Effects of community characteristics, business environment, and competitive strategies on rural retail business performance

The financial viability of rural retail businesses has become a major concern of economic and community development specialists (Ayres, Leistritz, and Stone 1992) due to a decline in the ability to capture the purchasing power of trade area residents. This decline in retail sales volume can be devastating to small towns, leading to business closures with resultant job losses, outmigration, and reductions in rural tax bases (Leistritz and Hamm 1994). The purpose of this article is to report findings from a study that investigated the interrelationship among community characteristics, the community's business environment, the use of competitive strategies, and the business performance of retail entrepreneurs in rural communities. The objectives of the study were: (1) to examine the strength of the relationships among community characteristics, the business environment, the use of competitive strategies, and retail performance; (2) to examine the nature and/or effect of the relationships among the variables; and (3) to determine whether any of the variables or combinations of variables contribute to retail performance. Review of the Literature Community Characteristics During the past decade, significant changes have taken place in the business environment due to economic restructuring nationwide. The effects of these changes have been particularly severe in nonmetropolitan areas of the United States. The restructuring of the manufacturing sector in the Midwest and South, the depressed markets for the agricultural products of the Great Plains and Corn Belt states, and the retrenchment of the energy industry in the Rocky Mountain and Great Plains states have all led to economic stress for many rural areas and, in some cases, for entire states (Barkley 1993; Bernat 1992; Leistritz and Harem 1994). One result of the economic restructuring that has been occurring in rural areas has been a widening economic gap between metropolitan and nonmetropolitan areas (Barkley 1993). Since 1979, the per capita income in rural counties in the U.S. has fallen behind that of their urban counterparts. Furthermore, these patterns of widening rural disadvantage have prevailed regardless of the counties' dominant economic base. Areas with a primary economic dependence on farming, manufacturing, and mining all recorded major declines in relative income, while those primarily dependent on retirement and tourism had smaller losses (Cook 1990; Drabenstott 1991; Fagen and Longino 1992; Frederick 1993). Worsening economic conditions in rural areas have also led to substantial migration from rural to urban areas. Rural counties that are not adjacent to metropolitan areas have been hit particularly hard by outmigration (Leistritz and Hamm 1994). Significant losses of population and purchasing power through outmigration can pose major problems for local small business retailers. Business Environment Influences such as economic restructuring, intensified competition, government regulations, and technological advances have resulted in heightened environmental turbulence and uncertainty for small business firms. As noted by Covin and Slevin (1989), small businesses are particularly susceptible to environmental influences due to limited resources and the devastating consequences of poor managerial decisions. According to the authors, An environmental dimension which.serves as a threat to small firm viability and performance is hostility. Hostile environments are characterized by precarious industry settings, intense competition, harsh, overwhelming business climates and the relative lack of exploitable opportunities. Non-hostile or benign environments.provide a safe setting for business operations due to their overall level of munificence and richness in investment and marketing opportunities (p. 75). Porter (1980) contends that the business environment differs by industry. Ireland et al. …