East Campus: Our Local Economy & Independent Merchants

The East Campus Steering Committee will meet Thursday to discuss uses (residential, retail, hotel & office) and market feasibility. Agendas and materials for this and past meetings are also available, just click on the topic. You may find the market study, though somewhat flawed, and lessons learned from Silver Spring worth browsing. The preliminary plan indicates lots of chains and that’s worth careful examination in terms of character and contributions to our community. This pertinent article is reprinted with kind permission from The Hometown Advantage Bulletin, a free email newsletter published by the Institute for Local Self-Reliance. To read back issues or join the mailing list, visit here.

While many parts of the country are overrun with chain stores, San Francisco remains a stronghold for locally owned businesses, according to a new study, which also found that those local stores generate sizable benefits for the city’s economy.

The San Francisco Locally Owned Merchants Association (SFLOMA), one of the sponsors of the study, hopes it will spur residents to choose locally owned businesses more often and encourage cities in the region to re-examine policies that favor chains.

So far, “the response to the study and its publicity has been very encouraging,” said Rick Karp, owner of Cole Hardware and a co-founder of SFLOMA. In an editorial about the study, the San Francisco Chronicle concluded, “The message is clear: It’s time to shop local.”

The study, titled “The San Francisco Retail Diversity Study,” was conducted by Civic Economics, the firm that produced two ground-breaking and frequently cited studies—one in Austin and another in Chicago—that measured the economic impact of locally owned businesses versus chain stores.

The San Francisco analysis builds on this earlier research. It examines retail spending in a region that includes the city of San Francisco and three adjacent suburbs: Daly City, Colma, and South San Francisco.

It begins by calculating the market share of independents and chains in several categories: bookstores, sporting goods stores, toy stores, and casual dining restaurants.

In all four categories, the study found that independents capture a much larger share of consumer spending in the region than they do nationwide. Locally owned bookstores in the San Francisco area, for example, capture about 55 percent of book sales. Internet retailers account for 19 percent of the market and chain bookstores, including Borders and Barnes & Noble, have about 15 percent. Nationally, independent bookstores account for just 10 percent of book sales.

Independent sporting goods stores in the San Francisco area likewise capture 56 percent of sales in that category, while independent restaurants have almost two-thirds of the casual dining market. Locally owned toy stores account for 44 percent of toy sales, while specialty toy chains, general merchants like Target, and internet retailers capture the rest.

In all four categories, the study found that independent retailers were much stronger in the city itself than in the three adjacent suburbs. Local bookstores accounted for less than 12 percent of book sales in the suburbs. Independent toy stores fared even worse with just 3 percent of the suburban market.

The second part of the study analyzes the impact on the city’s economy of shopping at locally owned businesses versus chains. It finds that $1 million spent at independent bookstores creates $321,000 in additional economic activity in the region, including $119,000 in wages and salaries paid to local employees. That same $1 million spent at chain bookstores generates only $188,000 in local economic activity, including $71,000 in local wages and salaries.

Independent toy stores, sporting goods stores, and restaurants likewise create substantially more local economic activity for every $1 million in sales than their chain counterparts, according to the study.

Much of the difference in economic impact is due to two factors. One is that the chains have some of their management, marketing, and other functions carried out at corporate headquarters and therefore employ fewer people locally per unit of sales. In the toy category, for example, for every $1 million in sales, independent stores create 2.22 local jobs, while chains create just 1.31.

The other factor is that the local retailers spend more of their revenue buying goods and services at local businesses such as print shops, accounting firms, web design companies, banks, and so forth. Chains have little need for these local goods and services; many of the dollars that flow into their outlets instead leave the region.

The final part of the study looks at the effect on the city’s economy if residents were to shift the balance of their spending between chains and local businesses by just 10 percent.

Civic Economics calculated that if residents were to redirect just 10 percent of their spending from chains to locally owned businesses, it would generate $192 million in additional economic activity for the region and almost 1,300 new jobs.

The additional income created by these new jobs would in turn lead to an increase in local retail and restaurant spending, which would boost sales tax revenue for the city. San Francisco, like other California cities, depends primarily on sales taxes for funding schools and municipal services.

But the study points out that the reverse is also true: a 10 percent shift in spending from local stores to chains would deprive the community of $192 million in economic activity and put almost 1,300 people out of work. Locally owned businesses in San Francisco have been losing ground to chains, as they have in the rest of the country, for more than two decades. Continuation of this trend would further harm the city’s economy.

SFLOMA and the other sponsors of the study, including the American Booksellers Association, hope its findings will avert such a shift and lead to more support for local businesses, not only in San Francisco, but nationwide.

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3 Comments

Filed under Community, Developers, East Campus, Local Economy, Public Input, Retail, Traffic

3 responses to “East Campus: Our Local Economy & Independent Merchants

  1. What factors do the authors identify as causal in explaining the high concentration of locally owned retail in San Francisco? Seems to me it’s one thing to have bumperstickers that say “Buy local!” But probably more important (in terms of being able to affect the same kind of phenomenon here) to know what policies at which level of government have played a part in it.

  2. Retta

    I used to live in San Franciso.

    I’m not sure what if any local or state governmental policies may contribute to the city’s high proportion of locally owned businesses, other than to say that I have heard rumors over the years that certain fast food restaurants and other retailers, such as McDonald’s and Walmart, were officially banned from parts of town. My suspicion is that non-governmental factors are more important, possibly including the following:

    Real estate prices: SF is fully “developed” (that is, there is very little unoccupied or unused land), and real estate prices there are high. This factor alone probably makes locating large stores and parking lots in the city noneconomical for many national chains.

    Transportation: Most of SF’s street grid is about 100 years old, there are few fast roads let alone freeways in the city, and traffic is generally awful. This fact discourages many locals from driving, and that in turn probably discourages national chains from opening up large stores requiring a lot of customers buying a lot of items per trip.

    Zoning: Zoning law in nearly all parts of SF permits small stores and restaurants to locate right next to residences, often on the same block. I’m sure grandfathering has something to do with this (current laws may be more restrictive than whatever was in place when some of these businesses first opened), but I doubt that grandfathering explains the phenomenon entirely; I would be shocked to find out that SF’s zoning laws are more restrictive than, say, Hyattsville’s or College Park’s.

    Culture: SF’s “anti-establishment” culture encourages the support of locally owned businesses and restaurants, not to mention the placement of small businesses within neighborhoods. And ultimately, of course, built cities and the businesses they support are a reflection of the people who live in them — not mainly the other way around.

  3. Retta

    Needless to say, I messed up in failing to identify zoning as a governmental policy in my post above.

    Further, I should have added that SF citizens have the opportunity to oppose the placement of proposed new businesses in their city — and they definitely use it. One frequently reads in the newspaper about activists and city council members getting involved when anyone from Walmart to a homeless shelter tries to open up a new location in the city.

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