Holiday shopping choices make a big impact on your community

By Stacy Mitchell

Whether to patronize a chain or a locally owned business is not top of mind for many holiday shoppers, but it should be. It’s a choice that has profound implications for our economy.

If you shop at an independent toy store, such as Be Beep in Annapolis, Maryland, you will likely see products made by Beka, a small toy manufacturer in St. Paul, Minnesota.

A family-owned business, Beka has opted not to sell to chains like Target and Wal-Mart. Doing so, explains co-owner Jamie Kreisman, would require moving production to low-wage factories overseas, which would eliminate what he and his brothers most love about the business: their relationships with their employees and working hands-on with their products.

Beka is healthy, but its future depends entirely on the survival of independent toy stores. Over the last decade, Wal-Mart and Target have aggressively overtaken this sector and now capture 45 percent of U.S. toy sales.

If you buy groceries for your holiday meals at an independent grocer, like Catalano’s Market in Fresno, California, you will find lots of food produced by small-scale, local farmers, such as Paul Buxman.

A second-generation grower of peaches, Buxman nearly lost his farm selling to supermarket chains, which demand cutthroat prices and truckloads of perfect-looking, though often flavorless, fruit that only industrial farms can supply.

With bankruptcy looming, Buxman dropped the chains and forged relationships with independents like Catalano’s. He works hard to give them the best fruit and they honor this by paying a fair price and accepting the natural ebb and flow of supply.

Today, Buxman’s farm is back on track. Catalano’s is doing well too, but owner Michael Catalano worries about Fresno approving still more chain supermarkets and recently a Wal-Mart. Since 1998, the top five supermarket chains, led by Wal-Mart, have doubled their market share and now capture nearly half of all grocery spending.

Patronize an independent CD store, like Waterloo Records in Austin, and you not only support a business owned by a music aficionado, but help to ensure opportunities for new artists. Many beloved bands got their start when a few store owners fell in love with their first albums and began recommending them.

That does not happen at Wal-Mart, Best Buy, and other mass merchandisers, which now account for more than half of all album sales, but stock only chart-toppers and have no room for unknowns.

Chain retailers have expanded dramatically over the last two decades. Home Depot and Lowe’s, barely a blip on the radar screen in 1986, control half of the hardware and building supply market. Barnes & Noble and Borders account for half of bookstore sales. Every sector is now dominated by a couple of chains, and Wal-Mart dominates them all, capturing one of every ten retail dollars we spend.

We assume that the chains represent economic progress, but in fact they take far more out of our economy than they contribute.

As the chains have expanded, tens of thousands of independent retailers have lost their livelihoods and laid off hundreds of thousands of employees. A study by David Neumark at UC-Irvine found that every new Wal-Mart store actually eliminates many more retail jobs than it creates.

The expansion of the chains has triggered a cascade of losses in other economic sectors. Some three million U.S. manufacturing jobs have been eliminated since 1990, in part because the chains have pressured companies, including Black & Decker and Levi’s, to slash costs by moving overseas.

The chains also return very little of what their stores take in back to the communities where they operate. A study in Maine by the Institute for Local Self-Reliance found that only 14 cents of a dollar spent at big-box store remains in the state’s economy.

In contrast, the study found that independent retailers spend more than half their revenue locally. They bank at local banks, hire local accountants, advertise in local media, and require many other local services that chains do not. For mid-sized and smaller cities especially, this is a vital source of economic activity and jobs that pay a middle-class income.

In exchange for all the businesses and jobs they destroy, the chains offer us employment in their stores. Wages for most of these jobs are so low that many big-box employees rely on Medicaid, food stamps, and other taxpayer-funded programs to get by.

None of this looks much like progress. In fact, what the big-box model most closely resembles are the old colonial economies of the European superpowers, which were organized, not to improve the lives of the local inhabitants, but to extract their wealth.

This holiday season, we can declare our independence and begin building a more prosperous economy by forgoing the chains and seeking out locally owned businesses.

Stacy Mitchell is a senior researcher with the Institute for Local Self-Reliance and author of Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses (reviewed here ). 

This article was first written for the Beacon Broadside.

© 2007 Stacy Mitchell

I’ll say this for the featured speakers on the opening day of the recent Montana Economic Development Summit: they were consistent. Speaker after speaker noted Montana must “compete in the global economy” to thrive and how the internet was key to doing so. The clichés quickly grew old, but ideas only become clichés if they present some truth.

