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What are the benefits of local/independent retailers to local economies?
Hello! Thanks for your question about the benefits of local, independent retailers to local economies. The short version is that local retailers drive more job creation with higher wages, recirculate more of their revenue to the local economy, drive charitable giving, and provide more tax revenue with fewer costs to local governments, as well as lowering crime and increasing education levels in the local community. Below you will find a deep dive of my findings.
METHODOLOGY
We started by surveying many articles on the economic benefits of buying locally. While we looked for articles in mainstream sources like Entrepreneur and Forbes, we did not limit ourselves to them, as many of the best research was surfaced by sites advocating buying local. While most articles described the many social effects of small, local businesses on a township or region, we looked strictly at the economic benefits and pulled hard numbers from the best research available.
JOB CREATION
It is widely acknowledged that local/small businesses are crucial to the economy at every level. There are some 28 million small businesses in America, which not only account for 54% of all jobs, but "66% of all net new jobs since the 1970s." Needless to say, small businesses employ more people locally than large chains. Moreover, these local businesses have "a positive effect on county per capita income growth and employment growth and a negative effect on poverty rates."
LOCAL RECIRCULATION OF MONEY
The positive effects of local businesses aren’t just felt by the employees of that business. One study "found that for every $100 spent at a local business, $68 remained in the city while only $43 of each $100 spent at a chain retailer." Other sources consider that figure to be on the low end, arguing that "independent retailers return more than three times as much money per dollar of sales than chain competitors." After all, local retailers not only pay higher wages on average to local employees, but also tend to procure supplies and goods for resale from local sources, as well as contribute to local charities. "Small businesses open accounts at local banks, hire local CPAs and attorneys and when they need supplies they can step down the street to get them quickly."
CHARITABLE GIVING
Not only do small businesses give to local charities, they give more generously than big chain retailers. A 1991 study found that small businesses gave $789 per employee in charitable donations, as opposed to $334 per employee by large businesses.
LOCAL TAXES AND EXPENSES
Local businesses "generate $145 billion annually in sales tax revenue." While large businesses also pay sales tax into local economies, they can still have a disruptive effect by diverting corporate taxes to other municipalities and even states. This effect is multiplied by online shopping, with the "total estimated uncollected U.S. sales and use tax from all remote sales in 2015 [is estimated at] $26 billion annually."
Not only do revenue shortfalls hurt local governments directly, the additional infrastructure required by large chain stores puts a greater strain on local governments. A study commissioned by the town of Barnstable, MA, notes, "Specialty retail — primarily small neighborhood-located business — generate a net annual return to municipalities of $326 per 1,000 square feet of store space. Business parks, offices, and hotels also generated positive net revenue. However, the infrastructure and maintenance costs generated by big box retail outweigh tax revenues, resulting in a cost to taxpayers of $468 per 1,000 square feet of floor space each year." For example, the loss of small "just around the corner" retailers and their replacement by a smaller number of large retailers, who serve larger geographic areas, has resulted in the average number of miles being driven to shop tripling since the 1970s, from 1200 miles to 3600 miles per year. Quite aside from the environmental impact, triple the miles driven means triple the wear-and-tear on roads and bridges and triple the maintenance costs to local and state governments.
COLLEGE VS CRIME
In addition to lowering infrastructure expenses, local businesses lower the cost of crime. A 2014 study showed that crime overall decreased from the 1990s to the 2000s, but that it decreased the most in regions that did not have a local Walmart. We hypothesize that this is an added benefit to the higher employment and wages detailed above. Moreover, small communities often experience a "brain drain" as their college graduates migrate to cities to seek work. The "stronger civic community" created by a strong local business base "provides a buffer in the migration of county residents as education increases."
CONCLUSION
To wrap it up, local retailers drive more job creation with higher wages, recirculate more of their revenue to the local economy, drive charitable giving, and provide more tax revenue with fewer costs to local governments, as well as lowering crime and increasing education levels in the local community.
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