11 May 2011

Planning policies favouring high street shops over out-of-town supermarkets reduces retail productivity, according to research.

A report from the Spatial Economics Research Centre (SERC) concludes that the results "strongly suggest that planning policies – in particular ‘town centre first’ policies – directly cause a significant reduction in total factor productivity in retailing, at least in the case of the large supermarket sector".

Professor Paul Cheshire, Dr Christian Hilber and Dr Ioannis Kaplanis have analysed productivity in the retail sector in terms of Total Factor Productivity (TFP). Previous findings suggest that larger stores lead to higher TFP, and the SERC researchers sought to confirm whether planning policy has led to reduced store size, and whether a drop in productivity could be estimated.

Data from 357 stores of a major supermarket group were used in the research, including information on store format, floorspace, sales, opening hours, staff numbers, amount of parking space and geographical location. Stores ranged from 'small stores' of 25,000 square feet to 'super centres' of 85,000 square feet.

The report confirms that more restrictive planning regimes lead to smaller stores, and that smaller stores are less productive.

Formal planning restrictions emerged in England and Wales in the late 1980s after increasing numbers of out-of-town shopping centres were built.

The 'town centre first' policy enforced in England from 1996 went one step further, redirecting retail developments to sites in town centres.

Potential out-of-town developers had to show that not only were suitable sites in town centres not available, but that the local community had a 'need' for more retail space.

According to the SERC report, strong circumstantial evidence suggests that "the tightening of planning policy with respect to retail development – especially out-of-town retail development in 1996 – caused a drop in store development, an increase in space prices and a levelling out of the rent structure with respect to distance from town centres" (an increase in rental costs outside town centres).

By comparing the pattern of productivity in English stores with those in Northern Ireland and Scotland, where restrictions on out-of-town stores were less strict and introduced later, the SERC team could estimate the impact of 'town centre first' policies on productivity.

The estimates indicate that restrictive planning policies have led to a loss of 16 per cent in England by 2006, and an overall loss of TFP of over 20 per cent since the late 1980s.

However, the researchers concede that restrictive planning policies may generate benefits not measured in terms of TFP.

The next phase of their research will examine the impact of 'town centre first' policy on retail’s carbon footprint.

Paul Cheshire, Christian A. L. Hilber, Ioannis Kaplanis:
Evaluating the Effects of Planning Policies on the Retail Sector: Or do Town Centre First Policies Deliver the Goods? (SERCDP0066)