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New Study: Buying Locally Pays Big Dividends for Maine’s Economy

In the Media, News, News & Events, Studies and Research  

For immediate release

(PORTLAND, Me.) A new study produced by the Maine Center for Economic Policy (MECEP) has found that, on a dollar-for-dollar basis, the local economic impact of independently owned businesses in Portland is significantly greater than that of national chains.  MECEP found that every $100 spent at locally owned businesses contributes an additional $58 to the local economy.  By comparison, $100 spent at a representative national chain store in Portland yields just $33 in local economic impact.

“Jobs are the most pressing issue on everyone’s mind.  Because locally owned businesses keep their profits in the community and are more likely to purchase goods and services from local sources, consumer spending at these businesses has a multiplier effect that increases local economic activity and creates jobs,” said Garrett Martin, Executive Director of MECEP and co-author of the study.

The study finds that changes in consumer spending choices can add up to sizeable economic benefits for the region. Based on 2007 retail sales figures, shifting just 10% of consumer spending in Cumberland County from national chains to locally owned businesses would result in an additional $127 million in economic activity, supporting 874 new jobs and generating over $35 million in wages.

MECEP relied on financial data provided by 28 independent businesses in Portland and information obtained from corporate filings for a representative national chain (Dollar Tree) to model local economic impact. Previous studies of the economic impacts of local businesses in other locales have produced similar findings.

The study was commissioned by the Portland Independent Business & Community Alliance (PIBCA), the nonprofit organization behind Portland’s “Buy Local” campaign.  “Until now, we have had to rely on studies from other states to make the case that choosing locally owned, independent businesses generates significant benefits for our region’s economy.  This study provides compelling data that is specific to Greater Portland,” said Susan Tran, president of PIBCA.

“Not only is Portmanteau a locally owned business, but we make our products right here in the shop,” said Nancy Lawrence, proprietor of the Portland clothing and accessories store. “We provide a lot of added value to the local economy, because so much of the cost of our goods goes to the wages of the artisans, who in turn spend their money in the community.  That’s not the case with national chains, where it’s hard to find anything made in America, much less locally.”

“When a customer gets a movie at Videoport, the majority of what they spend goes directly into the local economy through our payroll, rent, utilities, and local taxes. When they get a movie online, all of what they spend could leave the state,” said Videoport owner Bill Duggan.

“Our success for over 77 years has been built on the strength of supporting and being supported by other local businesses, as well as individuals in our community.   Relationships are built, friends are created and our community flourishes,” said Tom Skelton, president of Maine Hardware.

About MECEP — The Maine Center for Economic Policy was established in 1994 with the mission to promote a sustainable and equitable economy through analyzing and proposing solutions for Maine’s economic and fiscal challenges. www.mecep.org

About PIBCA — The Portland Independent Business and Community Alliance, which runs the Portland Buy Local campaign, is a five-year-old nonprofit organization with a membership of over 370 local, independent businesses.  www.portlandbuylocal.org

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Thinking Outside the Box: A Report on Independent Merchants and the Local Economy

Studies and Research  

by Civic Economics, September 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% of the money spent at a SuperTarget stays in the local economy. In contrast, the local retailers returned more than 32% 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% 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% 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.

Download the study [pdf]

Local Works: Examining the Impact of Local Business on the West Michigan Economy

Studies and Research  

by Civic Economics, September 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%), grocery (52%), restaurants (50%), and banks (6%).

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% 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%. 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.”

Download the study [pdf]

The San Francisco Retail Diversity Study

Studies and Research  

by 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.

Download the study [pdf]

The Andersonville Study of Retail Economics

Studies and Research  

by Civic Economics, October 2004

This compelling study, commissioned by the Andersonville Development Corporation, finds that locally owned businesses generate 70 percent more local economic impact per square foot than chain stores. The study’s authors, Dan Houston and Matt Cunningham of Civic Economics, analyzed ten locally owned restaurants, retail stores, and service providers in the Andersonville neighborhood on Chicago’s north side and compared them with ten national chains competing in the same categories.

They found that spending $100 at one of the neighborhood’s independent businesses creates $68 in additional local economic activity, while spending $100 at a chain produces only $43 worth of local impact. They also found that the local businesses generated slightly more sales per square foot compared to the chains ($263 versus $243).

Because chains funnel more of this revenue out of the local economy, the study concluded that, for every square foot of space occupied by a chain, the local economic impact is $105, compared to $179 for every square foot occupied by an independent business.

Download the study [pdf]

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