We often lament losing a sense of community and local character. Meanwhile, national chains and online mega-stores continue gaining market and pushing independent businesses to the margins in many sectors. This trend is considered symptomatic of our loss of community orientation, but could it also be a primary cause? And what are the economic costs to our communities as absentee-owned corporations displace locally-owned businesses?
Yesterday I sent and received 322 texts. I was on Facebook for 77 minutes. I was on Groupon, Twitter, Instagram and Yelp — all while streaming Adele’s new album on iTunes (Water Under the Bridge will be my New Year’s Anthem, I’ve decided.) I also checked three different email accounts countless times throughout the day. If I’m awake, I’m probably online. This is indeed a sad reality for many of us living in San Francisco in 2015.
I blame the Millennials. San Francisco is, after all, a young city. The average age is just 31 years old. They’re everywhere you look. In fact, there are nearly 80 million Millennials in the U.S. alone. Before you roll your eyes at this seemingly impecunious, underemployed, and entitled generation – you should take a closer look, especially if you are a business owner. According to Forbes, their buying strength will soon exceed that of the Boomers. It’s estimated they’ll be spending $200 billion annually by 2017 and $10 trillion over their lifetimes as consumers, in the U.S. alone. As you may have noticed, they seem to use their smartphones for almost everything – including making purchases.
More than twice as many Millennials as non-Millennials use a mobile device to research products and read user reviews while shopping, according to marketer Jeff Fromm, whose company, Barkley, has researched the subject. Millennials even donate to charities and causes through their mobile devices. In fact, among those who donate, nearly 50% do it by phone.
Smartphones are the new catchall: a happy hour, a bar for hookups, a concierge, a dating service, a style advisor. We use our phones for almost everything (except talking… if you need to tell me something, please text me. I don’t answer the phone. If you call me, you will go directly to voicemail. Oh, and don’t leave a voicemail. I don’t listen to voicemails. This is not 2006.) In this generation that rarely smokes, cellphones have even replaced smoking as the thing to do in those lonely moments when existential angst threatens to encroach. Our phones are always within reach; regardless of the need, we seem to always reach for them.
According to Micah Solomon at Forbes, Millennial customers crave the joy of adventures and discoveries, whether epic or everyday. Millennials often view commerce and even obligatory business travel as opportunities rather than burdens, due to the adventures that can be had along the way. When Millennials dine out, for example, they’re often in search of something exotic, adventuresome, memorable or new to explore during their dining experience. This has helped transform cuisine searches (“tastespotting”) into an adventure and food truck-following (a concept sure to evoke fears of nausea in some of us) into its own culture.
San Francisco is changing. The inf?lux of tech money and high-paying jobs is a sword that cuts both ways.Gentrification is happening, for better or worse, and the physical landscape of our beautiful City is changing. The skyline is littered with cranes working overtime. The charming shops and small neighborhood businesses are being replaced by expensive glassy high-rises and exclusive condos. One thing is for sure, the cost of rent is skyrocketing. What might be hard to believe, is that this isn’t anything new.
“The Manhattanization of San Francisco has been a rallying cry since the 1970s,” says David Prowler, a former San Francisco planning commissioner. Prowler was the mayor’s project manager in the development of AT&T Park, and is considered by many to be a textbook success of city planning. “I’ve seen this city go through booms and busts,” says Prowler. “People don’t like the booms — they don’t like the busts either.”
As the demand to increase the minimum wage rises – and commercial real estate remains at a premium, no one feels the pinch more than small businesses. The evidence is clear with the rotating storefront vacancies in the Castro.
This holiday season, it’s more important than ever to spend our money in the neighborhoods we love. Do you make a point of shopping locally? What about shopping local? While they might sound same, there’s an important distinction When I say “shop locally,” I’m referring to the practice of buying from stores in your community. But when I say “shop local,” I’m talking about buying from locally-owned small businesses.
While many people take great pride in shopping locally (vs. buying online from Amazon or some other e-tailer), they miss the point by hitting up Target or another big box retailer. Sure, these places employ local citizens and collect local sales taxes, but a significant portion of their revenue goes elsewhere.
This reality was underscored in a study from Maine. The study, which focuses on a particular section of Midcoast Maine, compares the economic impact of shopping at locally-owned businesses vs. major chains. Yes, it dates back to 2013, but the f?indings are still quite interesting.
In short, the study’s authors found that for every dollar spent at a locally-owned establishment, nearly 48% of that revenue stayed in the local community with another 9% being spent elsewhere in the state. These expenditures included employee wages/benef?its, inventory, supplies, and services from other local businesses, prof?its accrued to the local owners, state and local taxes, and charitable contributions.
In contrast, for every dollar spent at a chain store, only 14% of the revenue stayed in the local community, mostly in the form of payroll. The balance of that money f?lows to out-of-state suppliers, or back to the parent corporation. If you shop online, none of the money benef?its the local economy. Let me say that again – any purchase on Amazon translates zero benefits to our local economy.
Based on these numbers, three times as much money stays in our community when shopping at a locally-owned business vs. shopping at a chain store. However, not one penny benefits its the local community when you purchase online. Of course, we usually choose to do business where we perceive the best value for our time and money. But in an age where we’re bombarded with thousands of corporate advertisements daily, perceptions may differ widely from reality.
The unrelenting emphasis on cheapness above all other values leads many people to overlook the values independent businesses provide us, both personally and in our communities. The disappearance of local businesses leaves a social and economic void that is palpable and real — even when it goes unmeasured. A community’s quality of life changes in ways that macroeconomics is slow to measure, or ignores completely.
