Whenever we consider retail or tourist purchases of goods from local stores, we need to ensure that the dollar amount we enter into the Model is appropriately Margined. When the item or items purchased are unknown or not specific enough to be attributed to a specific producing Sector, using a Retail Sector is appropriate.
The process of Margining splits the cost the customer pays to the store into its component parts. Each component of the Margin adds both value and cost to the final product cost paid by the consumer at the checkout line in the store. The four (4) components are listed below:
- Retail Margin: The operational cost of the retail store. This is the portion of the cost that the retailer keeps to operate their store, pay their workers, pay taxes, and hopefully make profit.
- Wholesale Margin: This is the portion of the total cost the wholesaler keeps for their operational expenses.
- Transportation Margins: The value charged by various forms of transport to move products from their production site to a distributor and from the distributor/wholesaler to the retailer.
- Cost of Production: The value of the product when it leaves the 'factory' floor
When the product being purchased is unknown, the only part of the Value Chain we can distinguish is the Retail Margin; the remainder of the values have to be leaked from the Model because when we do not know what was purchased, we cannot:
- Determine what was produced, where it was it produced, or its portion of the total final cost, thus
- We cannot determine how it was transported, where it was transported from, and what the proportional cost of transport would be, and
- We cannot determine where it was wholesaled and what proportion of the sale went to the wholesaler.
For example, a Big Box Retailer might sell both a teddy bear and lettuce, but if we do not have enough information to know which one was purchased, we cannot determine where it was most likely produced (within or not within the Study Area Data), how it was transported (if the Teddy Bear came from China perhaps it involved both ship and truck transport, whereas the lettuce required only truck transport), the proportional cost of transport (which can vary by transportation modality, distance of travel, and required equipment (i.e. refrigerated truck)), and the similar wholesale breakdown which will be very different for these two commodities.
Thus when we know exactly what our tourist or householder is purchasing, we want to take advantage of being able to see all four (4) elements of the Margin. When that information is not available, we have to use the Sector for the retailer who sells the product. Retail Sectors are 396-407 in the 536 Sectoring Model.
For this example, we will look at a $1MM purchase from a Gas Station in the IMPLAN 2014 Model. Since we only know a purchase was made from a Gas Station, we have to use the Gas Station Sector because the items purchased could be gasoline, bubble gum, grocery items, car parts, lottery tickets, cigarettes or a variety of other items.
- The Sector for Gas Stations is 402. Therefore, we will select Sector 402 in the Event.
- Before entering any other value, ensure that the Event Year is properly set to the year of the value of sales.
- Next we will enter our $1MM into the Industry Sales field.
- This $1MM is actually the value of retail sales only, a portion of which the retail store actually gets to keep for its operations. Thus we are prompted to choose between Gross Retail Sales and Gross Retail Margin. In almost every case we will choose the default selection, Gross Retail Sales.
- The Industry Sales will not appear to change, but note that the Employment value is reduced. If we click into the Margin> Edit screen (Event Options> Edit Event Properties>Margins> Edit screen), we will see that only a small proportion of the value (11.6%) of the total retail sales of a gas station are kept and used by the station for its operations. No other Sectors are impacted because we do not know what was purchased.
- Our Event is now Margined and is ready to be analyzed.
Gross Retail Sales vs Gross Retail Margin
Gross Retail Sales is the default choice for all Retail Sector analysis. Gross Retail Sales:
- Indicates the Gross sales of the store, or the value of customer receipts from the store
- Is the most common value most users have available to work with
- Represents the entire store sales as Industry Sales, but this is not equivalent to its local Direct Effect.
- The Direct Effect of a Retail store is only a fraction (typically 15-30%) of its total sales value. This is because the remainder of the total cost of the items sold through retailers belong to the Value Chain (wholesalers, transport, and production). Since these factors are unknown, they are leakages.
- Only the portion of the sales that the retailer keeps for their operations is applied to the Multiplier for that Retail Sector.
- When talking about the sales of the store, the total sales value can be added back in as Direct, but only the portion of the sales that is applied to the retailer's operations can be used to Model their local impact.
Gross Retail Margin indicates that you are entering the operational value of the store into the Industry Sales field.
- Should never be used if you are working with the value of a stores sales.
- Gross Retail Margin assumes that you have already removed the proportion of the sales that go to the wholesaler, transport, and production. Thus, the entire value is applied to the Multiplier for that Retail Sector.
- The use of the term Margin here indicates that only the Retail store's Margin, or their proportion of the the total sale, is being entered into the software.
- Still only looks at the operations of a retail store. No items on the shelf of the store are accounted for by a Retail Sector.
Unless the items purchased are known, there is no way to see the impact of retail sales past the operational functions of a local retailer. Both Gross Retail Sales and Gross Retail Margin use the same operational spending pattern; they simply treat the value of Industry Sales differently.
Retail Sectors should only be used when the items or commodities purchased cannot be identified.
Examples of this might include:
- Purchases from gas stations, grocery stores, and other retailers where we do not know what items were purchased.
- Known purchases that are not specific enough to tie back to a producing Sector. Such as knowing:
- Clothing purchases: multiple Sectors produce clothing, so unless you are able to determine if it is leather footwear or men's exercise clothing, you will likely need to use the clothing retailer.
- Furniture purchases: like clothing, many different types of furniture manufacturing are available in IMPLAN. Unless you know that the furniture was metal office furniture, it might be necessary to use the appropriate retailer
Sometimes the appropriate retailer may not be the most obvious one. When selecting a Retailer consider your data.
- If you are modeling business expenditures, furniture may likely come from a furniture store
- If you are modeling students at a university, furniture may be more likely to come from a used goods store or from a Big Box Retailer.
Even when you believe or know that no local production, transport, or wholesale occurs, if you know what is being purchased it is better to use the method listed in the article Margining: When the Item Being Purchased Is Known because you will be using a Retail Margin that is specific to the commodity being purchased rather than an average Retail Margin for all the goods sold through that Retail Sector. Adjustments for locality of other elements in the Value Chain are described in the Margining: When the Item Being Purchased Is Known article.