu) =
n S3
j=1 \T1/
where P (Cu) = the probability of a con-
sumer at a given point of
origin i travelingto a giv-
en shopping center j;
SJ the square footage of sell-
=
ing space devoted to the
sale of a particular class
of goods by shopping cen-
terj;
Ti = the travel time involved
in getting from a consum-
er's travel base i to shop-
ing center j; and,
X = a parameter which is to
be estimated empirically
to reflect the effect of
travel time on various
kinds of shopping trips.
The Use of the Model in Determining
a Shopping Center's Trading Area
Once having estimated X for both
clothing and furniture shopping trips,
it is possible to determine the trading
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

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

5. Map the trading area of the shopping

center in question by drawing lines con-
necting all statistical units having like
probabilities.
An illustration of a partial retail trade
area map pertaining to a shopping center
for clothing purchases is shown in Figure 2.
It can be seen that a retail trade area is not a
fixed line circumscribing a shopping center
10The results of a recent empirical study estimated
Xfor clothing and furniture shopping trips. These
estimates were 3.191 and 2.723 respectively. David
L. Huff, Determination of Intra-Urban Retail Trade
Areas (Los Angeles, California: Real Estate Re-
search Program, Graduate School of Business Ad-
ministration, University of California, 1962).
88 LAND ECONOMICS
6. Calculate the number of households
within each of the statistical units. Then,
multiply each of these figures by their
appropriate probability values to deter-
mine the expected number of consumers
(expressed in households) who will pa-
tronize the shopping center in question
for a particular product purchase. That
is,
Si
Tu
E (Cl) = Ci (For all i's)
n ?
Sj(
j=I Tij
where E (CU)= the expected number of
consumers from each of
the ith statistical units go-
ing to a particular shop-
ping center j; and
Ci = the number of consum-
ers in the ith statistical
unit.
As was true in the case of the probability
contour map, calculating the expected num-
ber of consumers from each of the statis-
tical units is also inadequate per se in as-
certaining the market potential of a pro-
posed shopping center. It could be, for
example, that a given contour possesses the
largest expectation in terms of the number
of consumers who are likely to patronize
the proposed center. However, in terms
of purchasing potential, another contour
possessing a much smaller expected number
of consumers may have a greater disposable
income level and thus greater purchasing
potential. Since the level of consumer in-
come is a primary determinant in affect-
ing the kinds as well as the volume of prod-
uct sales, it is obvious that such data must
be included if a realistic appraisal of the
market is to be made. Step 7 demonstrates
how such information is used in arriving
at a sales expectation for a proposed shop-
ping center.
7. Determine the annual average per house-
hold incomes of each of the statistical
units. Compare such figures to corres-
ponding annual household budget ex-
penditure figures in order to determine
the average expected amounts spend by
such families on various classes of prod-
ucts, e.g., clothing and furniture. Esti-
mate annual sales for the shopping cen-
ter under investigation by multiplying
each of the product budget figures by
expected number of consumers from each
statistical unit who are expected to pa-
tronize the shopping center in question.
Then, sum these individual estimates to
arrive at a total annual sales potential
by product class for the selected shop-
ping center. Such a sales potential can
be expressed in terms of the basic model
as follows:
Si
Tij
E (Au) -- Ci Bik (For all i's)
n Sj
S
j=I \ Tij
where E (Au) = the expected annual sales
potential for shopping
center j with respect to a
given product class from
each of the ith statistical
units; and,
B =k the annual amount bud-
geted by consumers in the
ith statistical unit for prod-
uct class k.
The kinds of predictions afforded by
the basic model can be extended even
further by incorporating additional vari-
ables. For example, if the average num-
ber of shopping trips that consumers
make with respect to various types of
product purchases within particular time
periods is known and included in the
model, it is possible to estimate the ex-
pected number of consumer shopping
 SHOPPING CENTER TRADE AREAS
trips that are likely to be made to a pro-
posed shopping center in a given time
period. The basic model would be modi-
fied to provide such an estimate as fol-
lows:
Si
Tij
E (Sam) = Ci Sm (For all i's)
j=I ($Ti)
where E (SiQm)= the expected number of
shopping trips from
neighborhood i to shop-
ping center j for a given
product purchase in a
given time period m;
and,
Sm= the average number of
shopping trips S that
consumers make with
respect to a given pro-
duct purchase within a
given time period m.
As an illustration, suppose the devel-
opers of a proposed shopping center are
interested in determining the expected
number of clothing shopping trips that
consumers from a particular neighbor-
hood are likely to make to such a center
per month. Let us assume that the prob-
ability of consumers from this neighbor-
Sj
E (Dim) =
jn
n
I TO
j \-I TiJ
89
hood patronizing the proposed center
has been calculated from the model to
be .80. In addition, let us imagine that
there are 1000 households within this
particular neighborhood. Finally, let us
assume that statistics indicate that, on the
average, consumers make two shopping
trips per month for clothing purchases.
The expected number of shopping trips
from neighborhood i to the proposed
center j per month would thus be:
E (StUm)= (.80) (1000) (2)
E (Sijm)= 1600
It is possible to carry the preceding
operation a step further to determine the
expected sales of a given product class
from a particular neighborhood within
a specified period of time. Again, if
we know the annual amount budgeted by
consumers of a particular income stra-
tum (Bik) for a given product class and,
if AS indicates the annual number of
shopping trips made for such goods;
then, would indicate the amount
Ba,/AS
spent per shopping trip; and,
(Ba,/AS)
(Sm) would indicate the amount spent
within a given time period of less than
one year. The model would now appear
as:
c*
Ci Bi,
AS
Sm (For all i's)
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.