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Trouble on Main Street

When Local Stores Go, What Goes With Them?

from Book Passage newsletter.

The last locally-owned men's clothier in our area closed recently, as did one of two remaining hardware stores. Independent pharmacies are less than half of what they were a few years back, and you'd look long and hard to find an independent record store, appliance store or grocer. And then there are booksellers: hardly a week goes by without an independent bookstore somewhere in the country closing its doors.

What's going on? Some economists would call this a natural phenomenon. Big fish eat little fish. Warehouse stores and national chains drive out local retailers. Tough for the guy who owns the small store, but it doesn't really affect the economy. Overall retail sales remain the same — maybe even up a little. So what's the problem?

Economics is called the dismal science because it often measures with misleading exactitude the answers to the wrong questions. Ecologists argue that there's a misleading statistical boost in national output when money is spent to pollute a river and another positive blip when money is spent to clean it up. But if you don't pollute at all? That's not measured anywhere. The same is true of the women's unpaid labor in traditional societies. Writers like Marilyn Waring in If Women Counted show how misleading economic statistics can be if they don't somehow measure the way people really live and work.

There's a growing suspicion that a similar form of mis-economics is at work with local retailers, who are gradually slipping from our midst, leaving a social and economic void that is palpable and real — even if unmeasured. The fabric of a community can be drastically altered in ways that macro-economics is slow to measure. Jane Jacobs previewed this problem three decades ago in The Death and Life of Great American Cities, showing how mindless redevelopment projects often destroyed the vital interplay between people in real neighborhoods. That loss — like the loss of a retail base — can be crucial, even if it doesn't show up immediately in the statistics.

The loss of a local retail base isn't a natural occurrence. This loss is usually preceded by deliberate policies of large manufacturers that favor national retailers. It's often matched by local governments and landlords eager to embrace national retailers who tempt them with illusive promises of growth and tax revenues.

The Real Cost to the Community
It's time to start asking the right questions. What's the real cost to a community that loses its locally- owned retail base? What are the forces undermining that retail base?

1. What's the Effect on Supporting Businesses?
A locally-owned business employs a wide array of local supporting services. Local architects, designers, cabinet shops, sign makers and contractors are hired to build it. Local attorneys, accountants, insurance brokers, public relations firms, computer consultants, and advertising agencies are employed to help run it. Operating funds are deposited in local banks, and that money is plowed back into the local community.

When a national chain moves into a community, it puts in place a copy of stores it operates elsewhere, and it uses a minimum of local supporting services. The money is funneled back to the home office.

What then is the economic cost to other businesses in a community when local retailers are replaced by national chains?

2. What's the Effect on Employment and Entrepreneurial Skills?
Both local retailers and national chain outlets hire employees, but there are important differences. The owner or manager of a local store is an entrepreneur in every sense, developing skills in buying, selling, planning and management that cannot be learned in any other way. Local businesses also employ people with specialized skills, like bookkeepers, who perform functions that in a national chain might only be done in a single national office. This is not to degrade the work done by chainstore employees, only to point out that the jobs available in national outlets are likely to be one-dimensional jobs, providing training in only a narrow aspect of a business.

The loss of a community base of entrepreneurial skills is an issue that needs to be explored, but there are others. How does the entry level pay of employees compare with community-based retailers? How often are experienced managerial employees transferred out of an area as a matter of company policy? How well do national chain outlets train employees to meet community needs and to understand the products or services being served?

And then there's the biggest question of all: What happens when a national chain, like Wal Mart, comes into a community, drives out local retailers, and then ultimately decides to pull up stakes and leave? When this happens to a community there are usually few if any resources to fill the gap.

3. What's the Effect on Small Manufacturers?
Manufacturers look for national or worldwide markets for their goods, but they have to begin somewhere. Usually the first stores to sell a local manufacturer's products are local retailers with whom the manufacturer has a personal relationship. Unlike national chains, local retailers are free to make buying decisions on the spot and to take chances with the goods of a new manufacturer that don't fit into some national sales plan.

