San Francisco's Economy Reaps Big Benefits from Independent Merchants, Study Finds

From the Home Town Advantage e-newsletter:

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.

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. ... In all four categories, the study found that independent retailers were much stronger in the city itself than in the three adjacent suburbs.

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. ...

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.