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Does your trade area population include more homeowners or renters? Baby Boomers, Gen-Xers, or Millenials? Which ethnic groups are represented in the population? If they are home owners, how likely are they to purchase home furnishings, renovate their homes, or spend leisure-time landscaping their yards?

To analyze market opportunities for your downtown, you need to examine data and ask questions like the above about residents of your trade area(s). This data must include the absolute number of residents, as well as their household characteristics. Current and projected demographic, lifestyle and consumer spending data about your trade area from secondary sources can provide this information.

Demographic and lifestyle data about your trade area can give you a starting point for an in-depth analysis of specific business and real estate development opportunities. This data also can help the broader community understand how it is changing.

Demographic Data

It is well understood that product preferences vary across different groups of consumers. These preferences relate directly to consumer demographic characteristics, such as household type, income, age, and ethnicity.  For this reason, it is not only the amount of demand that truly matters to a local economy.  The mix of consumers also has a major impact on a local economy, and therefore must be thoroughly examined in all trade area analyses. Unfortunately, far too much information often is included in these studies. An enormous amount of data is readily available from a variety of private and public sources, leaving the reader with tables and tables of demographic information overload.

Relevant Data Categories

Interpretation of demographic data is often missing in market analysis. What does the data say about how the market is changing and how consumers spend their time and money? Specifically, what does the data suggest about new business or real estate opportunities downtown? The following provides a starting point in your understanding and interpretation of demographic data in relative to retail spending.*

• Population and households data allow you to quantify the current market size and extrapolate future growth. Population is defined as all persons living in a geographic area. Households consist of one or more persons who live together in the same housing unit—regardless of their relationship to each other (this includes all occupied housing units Households can be categorized by size, composition, or their stage in the family life cycle. Typically, demand is generated by the individual or the household as a group. So,  the entire family influences a household purchase, such as a  computer or TV. Individual purchases, on the other hand, are personal to the consumer. Anticipated household or population growth may indicate future opportunities for a retailer.  An analysis of household and/or overall population growth provides the “big picture” of potential retail demand in a community. However, further analysis is necessary to identify retail preferences within a community.
• Household income data is a good indicator of residents’ spending power. Household income positively correlates with retail expenditures in many product categories. When evaluating a market, retailers  look at the median or average household income in a trade area and will  seek a minimum number of households within a certain income range before establishing a business or setting prices. Another common practice is to analyze the distribution of household incomes. Discount stores may avoid extremely high or low-income areas. Some specialty fashion stores target incomes above $100,000. A few store categories, such as auto parts, are more commonly found in areas with lower household incomes. See the following box for more details on household income. Remember, though, that using income as the sole measure of a markets  buying preferences can be deceptive. You need to consider all categories of demographic data when analyzing a market.