Critical mass matters: The long-term benefits of retail agglomeration for establishment survival in downtown Detroit and The Hague

Abstract

This paper explores the long-term sensitivity of street-level retailers to agglomeration to corroborate its theorised benefits under current economic modelling. It does so by studying the annualised chance of closure of retailers as a function of the number of surrounding retailers, as well as how different types of retailers respond differently to agglomeration. A time fixed effect model is used to study the mortality rate of retailers over the period of a century. The study draws from a self-created database of retail establishment locations and types in Detroit, Michigan and The Hague, Netherlands between 1911 and 2011. The case study cities have been selected for their combination of similarities and differences. While downtown Detroit is infamous for its high vacancy and The Hague has been praised as a vibrant Dutch urban core, both cities have in fact suffered significant loss of retail activity over the past century, allowing for the study of retail closure under different socio-economic and cultural circumstances. The study demonstrates a significant sensitivity of retailers to agglomeration in both cities. The study also indicates a specifically high sensitivity to agglomeration in the case of comparison shops. Without a critical mass of peers, these retailers will face a significantly higher than average chance of closure. The sensitivity to agglomeration is remarkably similar between both case studies, urban cores which at first sight have experienced rather different fates over the past century. This cross-cultural similarity may point to a generalisability of the underlying mechanism of sensitivity to agglomeration.

Public Policy for Sustainability and Retail Resilience in Lisbon City Center

“…Banks and other corporate headquarters were relocated to new emerging office's districts in the city or in the edge, and the new diversity of the tenant mix revolves around consumption functions. In European cities, despite the steady growth in the leisure sector, downtown areas have remained a regional comparison-shopping destination as Kickert and vom Hofe [116] observed when comparing The Hague and Detroit. Lisbon city center still is a comparison-shopping destination, although much weaker than it used to be.…”

Location-Price Equilibria when Traditional Retailers Compete Against an Online Retailer

“…This kind of evidence is supported by our equilibria under the I/A/B/I market structure. However, others believe that online competition would induce traditional retailers to locate in suburban areas (Kotkin, 2001 ; Ushchev et al, 2015 ; Kickert and Vom Hofe, 2018 ; Delage et al, 2020 ). Dixon and Marston ( 2002 ) argue that the internet would place conventional stores in the high-streets, and Li ( 2010 ) finds that, with the arrival of online retailers, many bookshops in Sydney located on high streets away from shopping centers.…”

Spatial dynamics of long-term urban retail decline in three transatlantic cities

“…4 Similarly, all three cores have seen a significant decline in their downtown residents, jobs and visitors, followed by a recent upswing in all cores. Conversely, the very different social, economic and cultural context of the three cores would enable the discovery of similar spatial decline dynamics to signify theoretical replicability, hence generalizability ( Kickert and vom Hofe, 2018 ; Yin, 1994 ).…”

“…The advantage of retailer agglomeration is also a risk minimization strategy on the supply side, as shops cluster to sell complementary goods, but also take market share from competitors and to enable customers to compare goods ( Brown, 1989 ; Hotelling, 1929 ). At the micro scale of the retail street, the benefits of agglomeration prompt retailers to cluster with compatible peers and close to anchor stores ( Hernández & Bennison, 2000 ; Nelson, 1958 ; Sevtsuk, 2020 ), which has been demonstrated to reduce their chance of failure over longer spans of time ( Kickert and vom Hofe, 2018 ).…”

“…Furthermore, studies focus on retail change in specific national contexts, which depend on unique regulatory and market dynamics ( Davies, 1995 ; Gosseye & Avermaete, 2017 ; Guy, 2006 ; Guy, 1998 ). These regulatory and cultural differences indeed account for significant differences in the national and regional distribution and transformation of retail, yet significant international consistencies exist in the spatial dynamics of retail change at the urban microscale of individual streets and storefronts ( Kickert and vom Hofe, 2018 ; Sevtsuk, 2020 ).…”