Over the years, numerous studies have been conducted to explain the impact locally owned independent businesses have on a community. One such study was commissioned by the American Booksellers Association (ABA) in conjunction with the Independent Business Alliance and conducted by Civic Economics. Civic Economics studied the economic impact of independently owned retailers and restaurants in 10 communities across the country.
With the retail market, the data showed that local independent retailers generated over three times more direct spending in a community compared to national retailers. The study showed that revenues generated by independent retailers circulated 48% of their earned income in the local economy compared to only 13% of income generated by national brands. Local recirculation of revenue by independent retailers consists of significant spending with other local businesses, specifically for the procurement of goods and services, which comprises, on average, about 20% of their expenditure. Additionally, local retailers recirculated their profits and labor spending at 25.2%, with another 3% of revenues going to charitable giving.
When conducting a similar comparison of restaurants, the study found that locally owned independent foodservice establishments spent 2.5 more times their revenue in the community. The results of the survey showed independent restaurants recirculate over 65% of their revenue in the local community as compared to national chains at roughly 35%. Local independent restaurants spend, on average, 22.4% of their revenue purchasing goods and services from other locally owned businesses. Almost 40% of all revenues circulated went to labor cost and owner profits spent in the community, with 7.2% being spent on charitable giving.
The Institute for Local Self-Reliance conducted a similar economic impact study, which helps to simplify the multiplier effect of local spending by independent businesses. Conducted in 2003, the study found that, on average, for every $100 spent at local independent businesses, it generated $45 of recirculated spending locally, compared to $14 for a national chain.
The return on investment for supporting a local independent business is clear. Local independent businesses support the community not only through local spending with other businesses but also through sponsoring organizations such as a Little League sports teams or community cleanups. Communities should be supporting local businesses whenever possible.
Additionally, local leaders should be developing economic strategies focused on incentive programs to encourage the development and creation of locally owned independent businesses as opposed to incentivizing big, wealthy, national companies which have less direct benefit to the community.