In a Huff model with heterogeneous retailers, a higher market potential within the trade area should result in higher average productivity and lower productivity dispersion, through the selection of the best stores. Using a unique dataset encompassing 14,212 Italian retailers, we report evidence of such a process at the municipality level. The effectiveness of this process is widespread in Southern Italy but not in Northern and Central Italy, suggesting the selection dynamics to be strongly affected by context factors related to an upper geographical scale. Interestingly, the extent of provincial/regional accessibility is not among these factors. This evidence is robust to controlling for local context factors such as financial risk and entry restrictions. Notably, entry restrictions are found to enhance selection.