Retail trade includes establishments primarily engaged in selling merchandise to personal, household and farm users. Excluded from retail trade are places of business operated by institutions and open only to their own members or personnel, such as restaurants and bars operated by clubs, school-cafeterias, etc. A retailer is greatly benefited by knowing his retail trade area. He can know it by applying the Law of Retail Gravitation. The retailers can be benefited in several ways:
(1) If the trade area is known they are able to determine how they are doing in competition with adjacent trading centers.
(2) The formula tells them the proportion of trade they receive if they are doing an average job of merchandising . Surveys can be made in towns near the boundaries of their trade areas to ascertain how well they are actually doing.
For example, surveys were made near the boundaries of trade area of one trading center X. They showed that X was doing as predicted in one town, better than predicted in two towns and worse than predicted in five towns. In the two towns in which X made a good showing, it was a competition with a considerably smaller town and one which had been growing so rapidly this store had not caught up with its population. It was no compliment for the retailers in X to out-merchandise this town. In the other six towns, they made an average showing in one and poor showings in five towns. This was net a good record. This information should stimulate these retailers to do a better job.
(3) Once the trade area of a town is determined, the income of the area may be estimated from govt. data or developed by surveys. There is a definite relationship between income and retail sales. Thus, when the income of the area is computed, the volume of the purchases made by the people in the area can be determined. If there is only one retail center in the area, it should obtain its trade.
(4) The retailer should know his trade area so that he can concentrate his advertising and other sales efforts inside it. His advertising will be much more effective inside than outside his trade area.
(5) Trade areas differ for convenience, service and fashion goods. People travel farthest for fashion goods and the trend of the trade is from smaller to larger towns.
(6) A knowledge of trade areas is important in selecting locations for retail stores.