Technology and international trade undoubtedly serve an important role in Montana’s economy. Yet the cheerleading for corporate globalization only elevated my skepticism of the keynote speakers’ motives (all out-of-state, white, male millionaires or billionaires). After all, if something really improves people’s lives, you don’t need to tell them repeatedly how great it is.

More concerning was the invisibility of community-serving businesses—hardware stores, grocers, farmers and countless other businesses that serve the everyday needs of Montanans. These businesses may lack the sex-appeal of global exporters, but they are the bedrock of local economic vitality. Moreover, their importance only will grow as transportation costs rise and diminish the advantage wielded by global corporations dependent on cheap fuel and weak regulations abroad.

Unfortunately, Target and Wal-Mart—the only two retailers with tables in the Summit’s exhibition hall—represent the opposite of sustainable economic development. Global chains’ displacement of local businesses ensures more dollars will leave the local economy and fosters dependence on corporations with no real commitment to our communities. The history of Butte, MT, where the summit was held, provides a prime example of how such dependence ultimately can ravage a local economy and environment.

But while these mega-corporations and their entourage of think tanks and public relations firms persuade us of their benefits, the benefits of doing business locally often go unappreciated or ignored.

We have much to gain personally from the knowledge, personal service, and quality offered by independent businesses, but the economic benefits are less obvious. Independent local businesses typically hire local designers, sign makers and attorneys to get started. Whether employing people in-house or hiring other local firms, they create opportunities for insurance brokers, computer consultants, advertising agencies and others.

In contrast, global chains typically open a clone of their other units. Locally, they employ many clerks and cashiers, but provide few higher paid jobs and use minimal local goods and services. Meanwhile, profits exit town to corporate headquarters. Thus, local independent merchants recirculate three or more times as much of each dollar in the local economy as chain stores—a multiplier effect that drives economic growth far more than attracting outside entities.

Small manufacturers and service industries also have a stake in the health of these entrepreneurs, who are more willing give their new products and services a chance. Independent businesses, in many realms, are interdependent; their fortunes rise and fall together.

Further, local businesses also return a greater percentage of sales to civic events and community causes, though you don’t often see them photographed with table-sized checks to call attention themselves.

Despite “globalization” hype, understanding the multiplier effect and the benefits of a local ownership is crucial to intelligent, sustainable development in our communities.

Retail chains boast how their stores create hundreds of jobs, but “create” is simply a euphemism for “relocate.” We don’t suddenly need more toasters or toilet paper when a big box store opens. As a result, nearly 85% of sales at new big box discount stores come directly from existing local businesses. Combine this impact with the efficiency of consolidating most well-paying jobs at headquarters, and most chains become net disemployers.

Chain proliferation hasn’t just resulted from market competition; it’s had plenty of help from what Stacy Mitchell, author of the outstanding book Big Box Swindle , calls “the invisible hand of Uncle Sam.” For local officials luring a new national chain is politically seductive and much easier than actual job creation. As a result many chains receive millions of dollars in local and state subsidies—creating a decidedly uneven playing field for independent competitors (whether or not such subsidies are offered locally).

The real giants like Wal-Mart are masters of extracting public subsidies, but they’re not alone. For example, Cabela’s is seeking to move into Montana, starting with Billings, but prefers not to compete in a “free market.” The corporation is seeking municipal subsidies that few (if any) Montana outfitters enjoy.

Tax evasion schemes also unfairly handicap entrepreneurs who pay their fair share of taxes—and raise them for the rest of us. Incredibly, when State Senator Jim Elliot investigated corporate income taxes in Montana, he discovered 40 percent of the largest 500 corporations doing businesses in Montana paid less than $500 in state income taxes in 2002. Such perverse practices must change to create a level (or better) playing field for homegrown businesses; chains already have enough laws rigged in their favor nationally.

For long-term progress, a conceptual change also is necessary. As citizens, we should consciously plan our future with rules that will encourage the values we want reflected in our communities. And as consumers, each time we spend money, we should weigh the full value of our choices, not just for ourselves short-term, but for the future we want in our own hometowns.

By Jeff Milchen, co-founder of the American Independent Business Alliance, which helps communities around the country form coalitions that help independent business compete effectively and prevent chains from displacing local entrepreneurs.

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.

Recurring Problems

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.

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