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Retail Development in the Tri-Cities Paying Dividends, According to King University Study

BRISTOL, Tenn., Feb. 1, 2018 – The King Institute for Regional Economic Studies (KIRES) has released a new study. KIRES Report No. 18, “An Economic and Statistical Analysis of the Retail Sector in the Tri-Cities,” was prepared by Dr. Sam Evans, director of KIRES and associate professor of Finance and Economics in King’s School of Business and Economics, Dr. Alexander Brumlik, assistant professor of Economics, and Kingsport native Drew McCrary, a junior at King majoring in Business Administration.

According to McCrary, “The purpose of this study is to examine the factors affecting retail sales in the Tri-Cities Combined Statistical Area (TC-CSA) and to estimate the extent to which the retail sector contributes to the region’s economic base.” The TC-CSA, as defined by the U.S. Census Bureau, consists of the Kingsport, Bristol, and Johnson City metro areas. This market area includes Carter, Hawkins, Sullivan, Unicoi, and Washington counties in Tennessee; Virginia locations include Bristol city and Scott and Washington counties.

The authors write that “from 2010 to 2016, there was a slight decline in the TC-CSA population, and the increase in per capita real income was less than one-half the increase for the U.S. With no population growth, the health of the retail sector in the TC-CSA, as measured by sales, is wholly dependent on residents’ incomes and purchases by nonresidents. Slow growth in TC-CSA per capita real income amplifies the importance of nonresidents’ purchases to the health of the local retail sector.”

According to the authors, the vast majority of the nearly $7,905 million in retail sales recorded in the Tri-Cities in 2016 were to local residents. That portion of retail trade does not produce an economic impact, per se. McCrary notes that “our analysis indicates that 17.15 percent of retail sales were to nonresidents in 2016. That portion of retail trade can be considered a basic industry, bringing new dollars to the region and yielding a positive economic impact.” The study also found that dollar sales to nonresidents have risen over time, from an estimated $729 million in 2013 to $1,356 million in 2016.  Evans notes that “this is good news for the Tri-Cities given the substantial investment in new retail development in recent years.”

The authors report that the main economic impacts of sales to nonresidents are the creation of 6,993 new full-time and part-time jobs in all sectors of the regional economy and an increase of $218 million in earnings received by households employed in all industries in the Tri-Cities.

The authors write that “our analysis should provide, at the least, a starting point to assess the economic impact of new retail development. Economic analyses of new retail development must consider the potential for the development to attract nonresident spending. Aside, from making the Tri-Cities region more attractive to visitors and investors, development which competes with existing retail stores likely will have an insignificant economic impact – a zero-sum game. On the other hand, new stores which are unique to the region and the surrounding region have the potential for a significant economic impact.”

The authors note that firms or industries that produce goods and services for sale to customers outside the Tri-Cities region are known as basic industries. These (exporting) industries bring income and employment into the region that would otherwise not exist. These firms constitute the region’s economic base. Firms or industries that support basic industries by providing services or inputs, and firms that provide goods and services to households in the region are called non-basic industries.

Brumlik states that “the retail sector is often the largest non-basic industry in any regional economy. This is certainly true for the Tri-Cities as employment in the retail sector currently is around 26,000, accounting for 13 percent of total employment.” Evans adds, “Retail has been described as a zero-sum game in which gains by one retailer tend to be offset by losses among other, competing retailers, with no net benefit to the local economy. This view holds that retail trade is supported by the economic base of a region but contributes little to the expansion of the economic base. Attracting shoppers from outside the region is especially critical if new retail development is to add to the region’s economic base.”

KIRES Report No. 18, “An Economic and Statistical Analysis of the Retail Sector in the Tri-Cities,” and the 17 previous reports are available electronically at http://kires.king.edu.

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