Recently, I learned that two (2) locally owned retailers in Scott County had sold their business to a large national chain and would be closing their doors sometime around the middle of July. Later that day, I also learned that two (2) local restaurant options had recently closed too. The ironic part is that I know the local “buzz around town” is going to have everyone upset… the comments are already beginning on Facebook and Twitter. I’ll be honest, I am sitting here reading them for entertainment value at this point its easier than asking the big question to each of them “why… are you ranting, when your community shopping preferences have shifted, for whatever reason, to the big box and/or national retail chains leaving the independent local small businesses no options but to close their doors?” There I said it!
Sure, the big box or national retail store may carry everything you need: automotive, pharmaceuticals, groceries, underwear, cell phone plans to new sheets for your bed. And in smaller towns like Scottsburg and Austin, these big box stores can unfortunately become the primary shopping option. As they do become that convenient shopping experience, we will continue to see the small and locally owned businesses close their doors. So, it got me thinking about our community and the myths regarding the big box and/or national retail chain that I want to share with you.
I decided to do a short straw poll of my own at a local big box here in town. I asked one simple question, “Why do you like to shop the big box or national chain retailers when there could be locally owned small businesses (neighbor) that would love your business?” Well you can guess some of the answers I received, but here are the top eight:
- I can get it cheaper at (insert big box or national retail chain name) than locally
- The local store does not carry my brand
- They create new jobs in our community
- Its more convenient to shop one location
- They increase our community tax base (I was surprised at this one)
- They have a broader selection
- Big Box and/or National Chains helps our local economy grow
- Competition is good for shoppers
Now that I have the responses, I went to work researching their validity or “Fact Checking” so to speak the reality.
- MYTH: Big Box and/or National Retail Stores Create More Jobs in the Community
FACT: In my research, I found a study by an independent economist that show that big-box and/or national retail stores seem to eliminate more retail jobs than they create. The study conducted by University of California economist David Neumark, tracking new Wal-Mart stores between 1977 and 2002. He examined 3,094 counties across the United States and found that opening a Wal-Mart store led to a net loss of 150 retail jobs on average in the communities they entered. Suggesting that a new Wal- Mart store only replaces approximately 1.4 of the workforce that was lost in the community where the local small businesses once operated.
It was also noted, that the trickle down affect created by the new Wal-Mart entering the market resulted in the continued decline of the overall number of small locally owned business in those communities is the direct result of the fact that a new Wal-Mart store does not increase the amount of money that residents have to spend in the community. The overall sales gains at these stores are invariably mirrored by a drop in revenue at existing businesses, which then ultimately found themselves having to downsize or finally close their doors. Additionally, the lost jobs of those small local business that close are lost for good in those communities, thus reducing the spending in the community, as a result of, lost jobs so consumer spending in the small community is ultimately lower.
In an attempt to be fair to all national retailers and other big box stores, similar studies have not been done of other big-box or national retailers, but economist feel that based on the results of this study on Wal-Mart they would also believe that they would also either have a negative or no impact on employment because the underlying dynamics are the same.
So the bottom-line is the loss of employment paychecks, within the community, resulted in no new or increases in consumer spending.
2. MYTH: Big-Box and/or National Retail Stores Boost Tax Revenue
FACT: The tax benefits of big-box and/or national retail stores are considered inaccurate because of the costs associated with providing public services to these developments. With the new developments you begin to see the declining tax revenue from the existing, small locally owned, commercial districts. These big-box and/or national retail stores development creates substantial public costs. These expansive stores are not efficient users of public infrastructure compared to the traditional, compact small business districts. They require new, longer roads, which intern creates more road maintenance, additional miles of utilities from water, electric and gas to more fire and police manpower or time.
One case study, I read, found that the annual cost of providing city services to traditional northeast US city downtown and neighborhood business districts was roughly $786 per 1,000 square feet. Sorry, I could not find anything on a small Hoosier town. Those same costs for a big-box and/or national retail stores were over 30% more costly, requiring $1,023 in services per 1,000 square feet. In addition to incurring new costs, cities that approve big-box development often experience a decline in property and sales tax revenue from their existing small neighborhood and downtown business districts. As these areas begin to lose sales, or experience the loss of businesses, it creates vacancies in those downtown business districts, resulting in the decline in the value of property.
3. MYTH: Big-Box and/or National Retail Stores Grow the Local Economy
FACT: If you are still reading along and not gotten overwhelmed with the information, you now understand that trading independent local retailers for big- box chains shrinks the volume of activity in the local economy. For every $100 the small locally owned retailers receives in revenue, results in the hiring of more local workers, which directly translates into the purchases of more goods and services from other local businesses, and ultimately contributions to more local charities that impact the needs of your community.
By the way, when these larger chains displace local businesses, it results in an overall loss of economic activity, not a gain. In a 2004 study, shared, a study was conducted in Chicago, no it’s not Scottsburg or Austin, Indiana, which actually makes the results even more impactful for the purposes of this blog post. The study analyzed ten (10) locally owned restaurants, retail stores, and service providers and compared them with national chains competing in the same business categories and same market areas. The study concluded that for every $100 spent at one of the independent businesses it lead to or created $68 in additional economic activity in the city. BUT, spending the same amount at the national chain only generated $43 worth of local impact.
