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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.

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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.”

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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.

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The Economic Impact of Locally Owned Businesses vs. Chains: A Case Study in Midcoast Maine

Studies and Research  

by the Institute for Local Self-Reliance and Friends of Midcoast Maine, September 2003.

Three times as much money stays in the local economy when you buy goods and services from locally owned businesses instead of large chain stores, according to this analysis, which tracked the revenue and expenditures of eight locally owned businesses in Midcoast Maine. The survey found that the businesses, with had combined sales of $5.7 million in 2002, spent 44.6 percent of their revenue within the surrounding two counties. Another 8.7 percent was spent elsewhere in the state of Maine.

The four largest components of this local spending were: wages and benefits paid to local employees; goods and services purchased from other local businesses; profits that accrued to local owners; and taxes paid to local and state government. Using a variety of sources, the analysis estimates that a national big box retailer operating in Midcoast Maine returns just 14.1 percent of its revenue to the local economy, mostly in the form of payroll. The rest leaves the state, flowing to out-of-state suppliers or back to corporate headquarters. The survey also found that the local businesses contributed more to charity than national chains.

Download the study [pdf]

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