Each year brings more national chains displacing locally-owned businesses throughout the country. We see clones replace unique establishments. People across the country are losing sense of community in their town, and consider this trend a symptom, but could it be a cause as well? Also, what are the impacts of this trend on our economic well-being?
It seems obvious that we do business where we perceive we receive the best value for our time and money. Perceptions, however, are not always accurate when we are lacking some of the essential information for fully informed decisions. We see and hear the omnipresent ads of corporate chains everyday, but are collectively under-informed about the many important values independent businesses provide us individually and as a community.
Some economists would call the chain encroachment a natural trend. Tough for the family who owns the small business, but it doesn’t really affect the economy. Overall sales may even go up a little when a chain drives out a small independent, so what’s the problem?
The disappearance of local businesses leaves a social and economic void that is palpable and real – even when it is unmeasured. The quality of life of a community changes in ways that macroeconomics is slow to measure, or ignores completely. Let’s look at some of the issues.
1. Building A Strong Local Economy - The giant chains often win a town’s consent to build new stores with promises of growth and tax revenues. But when communities such as St Albans, VT & New Paltz, NY performed thorough analyses, they concluded proposed new “big box” retailers would create economic costs exceeding benefits, (loss of existing jobs and increased infrastructure demands being the top two) and wisely rejected them on those grounds. They are among more than 90 [now 200] communities around the country to have such foresight in recent years. Their scrutiny inevitably shows that most income of new chains comes directly from established businesses. For example, an extensive study of new Wal-Marts at Iowa State University found 84% of sales simply shifted dollars away from existing local merchants.
It’s time to consider the real costs to a community that loses its local business base. Independent local businesses employ a wide array of supporting services. They hire architects, designers, cabinet shops, sign makers and contractors for construction. Opportunities grow for local accountants, insurance brokers, computer consultants, attorneys, advertising agencies and others to help run it. Local retailers and distributors also carry a higher percentage of locally-made goods than the chains, creating more jobs for local producers.
In contrast, a new chain store typically puts in place a clone of other units, eliminates the need for local planning, and uses a minimum of local goods and services. In a company-owned store, the profits are promptly exported to corporate headquarters. These factors lead local independent merchants create a multiplier effect in the local economy of 3 – 3 1/2 times that of a chain outlet (the multiplier difference in non-retail businesses is generally lower, but no less important).While many communities focus on sales tax revenue, we need to remember that the one-time tax revenue is only one part of the economic picture.
Small manufacturers are also affected since they rely on local retailers to give their new products a chance. Local retailers are more free to take chances with the goods of a new manufacturer, or a product that is not part of a national sales plan. Therefore, small manufacturers and a wide variety of service industries have a clear stake in the nationwide health of local retailers.
In the larger picture, sales of the 500 largest corporations grew 700% in the past 20 years, yet those corporations are now net disemployers, firing more people than they hire despite record profits. That our economy is still in decent health is testimony to the employment generated by small business during this time. We need to recognize the impact of our dollars and support institutions that benefit our common interests.
2. Ensuring Choice and Diversity – Retailers sift through competing goods and services to find those that appeal to their customers. Even though a single local shop may have a smaller selection than a big chain outlet, a multiplicity of independent retailers creates great diversity.
For example, when 3,000 or so national independent booksellers or music shops buy for their local customers’ tastes, the cumulative effect is demand for a wide variety of ideas and music. This makes accessible controversial books or music from new artists with the expectation that there will be a market somewhere within a variety of stores. As fewer giant corporations dominate both production and sales, our options – determined by a powerful few – will be drastically reduced.
Our freedom of choice is imperiled when a few buyers from national chains choose what reaches consumers. This may be only mildly disturbing for most consumer goods, but truly frightening when you consider the impact on our choice of news sources, books, music and other modes of expression.
3. Maintaining Community Character – When asked to name our favorite restaurant, cafe, or shop, we almost always cite a unique local business (look at the results in any “Best of” polls as proof). We embrace the idea of distinctive businesses with local character, but often forget their survival depends on our patronage. It is easy for us to get so consumed by efficiency that we forget how much of our lives we spend eating out, shopping, and doing other business. We owe it to ourselves to consider the quality of our experience, and ask if we benefit when we choose a community-based business.
Local owners with much of their life savings invested in their businesses have a natural interest in the long-term health of the community. Community-based businesses are essential to charitable endeavors, frequently serving on local boards, and supporting a variety of causes. Yes, there are some corporate chains that give back to towns in which they do business, but anyone who raises funds for local non-profits will tell you that independents are their base of support. Not all local businesses are models to follow, and corporate chains are not inherently bad, but the overall impacts are clear: local businesses play a vital role in our community that corporate chains rarely do, while chains often even undermine community interests.
The loss of local businesses hasn’t just resulted from free market economics; it’s had plenty of help. Favoritism from large manufacturers toward corporate chains such as “promotional allowances” (free advertising), takes different forms, many of them illegal under anti-trust laws. Enforcement of these laws, created to protect consumers and communities, is an important step in solving these problems.
Local officials nationwide often fall for the seductions and political appeal of luring new national chains. They often look at promises of jobs and tax revenues, but fail to consider the greater losses that occur when the local business base is undermined. We see examples nationwide of tax and regulatory breaks worth millions used to lure out-of state corporations. Why should these businesses enjoy favors that our community-based businesses do not?
Let’s make future decisions based on full-cost accounting, and create a level (or better) playing field for local businesses with our policies; the chains already have enough laws rigged in their favor nationally.
Hope For The Future
For long-term progress, a conceptual change also is necessary. We need to consciously plan that future with rules that will encourage 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 in our own hometowns.
By Jeff Milchen, former executive director of Reclaim Democracy and co-founder of the American Independent Business Alliance (AMIBA). Please contact AMIBA for reprint permission (and updates to the article) or for assistance launching buy local campaigns or other initiatives to support community-based enterprise.