One of the main reasons for the difference was that the local retailers bought more goods and services from other local businesses. They did their banking at a local bank. They hired local accountants, web designers, and other professionals. They utilize local printers for their printing needs, and they advertised in local publications and other area advertising options. The national chains had almost no need for these local services and spent very little in the local community. So what’s the result found… even modest shifts in the mix of local and non-local businesses in a community can have significant negative economic consequences.
Additionally, a case study conducted by a Michigan county economic development organization estimated that their county would potentially gain 1,600 new jobs, an estimated $140 million in new economic activity, and nearly $53 million in additional payroll IF their county residents changed just 10% of their household spending from national chains to locally owned businesses. On the contrary, if the counties various communities were to shift their spending in the opposite direction, by shopping more at big box and/or national chains, it would cause equivalent and devastating economic losses in their local counties’ communities.
4. MYTH: Big-Box and/or National Retail Stores Brings Competition and Consumer Choice
FACT: Big-box and/or national retail stores often oust numerous small and mid-sized stores, leaving fewer shopping options and less competition. An average Wal-Mart or Target supercenter is nearly four football fields in size (190,000 square feet) and captures, on average, about $80 million a year in spending.
To understand how large that is, consider that it would take 35,000 people making 25% of all their retail purchases, from groceries to appliances, at that one Wal-Mart store. Here is another example, the average 120,000-square-foot Lowe’s captures an estimated $35 million a year in sales. That’s equal to the total hardware/building materials spending power of 37,000 people. Scott County’s total population at the time of this post is only 23,873 people from 2019 estimated census. Most communities, even fast-growing ones, cannot absorb a store of this scale without substantial revenue losses to existing businesses, including both locally owned stores, competing supermarkets and small strip center shopping centers. Part of the reason these companies build such large stores is that they want to leave little room in the market for other competitive businesses.
As locally owned and small retail stores close, community residents are eventually left with fewer shopping choices. Many small towns and neighborhoods must now depend on a single big-box or national retail store for many types of goods, essentially eliminating any or all competition. Here’s an interesting fact… once they attain a dominant share of the market, these retailers may and can raise prices. I have personally shopped booth both our local Scottsburg Wal-Mart and the Clarksville Wal-Mart, less than 25 miles apart, and I have directly experienced a difference in higher pricing in Scottsburg than in Clarksville, Indiana. An additional study, I read, compared the cost of 54 grocery items at 11 Wal-Mart supercenters in Nebraska and found that the total varied by more than 13 percent throughout the 11 Wal-Mart supercenters. Not so super anymore! The study identified some of the stores with the highest prices were in areas that lacked competing grocery stores.
5. MYTH : Big-Box and/or National Retail Stores are the Only Option
FACT : Ultimately, it’s your communities choice. There are more cities and towns that are beginning to say “no” to new or additional big-box development. They see that small and locally owned business is big business and they are trying to find better ways to encourage and grow by creating and expanding local businesses and/or revitalizing downtown shopping through strong main Street programs. In an article I read recently, it said that there are nearly 300 communities that have recently rejected their big-box proposals in the last few years, and many communities have begun to adopted policies that restrict or prohibit this type of development altogether.
Far from impeding growth, these policies often attract new small businesses investment as entrepreneurs are actively seeking out viable business locations. Communities can/will spur more small business development by revitalizing their downtown commercial districts, launching programs to train and finance new entrepreneurs, and developing a strong “Buy Local” campaign to encourage more public support for locally owned businesses. These same communities are beginning to see new housing developments with new families searching for the small authentic town values and lifestyle.
I know you are probably thinking about this but maybe not sure how to go about asking the questions, “How does a community combat this big box or national retailer store growth?” Well a growing number of communities are deciding that to ensure competition in the market is to have numerous small and mid-sized stores, rather than one giant superstore. So, they are limiting or place a cap on the size of new stores.
I don’t typically say I “hate” anything, but I do hate to see when a small community loses a long standing, locally owned business in their community to large national retail chains or big box store. With this blog, I am really not condemning big box stores or national retail chains as much as I am trying to share some basic economic development information with you to help you understand that it’s the big boxes or national retail stores may not be as good for every community as they would like for us to believe. AND, if you can or have the option to support your locally owned small business, please do so, because they WILL make your community stronger on so many levels.
Lastly, here is my plea to anyone who has lasted through this long blog post. Whether you are visiting Scott County for the first time or a longtime county resident… Shop Local, Dine Local and Play at our great Destinations here in Scott County. Your actions help our small-town economy grow and our community prosper. We are a great community and very proud of who we are, and yes, we can all lose site of the importance of shopping locally, me included, but recently having seen some local businesses bought out by a larger national chain was my wake-up call and I hope it will be yours too! Yes, I am not going to lie to you, it might cost you a little more for some items at a locally owned business. Yes, it will may you to invest more time to get what you need from a travel perspective, but it will ultimately make your community stronger! This is not an issue we can pawn off on someone else it is the responsibility of each one of us to help small business grow and prosper and with it comes the revitalization and growth within your community.
Shop, Dine & Play Locally this Summer in Scott County!