Think about this the next time you go to the neighborhood CVS or Starbucks: You could do more for the local economy by visiting the small pharmacy or coffee place on the corner. How much more? According to a recent study for Louisville, Kentucky—which looks at the "local premium" of spending at local outlets instead of big chains—perhaps four times as much.
Civic Economics has been running the numbers for lots of towns and cities over the last 10 years. And the newest batch of studies—for Louisville, Milwaukee, Ogden, Utah, and the Six Corners area of Chicago—corroborate what at least eight similar ones have shown. Money spent at independent outlets is more likely to stay local than that spent at a chain. The study for Louisville found that independent stores recirculate 55.2% of revenues compared to 13.6% for big retailers, and that local restaurants recirculate 67%, while big chains do 30.4%.
Civic Economics analyzes the books of independent businesses looking at profits paid to local owners, wages paid to local workers, procurement of goods and services for internal use, purchase of local goods for resale, and local charitable giving. It then compares that aggregate number with figures taken from public records for the chains. In the case of Louisville, the researchers worked with businesses like Kizito Cookies, Rainbow Blossom Natural Markets, and Dundee Candy Shop, comparing their impact with the likes of Home Depot, Office Max, Target, and PF Chang’s.
The numbers were also stark for the other cities. The retail premium was 3.24 more revenue in Milwaukee and 3.55 in Ogden. For the restaurants, it was 1.73 in Milwaukee, and 1.87 in Ogden. Averaged across 10 communities, local retailers produce 3.7 times more economic benefit than spending at chains.
And such spending has a cascading effect. "While chain stores and restaurants extract locally generated revenues from the community with each nightly bank transaction, independents are creating a virtuous cycle of local spending," says the Louisville study.
"The extra dollars in the local economy produce more jobs for residents, extra tax revenues for local governments, more investment in commercial and residential districts, and enhanced support for local nonprofits. In short, these businesses create better places."
The latest studies were underwritten by the American Booksellers Association, which has an obvious agenda to promote local retailers over big boxes. Still, the conclusions aren’t surprising, even if the size of the premium perhaps is. While the research doesn’t tell us how much more customers may pay to shop local (if anything), it is clear what value there is in doing so.