Business & Economics: Buy local, help the local economy – Fact or Myth?

 

By Rich Creyer, Local Trade Partners / Fayetteville

 

There has been a lot of talk in recent years about how not buying locally hurts the local economy and locally owned and operated business.  Is it fact or myth?

 

Fact: It is economic fact that purchases made at “big box” retailers leach dollars out of a local economy.

 

Purchasing materials from a big store results in dollars and cash flow being sent into the local economy in that company’s headquarters. While we can’t ignore these big retailers, we should recognize their impact. 

 

The 3/50 Project is a non-profit public awareness campaign about the impact of local trade in local economies. They calculate that for every $100 spent in a locally owned and operated business, $68 stays local.  The same amount spent at a corporate-owned store results in only $43 staying local.

 

Why is that so important?

 

Fact:  A 3/50 Project economist calculated that if 50% of the population spent $50 in locally owned and operated businesses every month,  $42.6 billion would stay right where it was spent.

 

Every dollar that leaves Northwest Arkansas is no longer in Northwest Arkansas. It can’t be spent on roads, schools, or services. It doesn’t improve your business cash flow or buy expansion opportunities. It doesn’t earn a profit for your business or your neighbor’s in the shop next door.

 

By contrast, dollars that stay local can be (and usually are) re-spent locally, increasing the velocity, or turnover, of each dollar spent.  Envision these local dollars re-circulating over and over and you’ll see “local wealth” being created.

 

That’s a significant impact. 

 

 

Fact:  One person can make a difference in the welfare of a local business. A $2 greeting card purchased by 100 customers is significant revenue to a small business. One business owner cross-promoting with another can build their local market. Consider a retailer who passes on a coupon to a nearby restaurant or vice versa. Or a children’s shop that shares coupons for local entertainment venues.

 

Attempts to shift consumer behavior toward local purchase options are not always successful. Many purchase decisions are economic—it’s about shopping for the best price rather than the what’s best the local economy.

 

Businesses who want to solve the price only factor need to recognize that the price customers allow you to charge is indicative of the value they place on the experience and service you deliver.  Local businesses are in the best position to provide the best service, and by participating in local promotional programs will draw some consumers away from their big box competitors.

 

Look at the dollars you are currently spending and sending out of town, and think about how these purchases could be recaptured by a local business. One way is to use a “local currency,” which is a form of currency not backed by national government, but is a legal tender intended for commerce or trade in a specific area or with a specific group.  It’s an effective business tool that refocuses purchase decisions and gives price-only shopping the back seat.

 

 

Rich Creyer, has a degree in Economics and has worked with big box companies like IBM and AIG. He is currently the Trade Broker for Local Trade Partners, in Fayetteville, a concern that works to build preserve and protect local business and the local economy using “local currency.”  Email Rich at rich@localtradepartners.com.