The case for keeping your cash in the neighborhood

I shop local and I think you should too. Bottom line, the more local your transaction, the more money that you spent will stay in the local economy. Even if you can only shift a small amount of spending to local businesses, it will have an impact.

This is economic development, plain and simple.

A 2002 study of Austin, Texas by Civic Economics found that for every $100 spent at two local bookstores, $45 went back into the local economy compared with $13 at a chain bookstore. A 2004 study by the same group of Chicago, Ill., found that the amount staying in the local economy was $68 versus $43 when comparing every $100 in revenue at a local versus chain firm. Making a purchase online? Very little, if any, will make it back to the local economy.

It makes sense to me, and from my conversations with various businesses, it would appear to hold true in Minneapolis. A local, smaller business is much more likely to use a local bank for more than just the night deposit, use a local attorney or accountant, or buy supplies from other local vendors.

The strategy on the buy-local campaign front has been to encourage consumers to shift a portion of their purchases to local businesses, with the idea that if enough people shift even a small percentage of their purchases to these businesses, the economic impact will be significant. One such effort is the 3/50 Project, a fast-growing national effort that encourages consumers to stop by three local independent businesses that they would miss if they closed and to spend $50 per month at locally-owned independent businesses. The project cites a statistic from the U.S. Labor Department that if half of the U.S. employed were to do this, that more than $42.6 billion would be directed to local, independent businesses.

In my research on independent versus chain businesses, it seemed that most efforts aimed at increasing independent business sales was focused on the positive benefit that happens when a small fraction of sales are redirected. Very little came up on efforts to create an economy that isn’t dominated by mega firms. Is that the case because there’s little that can be done?

Can the chain be stopped?

“We are rapidly becoming a nation of a few business masters and many clerks and servants. The local man and merchant [soon] become clerks of the great chain machines, at inadequate salaries, while many [become] unemployed. A wild craze for efficiency in production, sale and distribution has swept over the land, increasing the number of unemployed, building up a caste system, dangerous to any government.” That was then Alabama Sen. Hugo Black speaking to Congress in 1930.

Black was speaking at a time when he and others were trying to prevent the growth of chain businesses by progressively taxing businesses the more outlets they had. The idea was that the more stores a business had, the higher the tax rate. Senator Black was trying to tax chains out of existence. Ultimately, their effort was unsuccessful.

Black’s efforts followed a wave of anti-monopoly concerns in the late 1800s. “Monopolies,” then Senator Sherman said in 1890, are “inconsistent with our form of government. […] If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade.”

Between monopolies and chain stores, there was substantial concern at the time about what was good for the economy and what was good for our communities. Independent businesses were everywhere. Here in Southwest, nearly every business node had a pharmacist, meat market and dry goods store. Dentists, doctors, furnace repairmen, and other professional and consumer service businesses filled the larger nodes. However, the growth of businesses like A & P led to significant concern about fair competition.

Certainly there were people pushing the agenda that chains brought economies of scale that would benefit consumers. If you listen today about why people choose to shop at chains, one of the major reasons comes down to price. Consumers believe, though not always the case, that the best price on a product will be at a mass retailer that can buy in bulk and get the best price.

Stacey Mitchell, author of Big-Box Swindle, has an entire chapter dedicated to the pricing strategies of chain stores and how sometimes consumers get a better price but not always. She cites examples of how businesses will advertise low prices on certain products that consumers are price-conscious of (think eggs, milk or batteries) to try and establish the business as the low-price store. However, those businesses may have higher prices on other products to make up for it, which could be higher than the local businesses.

The human connection

My wife pointed out the other day that I seem to always strike up a conversation with and ask for advice from a store employee. Whether it’s seeking advice on the cut of meat while at the Linden Hills Co-op, or on the differences between bake ware at Kitchen Window, or having a rare eye condition finally discovered when I switched to Dr. Daly at EyeDeals, or talking about our commutes with Andy and the guys at Penn Cycle, I get smarter and develop relationships at nearly all the business I frequent.

This may be the case because I try to shop as many local, independent businesses as possible. I’ve come to really appreciate the characters who make these businesses, the ways these businesses participate with the community and the risk that each one of these businesses take just to operate in today’s economy.

I never used to be that way. It used to be about the transaction. I wanted to purchase a new microwave, so just sell it to me without asking me to upgrade or buy extended warranties. I went where the best deal was and I had to spend countless hours walking through big box stores and combing the internet or Sunday ads before making my decision.

When I got more involved in the business community, I started to understand that many of the business owners and managers I got to know really knew their products, services and customers. They had a whole community of clients who seemed to get along so well. In some ways, it makes living in a big city feel much more close-knit. In Uptown, I can’t stop running into people who go to EyeDeals for their eyewear needs. Part of it is because of the products they sell, but most of it comes down to service. For me, it’s the trust that I’m getting an accurate diagnosis along with the relationships that I’ve built with Andrew and Topher as they helped me through the eyewear purchasing process. In talking with them, they also feel that they develop meaningful relationships with their clients.

It’s that personal connection with the staff, the owner and fellow customers that add a whole new dimension to the purchasing process. My consumption isn’t simply driven by the commodity. It’s also driven by relationships and economic impact.

Perhaps if we all can shift some amount of our spending to local businesses, we will build a stronger community that has more jobs, more economic independence, and a higher quality of life. In turn, perhaps the increase in jobs will lead more people to spend more in their local community.

Thatcher Imboden is a lifelong Southwest resident, now residing in Kenny. He is a development project manager with Southwest-based The Ackerberg Group and is president of the Uptown Association. He blogs at ouruptown.com.