This thesis aims to investigate how variety in a local retail market is related to the performance of such retail market in terms of its scale and specialization. The empirical study employs data from Swedish municipalities for the years 2002-2012 to perform fixed effects regressions in order to look into the changes in scale and specialization of the local retail market over time with an observed variety. Variety in the retail market is calculated both in terms of related and unrelated variety that tackles how related the different retailers are with respect to each other in the same local market. The results indicate that there is a positive and significant relation between the scale as well as the specialization of the retail sector and the variety in the local market. Related variety appears to have more influence on the specialization of the retail sector compared to unrelated variety.