Critical mass matters: The long-term benefits of retail agglomeration for establishment survival in downtown Detroit and The Hague

Abstract

This paper explores the long-term sensitivity of street-level retailers to agglomeration to corroborate its theorised benefits under current economic modelling. It does so by studying the annualised chance of closure of retailers as a function of the number of surrounding retailers, as well as how different types of retailers respond differently to agglomeration. A time fixed effect model is used to study the mortality rate of retailers over the period of a century. The study draws from a self-created database of retail establishment locations and types in Detroit, Michigan and The Hague, Netherlands between 1911 and 2011. The case study cities have been selected for their combination of similarities and differences. While downtown Detroit is infamous for its high vacancy and The Hague has been praised as a vibrant Dutch urban core, both cities have in fact suffered significant loss of retail activity over the past century, allowing for the study of retail closure under different socio-economic and cultural circumstances. The study demonstrates a significant sensitivity of retailers to agglomeration in both cities. The study also indicates a specifically high sensitivity to agglomeration in the case of comparison shops. Without a critical mass of peers, these retailers will face a significantly higher than average chance of closure. The sensitivity to agglomeration is remarkably similar between both case studies, urban cores which at first sight have experienced rather different fates over the past century. This cross-cultural similarity may point to a generalisability of the underlying mechanism of sensitivity to agglomeration.