The performance of the local retail sector is a key economic indicator that has important economic implications. Because the retail sector is mostly patronized by local residents and businesses, it provides an initial indication about the vitality of the local economy. The retail sector also helps describe the fiscal capability of local government , as sales tax is one of the most important sources of revenue for state and local governments.
Many localities use the expansion of their retail trade sector as an economic development tool.
There are many benefits of having a strong retail sector, including growth in employment, sales, local government sales tax revenues, as well as improvements in local quality of life. In addition, the existence of a strong retail sector is often considered important to firms that are thinking of locating in a community. On the other hand, retail trade expansion as an economic development tool is limited by two factors. First, retail trade creates little added value because these stores purchase most of the goods they sell from outside the local area. Second, increased sales in one geographic area may be at the expense of lost sales in a nearby area.