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Analysis

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The estimates of sales for The Stores of Historic Holyoke are prepared by a "gravity model" or "standard capture rate" method of market analysis. The gravity model is a mathematical formula that calculates the shares of potential expenditures for retail goods in a trade area that are captured by competing retail centers with similar store mixes that serve the area. "Shopping goods" centers, which usually include department stores or other large "destination stores", compete with other "shopping goods" centers; and "convenience" centers, which usually include supermarkets or large food stores, compete with other "convenience" centers. The gravity model is also known as "Reilly's Law", after Dr. William J. Reilly, a pioneer retail economist who promulgated the gravity model at the University of Texas in 1929. The gravity model requires two facts for each retail center to establish a "capture rate" for each center:

  1. a. the size of the retail center in square feet, and
  2. b. the average travel time for the customers for each center.
Each retail center is represented in the gravity model by a factor consisting of the size of the center over the travel time squared.

The Stores of Historic Holyoke and related attractions, with an aggressive marketing program, will attract 80 percent of their customers from a trade area with a radius of 30 miles around Holyoke. The retail structure of this trade area is represented in the gravity model by three retail centers:

  • * Holyoke Mall (HM) with an estimated 1.0 million s.f. of "shopping goods" store space, and an average travel time for customers (from the telephone survey) of 16 minutes. The gravity model factor for (HM) is 1,000,000 over (16)2, or 3,906.
  • * Existing "shopping goods" stores in the Historic Holyoke district (SOHH) estimated at 90,000 s.f., with an average travel time for customers (from the telephone survey) of 20 minutes. The gravity model factor for (SOHH) is 90,000 over (20)2, or 225.
  • * All Other "shopping goods" stores (AOS) in the trade area with an estimated 10.0 million s.f. of "shopping goods" store space, and an unknown travel time (t). The gravity model factor for (AOS) is 10,000,000 over (t)2.
In order to construct a gravity model for calculating the capture rate for the Stores of Historic Holyoke (SOHH) a value is established for the unknown travel time (t) for AllOther stores (AOS), as follows:
  1. a. On the basis of information from interviews, shopping center directories, and retail census reports, sales in the "shopping goods" stores at Holyoke Mall are estimated at $ 270 million in 1990. Of this total, 80 %, or $ 216 million, are derived from the "30 mile" trade area.
  2. b. Potential "shopping goods", or GAFO, expenditures by households in the trade area are estimated at $ 2.1 billion in 1990.
    • * GAFO is the acronym for "General merchandise, Apparel, Furniture, and Other" shopping goods stores.
    • * Potential GAFO expenditures are estimated at 13 % of aggregate household income in 1990.
  3. c. The "capture rate" for Holyoke Mall is calculated by dividing the sales of $ 216 million by potential GAFO expenditures of $ 2.1 billion. The capture rate is 10.51 %.
  4. d. The gravity model for Holyoke Mall in 1990 is the gravity model factor (HM) divided by the sum of the gravity model factors for the three retail centers in the trade area:

