Importance of Buying Local for a Faster Economic Recovery

The current pandemic has negatively impacted nearly all aspects of the economy, including small businesses and startups. According to EntryPoint’s COVID-19 Business Impact Report, much like the rest of the nation, 97% of businesses in the Ann Arbor, MI region have been impacted by COVID-19 and 88% of businesses have less than 25 employees. When business owners were asked how people in the region can support their companies, the answer was to purchase goods and services, whether that was through gift cards, scheduling services or purchasing items online for pickup or delivery. In addition to directly supporting local small businesses and startups, there are broader economic and placemaking benefits to working with your local small business community.

1. Money spent at small businesses stays in the local economy at a higher percentage than money spent at chain retailers. Only 14% of money spent at chain retailers stays in the local economy, compared to 48% of money spent at independent businesses. Through operations, jobs and community initiatives, money spent at local businesses stays in the local economy, while 86% of money spent at chain retailers leaves the community. Therefore, shopping locally benefits more than just store, as that money is reinvested back into the community, enriching other businesses and consumers alike.
2. Small businesses significantly contribute to local job creation. Small businesses make up a huge portion of the economy; in fact, 95% of U.S. companies are small businesses, defined as independent businesses that have fewer than 500 employees. Between 1993 and 2011, small businesses accounted for 64% of the net new jobs created, leading them to employ roughly half of U.S. employees today.[i] In contrast, Amazon transactions in 2018 resulted in the displacement of 900,000 retail jobs, showing the economic impact of buying locally in strengthening employment levels and creating more future jobs in the community.[ii]
3. Small businesses donate 250% more than larger businesses to local nonprofits and community causes.[iii] Small businesses are more likely to have knowledge of and contribute to local causes than larger businesses, leading to an improved local community. Washtenaw County small businesses have demonstrated their commitment to community initiatives, as seen through the 37% of small businesses across the county responding to the Washtenaw County COVID-19 Business Impact Report with information about initiatives their businesses had launched to support the community and fellow business owners during the pandemic. Because small businesses are part of the community, they are more active in their support of different initiatives to better the community. In general, small businesses donate 250% more than larger businesses to local nonprofits and community causes, and one study found that locally-owned businesses contributed 400% more than Walmart in charitable donations.[iv]
4. Shopping locally supports the small businesses that are the fabric of any community and contribute to the development of a unique, vibrant local culture. Having a vibrant local business community is part of creating a sense of place for residents and visitors of that community and contributes to a higher quality of life. The development of unique communities not only provides choices for consumers, but also leads to further positive economic impacts on other industries such as real estate, tourism, and hospitality. Furthermore, shopping on online marketplaces such as Amazon erodes the small business community – Amazon transactions resulted in the displacement of 62,000 retail shops in 2018.ⁱⁱ

It is important to also note, in contrast to the benefits provided by shopping locally, shopping at chain retailers or online marketplaces like Amazon actually detracts from the economic potential provided by local businesses. For money spent at a locally-owned business, 1.6x more capital stays in the local community than when spent at a chain business, and 6x more capital stays in the community than went spent at an online marketplace such as Amazon. It’s also important to note that Amazon Marketplace sales, which account for over half of Amazon retail sales, are not required to collect sales tax. In 2018, this led to an estimated $5.5-7.0 billion in uncollected sales tax, which could have instead benefited local economies.ⁱⁱ

Not only does working with locally-owned small businesses benefit local economies and provides consumers with better customer service experiences, but also allows consumers to promote entrepreneurship and even help to decrease the environmental impact associated with the operations of larger companies. Small businesses have always needed the support of residents, but especially in the current pandemic, the best way to build a resilient, vibrant local business community that grows and improves the economy is by working with and shopping at locally-owned small businesses.

About EntryPoint
EntryPoint is a nonprofit research institution that aims to promote entrepreneurship across the Midwest. The organization believes that the best research takes a holistic approach to data acquisition and analysis, and as such, seeks to build meaningful partnerships with corporations, community foundations, entrepreneurial support organizations, and other groups. Working in tandem with these partners, EntryPoint develops comprehensive research reports that deliver insights on strengths and challenges facing companies, communities, and the broader region. Research findings are used to design and implement effective programs to promote entrepreneurship by fostering an inclusive culture, expanding networks, and facilitating education and advocacy. EntryPoint is a registered 501(c)(3) organization. To learn more, visit www.entrypointmi.com.

Sources:

• [i] Small Business Association
• [ii] Civic Economics, Prime Numbers: Amazon and American Communities
• [iii] SCORE, Small Business Charitable Giving
• [iv] Institute for Local Self-Reliance