Gap Analysis: A Tool for Community Economic Development

Introduction

The Cooperative Extension Service has had a significant role in assisting local economic development efforts (Conglose, 2000). Often, that role includes data analysis, technical studies, or surveys that provide information to enhance the local quality of life (Guy & Rogers, 1999). A key segment of local economics includes Main Street businesses and local retail trade activity.

In recent years, organizations such as Main Street have played an important role in educating local citizens in issues of retail competitiveness, specifically, and in issues of economic development, in general. As a result, the nation's small cities and towns have placed a renewed emphasis on economic development through the retention of local retail dollars. This new emphasis has created a need for reliable retail data and educated analysis within these communities (Barta & Woods, 1999).

The Oklahoma Cooperative Extension Service has responded to this need by offering a Retail Trends and Taxable Sales Analysis to communities that request it. The "gap analysis report," as it has come to be called, has been well received by community leaders in Oklahoma. Accompanying the written report is a Power Point presentation that uses color graphics. Often the report and presentation are e-mailed from campus-based research staff to Extension professionals in the field who present the report to the community. An example of a written report, conducted for Stroud, OK (Moore et al., 1999) may be viewed at the followed Web address: http://www.agecon.okstate.edu/community/CommunityAssessment.htm#C.

From June 1, 1999 to June 1, 2000, the gap analysis was conducted for 15 communities in 12 counties of Oklahoma. The communities represented a population of 172,890 and total retail sales of $1.98 billion for fiscal year 1999. This article explains the gap analysis report (Barta & Woods, 1999) and describes the impact of the report on the communities that have used it. To determine the local impact, a survey was sent to each County Extension Director who was involved with one of these reports. In some cases, the director also forwarded a copy of the survey to community partners who were involved with the study.

Gap Analysis

Gap analysis begins with the calculation of trade area capture (TAC). TAC estimates the number of people who have shopped in a local economy over a 1-year period. This is accomplished by dividing the retail sales of a community by the average per capita retail spending by Oklahoma residents. The result is an estimate of the number of people who have spent the state average within the community.

Unfortunately, TAC cannot be compared across communities. Consider a town of 2,000 people that attracted 4,000 shoppers to their economy last year. This town has been successful at capturing local shoppers plus attracting non-local shoppers. Compare that town to a city with a population of 8,000. If this city had only attracted 4,000 shoppers last year, then it was only successful in capturing half of the local market and had not attracted any non-local shoppers.

In order to measure the "pull" of a local economy in a way that can be compared across communities, the TAC is used to calculate an index referred to as a "pull factor" (PF). The PF for a community is found by dividing the town's TAC by the town's population. For example, the town of 2,000 with a trade area of 4,000 has a pull factor of 2.0. The city of 8,000 with a trade area of 4,000 has a pull factor of 0.50.

In general, a PF that is greater than 1.0 indicates that a community is capturing the local market plus attracting non-local shoppers. A PF that is less than 1.0 indicates that a community is failing to capture the trade of its own local population. The database used in Oklahoma allows for both tabular and graphic presentation over a 20-year time period.

Gap analysis takes pull factor analysis one step further by evaluating trade area capture and estimating pull factors for specific retail categories. For instance, the eight Standard Industrial Classification (SIC) categories that are considered retail are:

• Building Materials and Hardware,
• General Merchandise,
• Food Stores,
• Gasoline and Auto Parts,
• Apparel,
• Furniture and Home Furnishings,
• Food and Drink, and
• Miscellaneous Retail.

When estimates of retail spending by SIC category are available at the community level, TAC and PF can be calculated by category. Thus, a community may have a sales "gap" in the market for apparel (PF < 1.0), but may have a sales "surplus" in the food store category (PF > 1.0).

The value associated with sales gap analysis comes from knowing the strengths and weaknesses of the local retail economy. It is a first step. Local residents must decide for themselves whether a retail gap is not acceptable, acceptable, or even preferable. If it is deemed not acceptable, then community leaders should work to devise a competitive strategy for meeting the needs of the community.

Evaluation and Conclusions

In order to determine the value of the gap analysis to communities, a survey was mailed to each of 12 County Extension Directors. In some cases, the directors forwarded a copy of the survey to community partners who may have originally requested the report. Ten unique communities responded to the survey, and a total of 14 completed surveys were received. Four communities returned surveys from both the county Extension educator and a community partner.

Overwhelmingly, the response by communities for the retail trends report was positive. The most optimistic responses, however, appeared to come from communities that already had a mechanism in place for accepting, studying, and disseminating the data. For example, the Economic Restructuring Committee of Stillwater Main Street immediately began to use the information to promote a shop downtown first attitude, and the Chickasha Chamber of Commerce set up a special committee designed to analyze and use the data.

Other communities indicated they used the report to enhance community focus on the needs and opportunities of downtown revitalization. A common response of communities was "at the minimum, the report has altered the perception of retail spending and leakage."

A key lesson learned has been to work closely with the local community leaders and economic development professionals. Usually, a draft report is reviewed by a local steering committee. This allows Extension professionals to answer any questions and clarify interpretation. Often, unique data trends are identified and assessed during this initial phase.

The reports have led to additional requests for assistance through the Extension Service. Consumer shopping surveys, business management training, and customer service/hospitality training are examples of additional programs that have been provided. Extension has much to offer in the area of sustainable community development. Gap analysis has proven to be an effective tool that builds on the strength of Extension's research-based program efforts.

References

Barta, S. D., & Woods, M.D. (1999). Gap analysis as a tool for community economic development. Oklahoma State University Extension Facts [On-line]. WF-917. Available: http://agweb.okstate.edu/pearl/agecon/resource/wf-917.pdf

Conglose, J. B. (2000). The cooperative extension service's role in running a successful county economic development program. Journal of Extension [On-line]. 38(3). Available: http://www.joe.org/joe/2000june/a3.html

Guy, S. M., & Rogers, D. L. (1999). Community surveys: Measuring citizen's attitudes toward sustainability. Journal of Extension [On-line] .37 (3). Available: http://www.joe.org/joe/1999june/a2.html

Moore, M., Barta, S. D., Jones, M., Frye, J., & Woods, M. D. (1999). Analysis of retail trends and taxable sales analysis for Stroud, OK and Lincoln County. Oklahoma Cooperative Extension Service [On-line]. AE-9966. Available: http://www.agecon.okstate.edu/community/Stroud%20for%20Web.pdf