    (HM) over (HM + SOHH + AOS).
    This becomes: (3,906) over (3,906 + 225 + 10,000,000/[t]2) = 10.51 %.
  8. h. This equation is solved for the travel time (t) for AllOther stores. (t) equals 17.4 minutes.
  9. i. The gravity model factor (AOS) becomes 10,000,000 over (17.4)2, or 33029.
  10. j. The gravity model for The Stores of Historic Holyoke is (SOHH) over (SOHH + HM + AOS). This becomes (225) over (225 + 3,906 + 33,029) = the capture rate: 0.61 %
  11. k. In 1990, the 90,000 s.f. of GAFO stores in the Historic Holyoke district captured 0 .61 % of potential GAFO expenditures of $ 2.1 billion, or $ 12.8 million. The average sales productivity would have been $ 12.8 million over 90,000 s.f., or $ 142/s.f.
  12. l. To complete the basic set of gravity model calculations for the base year of 1990, the gravity model for AllOther stores in (AOS) over (AOS + SOHH + HM). This becomes (33029) over (33029 + 225 + 3,906) = the capture rate: 88.9 %
  13. m. In 1990, therefore, AllOther stores captured 88.9% of potential GAFO expenditures of $ 2.1 billion, or $ 1.87 billion. The average sales productivity would have been $ 1.87 billion over 10.0 million s.f., or $ 187/s.f.
The Market Analysis for the Stores of Historic Holyoke is summarized in the table on page 3 with the following assumptions:
  • Line 3: The number of households in the "30 mile" trade area is projected to increase at a rate of 1 % a year from 392,662 in 1990, to 433,744 in the year 2000.
  • Line 5: The average household size is projected to decrease at .56%/year from 2.62 persons per household in 1990, to 2.48/household in 2000.
  • Line 6: The average income per household is projected to increase at 4%/year from $ 40,260 in 1990, to $ 63,117 in 2000.
  • Line 7: Aggregate income, therefore, which is Line 3 times Line 6, increases from $ 15.8 billion in 1990, to $ 27.4 billion in 2000.
  • Line 8: The percentage of income spent in GAFO, or shopping goods stores, is projected to decrease from 13 % in 1990 to 11.76 % in 2000, as other household expenses, such as housing and health care, increase.
  • Line 9: Potential GAFO expenditures -- Line 7 times Line 8 -- increase from $ 2.1 billion in 1990 to 3.2 billion in 2000.

    The capture rate for the Stores of Historic Holyoke is calculated for each year by the gravity model formula shown on Line 13. This formula comprises the factor for the Stores of Holyoke (SOHH) on Line 12 divided by the sum of the factors for: SOHH (Line 12), plus Holyoke Mall (HM) (Line 20), plus AllOther stores (AOS)(Line 26): Capture rate = 12 over (12 + 20 + 26).

  • Line 12: The factor for the Stores of Holyoke increases from 225 in 1990, to 500 in 1994 and thereafter, to reflect the increase in GAFO store space from 90,000 s.f. in 1990 to 200,000 s.f. in 1994, all divided by the travel time of 20 minutes squared.
  • Line 20: The factor for Holyoke Mall increases from 3,908 in 1990 to 5,078 in 1994 and thereafter, to reflect the increase in GAFO store space from 1.0 million s.f. in 1990 to 1.3 million s.f. in 1994, all divided by the travel time of 16 minutes squared.
  • Line 26: The factor for AllOther stores increases from 33,029 in 1990, to 33,360 in 1994, and to 35,342 by the year 2000. This reflects increases in GAFO store space in AllOther stores in the trade area at an average of 100,000 s.f. a year, all divided by the travel time of 17.4 minutes squared.

    The capture rate for the Stores of Holyoke, as a result of the increases in the sizes of the competing retail centers, decreases from a high level of 1.28 % in 1994 (Line 13), to 1.22 % in 2000.

    The sales derived from the trade area by the Stores of Holyoke equal the capture rate (Line 13) times Potential GAFO expenditures (Line 9). Sales from the trade area increase from $ 30.9 million in 200,000 s.f. in 1994, to $ 39.3 million in 2000 (Line 14).

    Meanwhile, the attractions in the Historic Holyoke district are developed and improved and an aggressive marketing program is undertaken to attract customers from outside the trade area. This "inflow" adds 5 % to sales in 1995, and continues to increase at a rate of 1 % a year to add 10 % to sales by the year 2000 (Line 15).

  • Line 16: TOTAL SALES in the Stores of Holyoke (Line 14 times Line 15) progress from $ 30.9 million ( $ 154/s.f.) in 1994, to $ 43.3 million ($ 216/s.f.) in the year 2000. The average rate of increase, from population growth, inflation, and inflow generated by the attractions is 5.8 % a year.


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