This blog is intended to be informational and a source of new ideas. The opinions of the posters are not necessarily the views of the Michigan State Housing Development Authority.
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posted on April 19, 2010 18:44
By Joe Borgstrom, Director
Specialized Technical Assistance
& Revitailization Strategy Division
Michigan State Housing Development Authority
In my last post, “Downtown Retail as an Economic Engine,” I talk about the economic impact retail can have on a local economy. But what is local retail? There’s been a lot of confusion over the issue of “local” lately. As demonstrated in this article titled, “The Dirty Tricks of Local Washing by Stacy Mitchell, corporations are trying their best to pass themselves off as local or at the very least to blur the issue. How much a retailer contributes to a local economy is not so much a black or white issue, more a shade of gray. Realizing some national brands are seen as status symbols, or signs that "we made it," I wanted to take a look at strictly the economic impact of the different owners of retail. Here is what I call “The Hierarchy of Retail Impact:"
Locally owned independent- Typically referred to as “Mom & Pop’s” these retailers usually live in the community they serve, either in the city/village itself or adjacent township. They are the most likely to use other local businesses such as attorneys, accountants and cleaning companies. Since they live in the community, they add to the housing market and pay additional local taxes on their home. They are vested not only in the community’s downtown, but often the school district and lives of their customers. Products are often carried dependent on the individual community. Online sales make them an economic engine. All of their profits stay local.
Positive impact on home community: high
Multi-location independent- This category is usually the result of a successful locally owned independent who has branched out to open one or more additional locations in nearby communities. They still very much have a community focus, but ancillary services are more likely to be carried out close to their home community. The positive is they often share the same employment base resulting in a net area employment gain. Product selection is nearly identical to the locally based business. These businesses are more likely to be within the same 20 mile radius resulting in an effective plug in the local economy “bucket.”
Positive impact on home community: very high
Positive impact on community in which it is located: high
Regionally-Based Chain or Franchise- While the franchise helps by having locally based owners, more of the community’s dollars leave the immediate area to the regional headquarters through centralized buying and support. Regional chains/franchises are great for the community in which they are based as it becomes a “corporate headquarters” with increased internal staffing in finance, marketing and logistics support. One drawback of franchises is, depending on the type, a tendency to care more about traffic counts then the downtown area. Local franchises subscribe to a common business model that often dictates inventory, advertising and other considerations. More money leaves the community through franchise and royalty fees, franchise-designated suppliers and marketing support.
Positive impact on home community: extremely high
Positive impact on community in which it is located: moderate
National Chain- All locations are corporately owned. Typically, any work of any high wage level is done at the corporate headquarters. All marketing, accounting and legal services are either done in-house or farmed out to other national entities. These entities make location decisions solely on “the numbers” including their corporate headquarters. While they can have a tremendous impact on their home community they can leave a giant hole in the local economy should they choose to relocate (see K-Mart’s exodus from Troy, Michigan to Chicago.) They pay property taxes and hire larger numbers of employees, usually at lower wages (according to a few national studies). When you calculate the amount of property and payroll taxes these entities pay versus how much money they take from the local economy, local economies lose.
Positive impact of home community: very high
Positive impact on community in which it is located: negative
As you can see, not all retail is automatically good, nor is all retail automatically bad. Retail can be a positive economic engine, plugging holes and adding water to our local economic bucket if it is based locally. However, when too much money leaves the local economy, it causes the economy to shrink. The key is understanding the impact these types of retail have and what impact it can have on your local economy.
What do you think?
Tuesday, April 20, 2010 12:44 PM
Very nice overview. Also worth mentioning are the frequent attempts by regional and national chains to shoehorn downtown spaces into their business model by putting up buildings designed for suburban settings. Drugstore chains like Rite Aid and Walgreens are notorious for this. Later, when they fold (Rite Aid isn't doing so well lately) or just decide the store isn't pulling its weight, away they go, leaving behind an eyesore that is difficult to adaptively reuse and nearly impossible to reconcile with a dense urban setting. It's the "gift" that keeps on taking. The city of Clio recently won a victory over Walgreens for just such an issue.
Saturday, April 24, 2010 10:03 PM
Thank you for tackling what becomes blurred for many of us--trying to define local, local regional, more than one store, etc. Your descriptions are very helpful in clarifying the hierarchy of retail impact. Thank you!
Thursday, April 29, 2010 5:21 PM
This was informative. Thank you for a clearer definition of how they impact us.c