The Benefits of Doing Business Locally
By Jeff Milchen
In the smallest towns, bustling cities, and everything in between, more citizens lament losing a sense of community and local character.
Meanwhile, national chains and online mega-stores continue gaining market and pushing independent businesses to the margins in many sectors. This trend is considered symptomatic of our loss of community orientation, but could it also be a primary cause? And what are the economic costs to our communities as absentee-owned corporations displace locally-owned businesses?
Of course, we usually choose to do business where we perceive the best value for our time and money. But in an age where we’re bombarded with thousands of corporate advertisements daily, perceptions may differ widely from reality. The unrelenting emphasis on cheapness above all other values leads many people to overlook the values independent businesses provide us, both personally and in our communities.
The disappearance of local businesses leaves a social and economic void that is palpable and real -- even when it goes unmeasured, and a community's quality of life changes in ways that macroeconomics is slow to measure (or ignores completely).
Local officials often fall for the seductions and political appeal of national chains and may even use public funds or tax rebates to lure them. They're baited with promises of jobs and tax revenue, but they often fail to consider the greater losses that occur when the local business base is undermined.
A chain “superstore” may boast of creating 300 new jobs, but numerous studies indicate they displace as many jobs as they create. And when communities like Barnstable, Mass. studied* the fiscal impact of chains, they concluded such development actually costs more taxpayer dollars to support in safety and services than the community would reap.
In other words, when new big box chains come to town, expect to pay more taxes soon.
But what about all the new sales tax revenue those chains bring? That, too, is largely illusory. Unless an area is growing rapidly, retail spending (especially for mass-produced items found at the chains) is a relatively fixed pie. For example, the most thorough study of Walmart’s impact on existing retailers (by Dr. Kenneth Stone of Iowa State University) found that 84% of Walmart’s sales simply shifted dollars away from existing local (including some chains) retailers.
Economic Value of Independent Businesses
Independent local businesses employ an array of supporting services. They hire architects, designers, cabinet shops, sign makers and contractors for construction. Local accountants, insurance brokers, computer consultants, attorneys, advertising agencies help run it. Local retailers and distributors also carry a higher percentage of locally-produced goods than chains, meaning more jobs for local producers.
In contrast, a new chain store typically is a clone of other units, eliminates the need for local planning, and uses a minimum of local goods and services. A company- owned store's profits promptly are exported to corporate headquarters. That's simply good, efficient business for them, but not so good for our communities.
Dollars spent at community-based merchants create a multiplier in the local economy, meaning that from each dollar spent at a local independent merchant, up to 3.5 times as much wealth is generated in the local economy compared to a dollar spent at chain-owned businesses. This "local multiplier effect" means shifting more local purchasing to independent businesses is a key tool for creating more local jobs.
Ensuring Choice and Diversity
Retailers sift through competing goods and services to find those appealing to their customers. Though a single local shop may carry a smaller selection than can be found online or at large chains, a multiplicity of independent retailers creates great diversity. When thousands of shops serve the preferences of their customers tastes (and reflect different owner's interests), market opportunities are created for a wide variety of goods and services. As fewer giant corporations dominate production, distribution and sales, a few executives and buyers choose what reaches customers.
When asked to name our favorite restaurant, cafe, or shop, it's typically a unique local business. Your local paper’s "Best of" poll is proof. Those businesses define our sense of place, but we often forget their survival depends on our patronage.
Local owners, typically having invested much of their life savings in their businesses, have a natural interest in the community's long-term health. Community-based businesses are essential to charitable endeavors; their owners frequently serve on local boards and support numerous causes.
Yes, some chains give back to towns in which they locate, and not all local businesses are exemplary models. However, the overall impacts are clear: locally-owned businesses play a key role in our community that chains rarely do.
Despite the dismal trends, a counterforce is building. In the past five years, more than eighty communities have launched Independent Business Alliances -- coalitions of local businesses, non-profits and concerned citizens uniting to support local entrepreneurs and prevent the loss of community-rooted businesses. Working in multiple realms, including group purchasing, joint marketing, public education and political advocacy, these IBAs have succeeded in a wide range of communities nationwide and are driving major shifts in local culture and spending.
IBA success bodes well for a growing Localization Movement that is reawakening people to the value of local self-reliance and cohesive communities. But for long-term progress, a conceptual change also is necessary. We must consciously plan that future with rules encouraging the values we want reflected in our communities. And each time we spend a dollar, we would do well to weigh the full value of our choices, not solely to ourselves immediately, but for the future we want for our home towns.
This article has been adapted and published widely with permission from AMIBA, and has helped generate contacts for many new or aspiring organizers of Independent Business Alliances. Please contact us if you would like to publish, adapt or excerpt this article for your publication or community. There is no charge -- we just want to know where it is used. No reproduction is permitted without attribution and consent from AMIBA.
©1998-2012 Jeff Milchen. The author co-founded the first Independent Business Alliance and the AMIBA.