Local off?icials often fall for the seductions and political appeal of national chains and may even use public funds or tax rebates to lure them. They’re baited with promises of jobs and tax revenue, but they often fail to consider the greater losses that occur when the local business base is undermined. A chain “superstore” may boast of creating 300 new jobs, but numerous studies indicate they displace as many jobs as they create and even use unfair advantages to push smaller independently-owned businesses out of the marketplace altogether. And when communities like Barnstable, Massachusetts studied the f?iscal impact of chains, they concluded such development actually costs more taxpayer dollars to support in safety and services than the community would reap. In other words, when new big box chains come to town, expect to pay more taxes soon.
But what about all the new sales tax revenue those chains bring? That, too, is largely illusory. Unless an area is growing rapidly, retail spending (especially for mass-produced items found at the chains) is a relatively f?ixed pie. For example, the most thorough study of Walmart’s impact on existing retailers (by Dr. Kenneth Stone of Iowa State University) found that 84% of Walmart’s sales simply shifted dollars away from existing local (including some chains) retailers. Independent local businesses employ an array of supporting services by “buying locally” themselves. They hire architects, designers, cabinet shops, sign makers and contractors for construction. Local accountants, insurance brokers, computer consultants, attorneys, advertising agencies help run it. Local retailers and distributors also carry a higher percentage of locally-produced goods than chains, meaning more jobs for local producers.
In contrast, a new chain store typically is a clone of other units, eliminates the need for local planning, and uses a minimum of local goods and services. Most notably, a company-owned store’s prof?its promptly are exported to corporate headquarters. That’s simply good business for them, but not so good for our communities. Dollars spent at community-based merchants create a multiplier in the local economy, meaning that from each dollar spent at a local independent merchant, 2 to 3.5 recirculates in the local economy compared to a dollar spent at chain-owned businesses. This “local multiplier effect” means shifting more local purchasing to independent businesses and it is a key tool for creating more local jobs.
San Francisco’s boutique shops are trend spotters. When you walk into a shop in the Castro or in Hayes Valley or on Haight Street, you can be assured that the proprietors of these shops have spent countless hours sifting through competing goods and services to f?ind those appealing most to their San Francisco customers. You are getting their expertise from the moment you walk into the shop.
Though a single local shop likely stocks a smaller selection than can be found online or at large chains, a multiplicity of independent retailers creates great diversity. When thousands of shops serve the preferences of their customer’s tastes (and ref?lect different owner’s interests), market opportunities are created for a wide variety of goods and services. As fewer giant corporations dominate production, distribution and sales, a few executives and buyers choose what reaches customers. Taste and trends are often macroeconomic and specif?ic to a climate, region and even neighborhood. We rely on our local shops to keep those items on hand.
When we’re asked to name our favorite restaurant, cafe, or shop, it’s invariably a unique local business. Our local “Best of” poll is proof. These businesses def?ine our sense of place, but we often forget their survival depends solely on our patronage. When we shop and spend our money at local, small businesses – the money helps a local San Franciscan make their car payment and put braces on their kids and maybe even get the dog to the vet for a much needed check up. However, when we purchase from Amazon, Jeff Bezos, the CEO of Amazon, simply adds our hard-earned money to his current $50.3 Billion net worth. By the way, Jeff Bezos is the world’s f?ifth richest man on the planet. He doesn’t need any more money.
Wait! I love Amazon! They have FREE SHIPPING! Well, free shipping can get expensive. Amazon offers the perk for those who spend more than $25 on certain goods. And its Amazon Prime members get free two-day shipping on most items for an annual fee of $79. But some research shows that free shipping often causes customers make a large number of impulse buys. Some 36% of respondents will spend more online this year if shipping comes free, according to a 2011 survey by the National Retail Federation’s online shopping news website, Shop.org. And 59% of consumers buying Father’s Day presents this year said free shipping will entice them to buy a product they might not have otherwise chosen, according to a survey from PriceGrabber.com, a deal aggregator site.
Many customers are more calculated in their spending. For instance, in a bid to reach the $25 free shipping limit, some people will end up spending more than they would have by paying for shipping. “I have friends who do that over and over again,” says Rishi Shah, a marketing consultant and blogger. “Just $2 shy of spending $25?” he says. “Why not buy an $8 DVD?” Free shipping also makes Amazon Prime members less likely to comparison shop, he says. Anne Kadet with MarketWatch says ‘This is nothing new — you might call it the ‘Monopoly-money’ effect. The further technology takes us from the psychic pain of forking over actual cash, the easier it is to spend freely.”
She’s absolutely right. Studies show that consumers are willing to pay higher prices and leave bigger tips when paying by credit card. People using American Express’s signature-eliminating ExpressPay key fobs up their spending at participating merchants by 20 to 30 percent. In short, the spending doesn’t feel real. Taking $100 out of your wallet and physically handing it over is a different experience from that watching that same $100 evaporating from your account with the click of a button.
In comparison to the online-megastores like Amazon, our San Francisco local business owners typically have invested much of their life savings in their businesses and have a natural interest in the community’s long-term health. Community-based businesses are essential to charitable endeavors; their owners frequently serve on local boards and support numerous causes. Yes, some chains give back to towns in which they locate, and not all local businesses are exemplary models. However, the overall impacts are clear: locally owned businesses play a key role in our community that chains rarely do. We should reward that with our patronage.
With help from the American Independent Business Alliance
Helping Communities & Local Independent Businesses Thrive
Some Content Sourced from: http://www.amiba.net/