Independent Businesses Produce Bigger Economic Benefits, Study Concludes

Date: 21 Oct 2004 | posted in: Retail | 0 Facebooktwitterredditmail

Chicago’s locally owned businesses generate 70 percent more local economic impact per square foot than chain stores, according to a new study.

The study, conducted by the firm Civic Economics, analyzed ten locally owned restaurants, retail stores, and service providers in the Andersonville neighborhood on Chicago’s north side and compared them with ten national chains competing in the same categories.

The Andersonville Development Corporation, a spin-off of the Andersonville Chamber of Commerce, commissioned the study and hopes it will lead the city to adopt new policies to limit the influx of chains into the neighborhood and to strengthen local businesses.

Andersonville’s main commercial corridor, Clark Street, is lined with a lively mix of mostly locally owned businesses. They include a number of enterprises that reflect the neighborhood’s Swedish roots, such as Wikstrom’s Swedish Deli, along with hardware and paint supply stores, clothing and home furnishings retailers, a pharmacy, a 70-year-old community bank, a toy store, several restaurants, and one of the nation’s leading feminist bookstores, Women & Children First.

With the area’s popularity on the rise, Clark Street has begun to attract interest from corporate chains. Starbucks recently opened on a prominent corner, while Subway and the McDonald’s owned Chipotle chain have been looking for locations.

If more chains come into the neighborhood and displace locally owned businesses, according to the study, Chicago would suffer significant economic losses.

The study found that spending $100 at one of the neighborhood’s independent businesses creates $68 in additional local economic activity, while spending $100 at a chain generates only $43 worth of local impact.

Four factors account for the difference. One is labor. The local businesses spend 29 percent of their revenue on local employees, compared to 23 percent for the chains, which depend partly on managerial staff at their corporate headquarters.

Another is procurement. The local businesses spend more than twice as much buying goods and services in the local area as the chains do. The independents also keep more of their profits in the local economy and give more money to local charitable causes.

“The study provides hard economic data to support our feeling that these businesses are a vital resource,” said Jill Metz, president of the Andersonville Development Corporation.

Although many assume corporate chains are more productive, the study actually found that the independent businesses generate slightly more revenue per square foot than the chains ($263 versus $243).

Because chains funnel more of this revenue out of the local economy, the study concluded that, for every square foot of space occupied by a chain, the local economic impact is $105, compared to $179 for every square foot occupied by an independent.

Ellen Shepard, executive director of the Andersonville Chamber of Commerce, hopes the study will persuade residents and city officials to take steps to bolster local businesses and stem the influx of chains.

Ideas include enacting a formula business ordinance, using tax increment financing to support new entrepreneurs, reforming property taxes to ease the burden on small commercial spaces, and launching a “local first” campaign to encourage residents to support homegrown stores and restaurants.

Last May, the Andersonville Development Corporation conducted a survey of shoppers in the neighborhood and found that 70 percent prefer independent businesses and 80 percent favor urban business districts over strip malls and other kinds of retail formats.

Nearly 40 percent of the shoppers surveyed lived outside of the Andersonville neighborhood and 10 percent resided outside of the city of Chicago—suggesting that urban business districts can compete against suburban retail by offering, as Clark Street does, an eclectic mix of one-of-a-kind businesses.


Avatar photo
Follow Stacy Mitchell:
Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.