Why Buy Local First?
An Assessment of the Economic Advantages of Shopping at Locally Owned Businesses.
Introduction: Local First Communities prepared this report to document the impact of independent
locally owned businesses on the community, to explore opportunities to improve the local economy and quality of life and to document the impact of independent locally owned businesses on the community. In this report, we examined the findings of our initial campaign to identify ways to increase local prosperity by developing a shared website with a Business Directory exclusively for locally owned in Manchester NH and a co-branding initiative to identify locally owned businesses in the community that has yet to reach critical mass. Our objective is in keeping more money in the local economy and to assess the impact of these initiatives in comparison to those of large chain retailers. For an in-depth view of the analyses presented see the “works cited” for a list of studies researched that helped to create this report.
This report is divided into sections, each representing a key concept of why buying locally is important. A bibliography is provided for readers seeking more information on the potential effects of local products and consumption. Act defines a small business as “one that is independently owned and operated, and which is not dominant in its field of operation.” Small businesses employ more than 52 percent of the nation’s employees. This means that overall, more Americans work for a company with fewer than 100 employees than for a large retailer, with more than 500 employees. Small businesses have played a vital role in job creation, adding more than 5.1 million new jobs to our economy since 2003. Buying locally first means that employment levels are more likely to be stable and may even create more opportunities for residents to work in the community.
Improving the local economy: When dollars are spent locally, they can in turn be re-spent locally, raising the overall level of economic activity, paying more salaries, and building the local tax base. This re-circulating of money leads to an increase of economic activity, with the degree of expanse entirely dependent on the percentage of money spent locally. The Local Premium represents the quantifiable advantage to the city provided by locally owned businesses relative to chain businesses. It is the added economic benefit of local businesses to a local economy. According to the Andersonville Study, Local businesses generate a substantial local premium, or added economic benefit over chain retailers. This means more money will be circulating in the local economy, which may lead to more public infrastructure like libraries, cultural centers and schools and raising more money in taxable transactions to fund local government services. Care must be taken to involve the residents for ‘buy in’ when local tax money is used.
Essentially there are four ways in which a firm keeps money local: wages and benefits paid to residents, profits earned by local owners, the purchases of local goods and services for resale and internal use, and contributions to local nonprofits. Consistently, locally owned businesses exceed their chain competitors in all four components.
In Figure 1 above, we see the recirculation of money into the local economy by a locally owned business and its non- locally owned competitor. Significantly more money re-circulates locally when purchases are made at the locally owned business. This recirculation is attributed, in part, to locally owned businesses purchasing more often from other local businesses, service providers and farms. Purchasing locally helps other businesses grow, as well as the local tax base.
According to the Local Works analysis of the West Michigan economy, locally owned businesses generate a premium in enhanced economic impact. For every $100 in consumer spending with a locally owned business, $73 remains in the Grand Rapids Economy. This concept is illustrated in Figure 1 by the left pie chart. The remaining $73 is then dispersed locally in the form of wages, charitable donations, taxes which fund city services, and purchases of goods and services from other local businesses.
The pie chart on the right in figure 1 displays the effects of consumer spending at a non-locally owned business. For every $100 spent, only $43 remains in the Grand Rapids economy. When economic stimulus comes from outside of an economy (e.g., tourism, federal funding, and industrial exports) the full effect of those dollars depends on how much of that money remains in the local area.
Community Investment: Charitable Contributions Locally owned businesses contribute more to local charities and fundraisers than do their national counterparts. In a case study of the economic impact of locally owned businesses on the local economy in the Mid-coast Maine region conducted by the Institute for Local Self-Reliance, the charitable contributions made by local businesses were compared to those made by a chain retailer, Wal-Mart, in 2002. Figure 2 illustrates the findings of this comparison. For every $1,000,000 in sales, one local business alone contributed $4,000 to Wal-Mart’s $1,000 contribution. All eight local businesses surveyed, together, made $24,000 in cash donations to charities in 2002. 91% of local business owners contribute to their community, including schools, non-profits and community groups, by volunteering and making donations. Local business owners invest in the community and have a vested interest in the future of the community.
Improve Local Quality of Life: Spending money with local retailers helps keep the local community alive. The places where we eat, shop, and have fun all have the potential to make a community feel like home. “One-of-a-kind” businesses are a fundamental part of the distinctive character and of a community. A community where large chains of shops exceed the number of independently run small businesses becomes less personal and homogenized, with less product diversity.
The benefits of a thriving local independent business sector are not limited to economic benefits. Possibly equally important is that independent businesses define the community’s self-image and creates a sense pride for the people who live there. National chain retailers, on the other hand, can homogenize a community and reduce its element of uniqueness and originality. Many communities are choosing to take control of their own economic character by supporting unique one-of-a-kind local businesses.
More Consumer Choices: A marketplace of hundreds of small businesses is the best way to ensure innovation and low prices over the long term. A multitude of small businesses, each selecting products based not on a national sales plan but on their own interests and the need of their local customers, guarantees a much broader range of product choices. A growing body of research shows that in an increasingly homogenized world, entrepreneurs and skilled workers are more likely to invest and settle in communities that preserve their one-of-a-kind businesses and distinctive character with multiple consumer choices.
Reduce Environmental Impacts: Reducing the amount of materials and products that are bought from national retail chains help reduce your ecological footprint. Locally owned businesses can make more local purchases requiring less transportation and generally operate from within city centers as opposed to developing on the outskirts of a city. More commercial districts result in fewer vehicle miles traveled and leads to less sprawl. Less transportation also means less traffic congestion, which has the potential to reduce the amount of fuel emission that contributes to air pollution. This generally means contributing to less sprawl, congestion, wildlife, habitat loss and pollution. Locally sourced materials and products have many environmental benefits. They produce less waste by eliminating unnecessary transportation and delivery, therefore reducing the amount of packaging being used. Less packaging means less waste and less demand on landfill sites. According to the National Resource Defense Council, buying local will help reduce pollution, improve air quality and improve our health.
