ECONOMIC RETURNS These studies find that local businesses recirculate a greater share of every dollar in the local economy, as they create locally owned supply chains and invest in their employees.
“Independent BC: Small Business and the British Columbia Economy” [PDF]. Civic Economics, Feb. 2013.
Commissioned by the British Columbia division of the Canadian Union of Public Employees, this study analyzes the economic impact and market share of the province’s independent retailers and restaurants. With regard to economic impact, the study finds that, for every $1,000,000 in sales, independent retail stores generate $450,000 in local economic activity, compared to just $170,000 for chains. Among restaurants, the figures are $650,000 for independents and $300,000 for chains. Across both sectors, this translates into about 2.6 times as many local jobs created when spending is directed to independent businesses instead of chains. The study concludes that a shift of just 10 percent of the market from chains to independents would produce 31,000 jobs paying $940 million in annual wages to BC workers. With regard to market share, the study finds that while BC’s independent retailers captured just over half of all retail sales as recently as 2003, they have since lost ground. By 2010, independents accounted for 45 percent of BC’s overall retail sales and only 34 percent of the market with automobile and gasoline sales excluded. Although BC has a reputation for innovative planning initiatives, on this measure it lags the rest of Canada, where independents account for 42 percent of retail spending. Among restaurants, BC’s independent sector accounts for 72 percent of full-service dining and 19 percent of limited-service dining.
“Indie Impact Study Series: Salt Lake City, Utah” [PDF]. Civic Economics, Aug. 2012.
In this study, Civic Economics analyzed data from fifteen independent retailers and seven independent restaurants, all located in Salt Lake City, and compared their local economic impact with four national retail chains (Barnes & Noble, Home Depot, Office Max, and Target) and three national restaurant chains (Darden, McDonald’s, and P.F. Chang’s). The study found that the local retailers return a total of 52 percent of their revenue to the local economy, compared to just 14 percent for the national chain retailers. Similarly, the local restaurants recirculate an average of 79 percent of their revenue locally, compared to 30 percent for the chain eateries. What accounts for the difference? In a handy graphic, Civic Economics shows the breakdown. Independent businesses spend more on local labor, goods procured locally for resale, and services from local providers. This means a much larger share of the money spent at a locally owned store stays in the local economy, supporting a variety of other businesses and jobs.
“Going Local: Quantifying the Economic Impacts of Buying from Locally Owned Businesses in Portland, Maine.” Garrett Martin and Amar Patel, Maine Center for Economic Policy, Dec. 2011.
On a dollar-for-dollar basis, the local economic impact of independently owned businesses is significantly greater than that of national chains, this study concludes. Analyzing data collected from 28 locally owned retail businesses in Portland, Maine, along with corporate filings for a representative national chain, the researchers found that every $100 spent at locally owned businesses contributes an additional $58 to the local economy. By comparison, $100 spent at a chain store in Portland yields just $33 in local economic impact. The study concludes that, if residents of the region were to shift 10 percent of their spending from chains to locally owned businesses, it would generate $127 million in additional local economic activity and 874 new jobs.
“Thinking Outside the Box: A Report on Independent Merchants and the Local Economy” [PDF]. Civic Economics, Sept. 2009.
This study examined financial data from 15 locally owned businesses in New Orleans and compared their impact on the local economy to that of an average SuperTarget store. The study found that only 16 percent of the money spent at a SuperTarget stays in the local economy. In contrast, the local retailers returned more than 32 percent of their revenue to the local economy. The primary difference was that the local stores purchase many goods and services from other local businesses, while Target does not. The study concludes that even modest shifts in spending patterns can make a big difference to the local economy. If residents and visitors were to shift 10 percent of their spending from chains to local businesses, it would generate an additional $235 million a year in local economic activity, creating many new opportunities and jobs. Likewise, a 10 percent shift in the opposite direction – less spending at local stores and more at chains – would lead to an economic contraction of the same magnitude. Another noteworthy finding of the study is that locally owned businesses require far less land to produce an equivalent amount of economic activity. The study found that a four-block stretch of Magazine Street, a traditional business district, provides 179,000 square feet of retail space, hosts about 100 individual businesses, and generates $105 million in sales, with $34 million remaining in the local economy. In contrast, a 179,000-square-foot SuperTarget generates $50 million in annual sales, with just $8 million remaining in the local economy, and requires an additional 300,000 square feet of space for its parking lot. See our New Rules article for more background on this study.
“Local Works: Examining the Impact of Local Business on the West Michigan Economy” [PDF]. Civic Economics, Sept. 2008.
This study concludes that if residents of Grand Rapids and surrounding Kent County, Michigan, were to redirect 10 percent of their total spending from chains to locally owned businesses, the result would be $140 million in new economic activity for the region, including 1,600 new jobs and $53 million in additional payroll. The study calculates the market share of independent businesses in four categories: pharmacy (41 percent), grocery (52 percent), restaurants (50 percent), and banks (6 percent). It analyzes how much of the money spent at these businesses stays in the area compared to national chains. Local restaurants, for example, return more than 56 percent of their revenue to the local economy in the form of wages, goods and services purchased locally, profits, and donations. Chain restaurants return only 37 percent. Measuring the total economic impact of this difference, including indirect and induced activity, the study estimates that $1 million spent at chain restaurants produces about $600,000 in additional local economic activity and supports 10 jobs. Spending $1 million at local restaurants, meanwhile, generates over $900,000 in added local economic activity and supports 15 jobs. The study also analyzes the economic impact of independent vs. chain businesses on a square footage basis, noting, “In a largely built-out city like Grand Rapids, policy dictates seeking the highest and best use of available properties, and this analysis strongly supports the idea that local firms should be the preferred tenants for city sites.”
“The San Francisco Retail Diversity Study” [PDF]. Civic Economics, May 2007.
This study finds that San Francisco remains a stronghold for locally owned businesses, which generate sizable benefits for the city’s economy. The study has three parts. The first calculates market shares for independents and chains in several categories: bookstores, sporting goods stores, toy stores, and casual dining restaurants. In all four categories, independent businesses capture more than half of sales within the city of San Francisco, a much larger share than they have nationally. The second part examines the economic impact of locally owned businesses versus chains. It finds that local businesses buy more goods and services locally and employ more people locally per unit of sales (because they have no headquarters staff elsewhere). Every $1 million spent at local bookstores, for example, creates $321,000 in additional economic activity in the area, including $119,000 in wages paid to local employees. That same $1 million spent at chain bookstores generates only $188,000 in local economic activity, including $71,000 in local wages. The same was true in the other categories. For every $1 million in sales, independent toy stores create 2.22 local jobs, while chains create just 1.31. The final part of the study analyzes the impact of a modest shift in consumer spending. If residents were to redirect just 10 percent of their spending from chains to local businesses, that would generate $192 million in additional economic activity in San Francisco and almost 1,300 new jobs.
For additional studies on this topic, see:
- “The Andersonville Study of Retail Economics” [PDF]. Civic Economics, October 2004.
- “The Economic Impact of Locally Owned Businesses vs. Chains: A Case Study in Midcoast Maine” [PDF]. Institute for Local Self-Reliance and Friends of Midcoast Maine, September 2003.
- “Economic Impact Analysis: A Case Study” [PDF]. Civic Economics, December 2002.