Friday, August 10, 2012

What's holding back Marin's retail recovery?

Growth, or the lack of it, in retail sales, and what it says about the economy, is in the news again, with strong growth in sales reported in some sectors and weak performance in others. During the recession, total US retail sales fell from $340bn in 2008 to $295bn in 2009, then recovered back to pre-recession levels in early 2011, growing further to $360bn in April 2012. However, total sales have fallen in the last three months as the economy slows and consumers cut back on spending.

In Marin County, the recovery has not fully materialized. Based on retail sales tax data from the State Board of Equalization (see chart at right), retail sales in 2012 are tracking above 2011, but are still below 2008.

In this respect, Marin is out of line with most of the Bay Area.

Looking at retail sales tax growth since March 2010, which was when retail sales started to recover, Marin, and to some extent Sonoma, are lagging behind the major Bay Area counties and California as a whole.

What is holding back the recovery in Marin? Below are some possible reasons:

1. On the demand side, consumer spending has not recovered. Marin took a big hit from the recession. Total personal income in Marin County fell by over 13% in 2009, a much steeper drop than elsewhere in the Bay Area. Data beyond 2010 is not yet available, but it's very possible that income growth in Marin has yet to fully recover, which would help explain continued retail weakness.

2. On the supply side, tight market conditions have restricted the ability of new and innovative retail formats to start up and grow in Marin. In a recovery, consumers often need to be tempted to open their pocketbooks and start spending again, and that temptation is best provided by new and fresh retail formats. Marin County has one of the lowest retail vacancy rates in California, and also higher than average rents, which means it's tough for retailers to find high quality and affordable space.

3. Internet shopping. The growth of electronic commerce continues to impact traditional retailers, almost killing off whole categories, such as books and music, and cutting into the margins of others. In the US, online retailing is growing at an average annual rate of over 15%. It is very possible that Marin's combination of high average incomes and limited retail supply make online shopping a significantly attractive option.