Modelling Retail Floorspace Productivity

This research note presents a "switching regime" model to investigate the impact of environmental factors on floorspace productivity of individual retail stores. The model includes independent supply and demand functions, which are incorporated within a sales maximizing framework. Unlike previous models, the switching approach allows the model to determine first whether sales are determined by demand or supply side constraints. The appropriate regime is then chosen to estimate space productivity. The model is estimated with data on individual stores collected by the Dutch Research Institute for Small and Medium-Sized Business.