Economic Impact of Locally Owned Businesses

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On Saturday, May 31, at BookExpo America in Los Angeles, the session "Economic Impact of Locally Owned Businesses" attracted a large crowd of independent booksellers who came to hear about a recent study that documented how local retailers contribute more to the local economy than do national retailers. The panel featured Steve Bercu, CEO of BookPeople in Austin, Texas, and Dan Houston of Civic Economics, who discussed the report "Economic Impact Analysis -- A Case Study: Local Merchants vs. Chain Retailers," which was prepared for the local community organization Liveable City by Civic Economics. The panel was moderated by ABA COO Oren Teicher.

Steve Bercu,
CEO of BookPeople,
Austin, Texas

Bercu kicked off the discussion, talking about how he became politically engaged in the Austin community. "In early 2000, I got the news that a developer was going to create a development across the street from me [at Sixth and Lamar]," he told attendees. "I thought, well, I have two choices. I could either whine a lot and ask everyone to 'Please love me,' or my other choice was to actually do something."

Bercu chose to do something, and this decision was the catalyst for the creation of the Austin Independent Business Alliance (AIBA). He began the effort by writing to local Austin businesses, inquiring to see if they were interested in forming the alliance "and eventually, we did," he said. "In February 2001, we finally had a meeting, where no one could agree on our purpose! After a few more meetings, we finally decided to get a Web site, get a physical directory, and to work on community awareness [that it's better to support local business]."

However, Bercu noted that AIBA did not have hard numbers to back its assertion that supporting local businesses was better for the local economy than shopping at chains. "We were saying, 'It's better to support local businesses, because, well, because it's better,'" he said. "That was pretty much the folk wisdom."

When the alliance found out that Borders had signed a lease to open a store at Sixth and Lamar, "I was delivered an issue," Bercu said. "The city was planning to give the developer … money for a development that had a Borders…. We decided that this had to be an issue." BookPeople and Waterloo Records, along with AIBA, decided to launch an effort to keep the developer from getting the incentives. Bercu said, "No one was considering what the impact would be on neighboring businesses."

Eventually, Liveable City and AIBA commissioned Civic Economics to do a study to evaluate the impact of local merchants versus national chains. The "Economic Impact Analysis" study showed that local retailers put more money back into the local economy. Overall, Bercu's efforts and the report garnered widespread media coverage, and, about five weeks ago, Borders decided to pull out of the development. (For a previous article on this topic, click here.

Houston, a partner in Civic Economics, followed Bercu and led attendees through the "Economic Impact Analysis" study, discussing the methodology and the findings. "Why did we do this? It wasn't for the money, or for the press," Houston said, and noted that 20 percent of their fee was paid in merchandise. "We did it because local merchants matter. We want communities to develop long-term sustainable economies."

Houston explained that the study was designed to be a laboratory to analyze the effects of competition between local merchants and chain retailers and to evaluate the effect of proposed public subsidies at the site. "We wanted to remind Austin consumers of the consequences of [their] spending decisions," he said.

The study provided three analyses: comparative -- the local economic impact of each store; competitive -- the likely effect of competition in similar lines of goods; and proportionate -- the economic impact of $100 in consumer spending at each store.

The comparative analyses showed that local merchants generate substantially greater economic impact than chain retailers. (For instance, a local merchant will spend a much larger portion of total revenue on local labor to run the enterprise.) The annual economic impact is $800,000 for an "average" Borders, $2.8 million for BookPeople, and $4.0 million for Waterloo Records.

Houston explained that some of the assumptions that Civic Economics made were that, absent Borders, BookPeople and Waterloo would achieve modest revenue increases in the coming years; and, if Borders were present, 50 percent of its revenue would be diverted from local merchants and 50 percent would be new activity at that location. "Fifty percent new activity because a Borders is there, I think [was] being pretty generous," he said.

The competitive analyses showed that Borders would actually reduce the local economic activity by approximately $2.4 million, or more, depending on the success of the store.

The proportionate impact was just as significant: A consumer purchasing from local stores creates substantially greater economic impact, the study noted. "If I spend $100 with Borders, $13 goes local and the rest got on a plane at midnight and left," Houston said. Conversely, the local economic return for BookPeople and Waterloo is $45. "[Based on the study, Austin's] independents generate three times as much local economic activity," he noted.

Houston noted that Civic Economics reviewed preliminary ABACUS data and found that BookPeople's expenditures on wages and rent was quite close to the average found in the study. However, he stressed that, for retailers in general, he could not say with confidence how these findings would apply. Factors that might alter these findings would be lines of goods and services, purchases of goods and services, and destination of profits. Civic Economics hopes to conduct a broader study in the next year.

Bercu told attendees at the session that he had no idea that their efforts would end up being "such a big deal." He noted that BookPeople and Waterloo have joined forces and created a "Keep Austin Weird -- Support Local Businesses" bumper sticker. "We've given away 50,000 of those, it's worked great," he said.

Importantly, "these business alliances make a difference," Bercu continued. "We're happy Borders went away, but now we've got to do something else. We can't gloat…. I do things with other businesses to help them. Does the customer care? Yes, it's galvanized my customers and has changed their buying habits. This was the best year in the history of the store. We're up 6.2 percent in the first quarter. That business is not a massive influx of new people; these are customers from the chains that surround me. They decided to drive the extra distance and pass by the Borders [to go to BookPeople]."

An Internet-friendly version of the session and the materials distributed to attendees will be available on BookWeb sometime later this year. Look for the announcement in a future issue of Bookselling This Week. --David Grogan