Community-minded consumerism

During the holiday season, most Americans make a disproportionate number of discretionary purchases. The amount varies, depending on income and family tradition, but the National Retail Federation (NRF) predicts that consumers will spend an average of $875 on “core” holiday purchases this year. NRF explains that $620 will be spent on gifts, with an additional $255 spent on “seasonal items like candy or food.” If those figures seem low, they don’t include purchases at airlines, automobile dealers, gasoline stations, restaurants, or other non-retail purchases made during the holidays.

A recent Canadian study found that for every $1 million in retail sales, independent stores generate $450K in local economic activity, while box stores generate just $170K. For restaurants, the numbers skew a bit higher. For every $1 million, they estimate $650,000 of local benefit for independents and $300,000 for chains. If we go by those numbers, then for every dollar we spend at a local retailer, 28 cents remain in the community that would go elsewhere if purchased at a corporate box store. If we eat at a locally owned restaurant (rather than having food passed through a drive-through window), that number rises to 35 cents.

We could also look at a metric that economists call a “multiplier” that measures the impact of a dollar spent within a community. A multiplier of 1.2 implies that for every dollar spent in a given municipality, twenty cents of local economic activity results through local household or business-to-business spending. The American Independent Business Alliance tells us that purchases made at local retailers have a multiplier of 1.48, while those spent at a box store have a multiplier of 1.14. That brings us in at a 34% increase in dollars recirculated within the community.

Let’s play with those numbers. Take your pick. Is it 35%? 34% or just 28%? Applying the low end of that range to our NRF model of $875, our multiplier shakes out to $245. This holiday season, using dollars already committed, each consumer has the power to direct as much as $245 toward local economic impact–or send that money off to Bentonville so we can stimulate their economy. It’s a choice that we all need to consider.

So why would anyone spend money at a box store? Well, the stores are brightly lit and designed to be convenient, and there is usually a carefully crafted perception of value. Are the prices actually lower? In some cases, yes. National retailers who can purchase items in bulk have an undeniable advantage when negotiating wholesale purchases. That much is indisputable, but they can also dictate terms so coercive that manufacturers will undermine their own brand for a shot at a national market. The product might have the same name at a lower price, but the quality may be profoundly different.

What insults me the most is the deliberate targeting of vulnerable consumers. The box stores invest millions of advertising dollars, repeatedly telling consumers that they offer lower costs without any comparisons of quality, comparable baskets of goods, and certainly not principled positions regarding country of origin or child labor. They don’t get into that stuff. They don’t dare. They just repeat their cost-saving mantra enough that people who aren’t inclined to compare labels or divide dollars by ounces will shop unquestioningly with the assumption that all prices are lower.

That said, what if buying a gift locally really does cost a bit more? How many dollars saved from your personal budget make sending your $245 out of the community worthwhile? 5%? 10%? 20%? We all have limits. What’s yours?

The reasons for spending dollars locally are simple. Local businesses preserve the distinct character of our main streets and prevent the tiresome homogenization that occurs in markets dominated by big chains. Local businesses are often more apt to sponsor local events and contribute to community initiatives, and most importantly, local businesses create and retain jobs that don’t vanish when the TIF money runs out.

I’ll be the first to admit that any self-respecting economist or statistician could find a few holes in my oversimplified math, but that’s OK. The fundamental truth remains that purchases from local businesses create a local benefit and that we can make an informed choice. It always saddens me when I see people who feel disenfranchised. I cringe when I hear people say their vote doesn’t matter, but here it is folks. You have power in your wallet and can make a decision that will benefit your community–or not.