What Do We Know About the Determinants of Shopping Center Sales? Spatial vs. Non-Spatial Factors

Abstract This literature review shows that recent studies are interested in the argument that non-spatial factors are as important to shopping center patronage as spatial factors. Understanding the effect of non-spatial factors on shopping center sales is important for at least three reasons: (1) non-spatial factors increase retailer differentiation in competitive retail markets; (2) they promote brand identity as retailers develop alternative non-store retail formats; and (3) they represent a source of shopping center intangible value. This review confirms that new empirical and theoretical efforts to model the non-spatial inter-store externalities, assess the trade-off between spatial and non-spatial factors, and measure the interactive retail image/mix effect would be particularly valuable. Introduction The literature has extensively analyzed the effect of spatial factors on retail sales. In the context of the shopping center, several studies have examined the existence of spatial inter-store externalities, showing that anchor and non-anchor retailers' spatial factors, such as location or size, affect non-anchor retail sales by creating a shopping spillover effect. More recently, the literature has emphasized the effect of non-spatial, or intangible, factors on retail patronage. Some studies suggest the presence of nonspatial inter-store externalities whereby anchor and non-anchor retailers' non-spatial factors, such as retail image and mix, significantly affect non-anchor retail patronage. Recognizing the effect of non-spatial factors on retail sales is important for various reasons. First, non-spatial factors are increasingly valuable as shopping centers differentiate from their competitors. As the number and variety of shopping centers increase and locations are more comparable, shopping centers with unique brand characteristics are more likely to succeed. Second, non-spatial factors gain importance as retailers implement alternative non-store retail formats. Established retailers with strong brand identity maintain more successful catalog or electronic retail operations because they use their non-store brand exposure to increase their store retail performance. Lastly, non-spatial factors attract attention as shopping center owners seek sources of intangible value to reduce property taxes. This article uses real estate, marketing and urban economics references to review the extant literature on the determinants of retail sales. The next section defines retail sales as a measure of shopping center performance. The relevant literature about the effect of spatial and non-spatial factors on retail sales is then reviewed. The importance of non-spatial factors in the context of the shopping center is discussed next. The final section is the conclusion. The discussion is accompanied by exhibits that summarize the most relevant studies. This article complements previous retail literature reviews such as those by Craig, Ghosh and McLafferty (1984) and Eppli and Benjamin (1994). Retail Sales as a Measure of Shopping Center Performance Most industry reports, including those by the Urban Land Institute (ULI) and the International Council of Shopping Centers (ICSC), measure shopping center performance in terms of non-anchor retail sales per square foot. The importance of retail sales to shopping center profitability lies in the structure of most retail leases. Non-anchor retail leases include, in addition to a fixed rent component, an overage rent calculated as a percentage of sales after a certain threshold level. Although analysts and lenders sometimes rely on the fixed portion of rents to evaluate shopping center projects, a complete project evaluation should consider cyclical, seasonal and random sales variations that affect overage rents. ' Exhibit I summarizes various explanations for the link between retail sales and rents. Benjamin, Boyle and Sirmans (1990, 1992) suggest that overage rents are an alternative to fixed rents. …