Chain Retailers: The False Promise of Economic Growth Large national businesses are growing in both numbers and employment totals at rates much faster than those of smaller businesses. The arrival of these larger companies affects the small business sector through increased competition for labor, higher rents, and usually a decrease in small business sales. While national businesses have a role to play in every economy, purchases from national businesses typically cause money to leak out of the local economy. National chains send money outside of the community to the areas where they are headquartered. Large chain retailers often draw revenues from neighboring communities and even these towns and towns adjacent to locations with new chain retailers see sizable losses in both sales tax revenues and employment according to The Santa Fe Independent Business Report.
The premise that locally owned and operated businesses generate greater local economic activity than their chain counterparts has become widely understood and accepted. In communities across the nation and abroad, public policy has adapted to this reality through a variety of planning and zoning tools.
Better Customer Service: There is power in shopping at locally owned businesses. The dollars spent at a local retailer often have a greater impact on product options and service than when these dollars are spent at chains or on-line retailers. When shopping at local businesses you’re seen as an individual not a consumer statistic. The rapport that is built between small businesses and the customer is often long standing and the service received is generally better when you are familiar with the staff. Because they have a smaller consumer base, local businesses have the advantage of tailoring their sales strategies to the local customer and community rather than having to stick with nationwide marketing plans.
Save Tax Dollars: Locals Use Less public Infrastructure There are many different types of land that generate revenues and deficits to a community. Of the nonresidential land categories, local businesses, or specialty retail businesses generated the best net fiscal result at $326 per 1,000 square feet, among categories like restaurants, fast food, hotels, offices, big box retailers, and shopping centers. Big Box retailers generated a fiscal deficit of -$426 per 1,000 square feet. The net fiscal result is the difference between the average net revenues and the average net costs incurred by each category.
According to a study done by Tischler & Associates in 2002 in Barnstable, Massachusetts, most costs incurred by these businesses are based on employment densities and vehicle trip rates. Because Big Box retailers are generally larger than specialty retail businesses, they generally incur more costs per square foot and experience higher vehicle trip rates because of shipping from longer distances. The net fiscal impact on the community as represented by the difference between costs and revenue represents the amount per square foot that is invested in public infrastructure such as infrastructure like roads, schools, and police departments. Promote Entrepreneurship Local economic growth will attract new talent and professionals, who may, in turn, create businesses of their own, enhancing a local economy. According to the Small Business Association of Michigan (SBAM), Michigan must begin to pursue a culture of entrepreneurship to stimulate more individuals to create their own growth-oriented firms and to nurture the existing firms. This nurturing has been coined “economic gardening” by the SBAM and is a new approach to economic development which focuses on strengthening small firms positioned for growth rather than trying to recruit or retain companies that could locate elsewhere like national retailers.
The most valuable asset to the pursuit of an entrepreneurial culture is college graduates. These young professionals are the primary source such a culture. They are attracted to urban communities; those characterized by complex public transportation systems, residential and retail developments, and a variety of amenities like restaurants, bars, and galleries all within a densely populated community. The economic growth resulting from shopping at locally owned businesses helps to expand community areas. This expansion makes for a community that has the potential to attract new talent and future entrepreneurs as well retain young professionals living in the area. Locally owned businesses provide many economic benefits to a community. These benefits are at risk of being measurably reduced by increasing national chain competition. Local businesses are owned by people who live in the community, are less likely to leave, and are more invested in the community’s future. Shopping at local businesses creates more local jobs than shopping at major chain or online companies. Local businesses not only pay their employees, but they also spend money at other local businesses. That means by buying local, you help create jobs for your friends and neighbors, contribute to improved public infrastructure, and invest in your community both socially and economically.
About Local First Communities: Local First Communities is a collaborative effort between local independent business owners, non-profit organizations and individuals in the Manchester Area to support local ownership, a sense of community, and financial, environmental, and social well-being, to educate our community about the multiple benefits of locally owned independent businesses, and to nurture relationships among locally owned businesses.
Local First Communities is committed to the Manchester Area community and being involved. Their aim is to reach out to those within the community and educate them on the importance of keeping local first. LFC is developing four different committees that members can join to be an active part in the community as well as the organization.
•“Andersonville Study of Retail Economics” Civic Economics, October 2004
•“Santa Fe Independent Business Report” Angelou Economics, November 2003
•“The Economic Impact of Locally Owned Businesses vs. Chains: A Case Study in
Mid-coast Main” Institute for Local Self Reliance, September 2003
•“Economic Impact Analysis: Local Merchants vs. Chain Retailers” Civic Economics, Austin IBA, December 2002
•“Local Works: Examining the Impact of Local Business on the West Michigan
Economy, Civic Economics, September 2008
•“Procurement Matters: The Economic Impact of Local Suppliers” Civic Economics, November 2007
•“The San Francisco Retail Diversity Study” Civic Economics, May 2007
•Shuman, Michael H. “The Small-Mart Revolution: How Local Businesses Are
Beating the Global Competition” August 1, 2007
•Shuman, Michael H. “Going Local: Creating Self-Reliant Communities in a Global
Age” August 25, 2000
•“Propelling a New Economic Direction for Michigan” Small Business Association
of Michigan, July 2010
•“Barnstable Fiscal Impact Report” Tischler & Associates, July 2002