When you think of a chain store, you might envision a McDonald’s, a Dunkin Donuts, or a Wal-Mart. Incredibly, just a few huge chains dominate most industries today.
The ubiquitous nature of these companies has meant small businesses and “mom & pop” stores have often disappeared between giant big box stores.
However, every giant retailer started out as a tiny business somewhere, and the giant behemoths those small businesses have become are a part of an economy that isn’t going to change.
The Economic Impact of Chain Stores
“Economic impact is measured by direct, indirect, and induced spending.”
Every business spends money within the community, but economic growth within the community cannot occur unless the money spent by the company remains in town. Unfortunately, businesses with headquarters that are across the country or even in another country mean that less money made by the company gets recirculated into the community.
There is a difference between national chains and locally owned and operated franchises. According to the same research:
“Chains that are franchises or cooperatives owned by local individuals or businesses tend, like local independent stores, to spend more in the local economy than chain stores that do not have a local ownership component.”
Job Creation from Small and Large Businesses
In addition to economic changes experienced by the community after a large big box store or chain store comes to town, there are also impacts on the local job market, which includes poverty rates and the wages and benefits enjoyed by employees.
According to research by the Institute for Local Self-Reliance:
“Studies have found that big-box retailers, particularly Wal-Mart, are depressing wages and benefits for retail employees.”
In addition, a study entitled The Effects of Wal-Mart on Local Labor Markets suggests:
“Analyzing national data, the study found that the opening of a Wal-Mart store reduces county-level retail employment by 180 jobs.”
Although it may seem as though large companies who move into town will employ many people, the reality is that small businesses are forced to close because they can’t compete with the financial might of the large company. As a result, small businesses lay off their employees and the net effect is job loss rather than employment gains for the community.
Interestingly, small businesses do even more to boost employment opportunities during economic recoveries after recessions. According to an article published by The Washington Post:
“…adding new positions isn’t the only way existing small businesses create jobs, according to Bill Dunkelberg, chief economist for the National Federation of Independent Business. It also happens when they bring back workers they let go during tough times.”
Although some research suggests that large firms do indeed add many jobs to the economy, one of the problems with those new jobs is that giant companies eventually look overseas to build their workforce with cheap labor. These jobs don’t add anything to America’s economy, and American workers suffer the most when their jobs disappear.
Creativity May Fail at Large Firms
An interesting study by the Small Business Administration (SBA), which measures a variety of metrics related to small businesses in the United States, suggests that small businesses are extremely valuable as far as creativity and innovation are concerned.
“Of high patenting firms (15 or more in a four-year period), small businesses produced 16 times more patents per employee than large patenting firms. Research also shows that increasing the number of employees correlates with increased innovation while increasing sales does not.”
After a company has created their unique logo and has crafted a well-known brand that everyone recognizes (think Coca-Cola), their creativity might become stifled as the company looks to focus more on brand than the quality and innovation of its products.
Some Positives, Several Negatives
Big-box stores and giant companies have a terrible reputation, but their presence isn’t universally damaging to the local economy. While money spent at small businesses tends to remain in the community and help the economy, chain stores can actually fuel revitalization of depressed areas when a large company decides to purchase an inexpensive plot of land in a “bad” section of town.
In addition, the national chain with one of the worst reputations for displacing local workers and businesses – Wal-Mart – has been making some interesting changes lately to create stores that match the scope and needs of the town in which they’re placed.
A document prepared by Hunter College in New York City states:
“Wal-Mart is addressing the first obstacle – store size – by changing its standard big box model to a more flexible one involving stores of widely varying sizes, perhaps even as small as a few thousand square feet, the size of many local grocery stores.”
These moves are a clear sign that Wal-Mart isn’t pulling any punches when it comes to competing with local small businesses. Wal-Mart – and other, similar large companies – are trying to improve their reputations by creating the local persona of a small business rather than a multi-billion dollar company.
Emotional Impact of Large Businesses on Small Communities
Another impact of large chain stores that’s difficult to quantify but real nonetheless is the emotional change experienced by the average resident in a small town that loses jobs, income, and businesses when a large company moves in to the area.
“The disappearance of local businesses leaves a social and economic void that is palpable and real — even when it goes unmeasured. And a community's quality of life changes in ways that macroeconomics is slow to measure, or ignores completely.”
Supporting local businesses is an incredibly important part of sustaining the health and welfare of small towns both in terms of economic strength and the welfare of inhabitants.
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