Small manufacturers also have a stake in the nationwide health of local retailers. Manufacturers who sell through a multiplicity of independent businesses nationwide can withstand the impact of a single retailer who is slow to pay, goes bankrupt or tries to return all the manufacturer's merchandise. But that's not true for small manufacturers that do most of their business with a national chain: they are in an exceedingly perilous position. Time and again in the book business we've seen small publishers who have over-printed and over-extended themselves for a couple of big buyers, who then demand more and more concessions while they slow down on their payments.

As a handful of retailers become dominant, it's time to ask what effect does this have on small manufacturers who are forced to do business with retail giants that have much greater economic power?

4. What's the Effect on Consumer Choice?
Local retailers are consumer advocates, sifting between competing goods and services to find the ones that appeal best to their local customers. A good clothier knows his or her customers and can advise them about new merchandise they'll probably like; a good bookseller does the same thing. Many people ask their local pharmacist for a referral when they need a medical specialist. A skilled, friendly hardware store owner has saved more than one homeowner from disaster. As the economy becomes more global, the need for trained, committed, local retail experts is even greater if consumers are to have any hope of wading through the claims of conflicting products.

But local retailers don't just sift through a diversity of products, in a real sense they create that diversity. When 3,000 or so independent booksellers buy books to sell in their stores, the cumulative effect is a broad demand for a wide variety of books. This divergent demand of many retailers makes it possible for publishers to print new or controversial books and books from new, young authors with the expectation that there will be a market for such books somewhere within a wide variety of retail stores. This is true of independent retailers in any business. Each one buys merchandise based on his or her particular tastes and interests, on the tastes and interests of his or her customers, and on the expectations of what will sell in that particular community.

How can this broad demand for new or unusual products be replicated when only a few buyers from national chain stores are doing most or all of the buying? How does a new author or the creator of any other new product break into the system when a national buyer is looking only for proven products that will sell in all of its chain stores nationwide? New, innovative products involve a certain level of risk. The only retailers who are likely to take that risk are smaller, local retailers who know how such a product will fit into the social and cultural patterns of their community. When there is a monopoly or oligopoly at the retail level, isn't it inevitable that the variety of goods will be reduced to the lowest common denominator of public taste?

5. What's the Effecti on Community Involvement?
Local retailers are the eyes and ears of main street, the first to report uncollected garbage or a troublesome pothole. Most have a significant portion of their life savings invested in their businesses, and because of that they are vitally interested in the community. Community-based retailers are usually the backbone of local charitable endeavors, frequently serving on local boards, supporting a variety of causes that range from Little Leagues to battered women's shelters. With only themselves to answer to, local retailers can support causes with their time and money that may not be on a list of official or popular charities.

How well do national chains fill this gap? Some enter a community with a big initial splash, but how does their long-term commitment compare with that of retailers who live in the community?

6. What's the Effect on the Vitality of Community Life?
In a healthy retail environment stores function as a group, forming a magnet for window shopping, browsing and strolling. Go to any Italian town in the early evening, and you'll see virtually the entire populace taking an evening passeggiata — not around the monuments and churches, but through the retail shopping streets. In America as well, retail stores are at the core of a community. But for retailers to perform this role there must be balance, diversity, scale — even serendipity — in the way that such stores interact with each other and the surrounding area. Towns with a healthy retail core have less need for special police forces or crowd control measures, because they have the self-policing mechanism of shoppers, lovers, strollers, visitors and shopkeepers interacting with each other and maintaining an unofficial kind of order.

What happens when this civic balance is disrupted? Shopping malls in remote locations with a repetitious and predictable selection of shops have proven to be poor substitutes. Large discount stores outside of the downtown area draw in shoppers and then immediately disgorge them when their specific shopping tasks are completed.

How do you measure a community's loss when it no longer has a retail core that attracts people for random or casual visits? What's the additional cost of police, social workers and others resources needed to do something that a healthy retail environment produces for free? How do you measure the loss of random encounters on a city street, the joy of seeing your neighbors taking a walk, and the loss of civic pride?

The Forces Behind It
The loss of business on Main Street hasn't come about naturally. It's had plenty of help.

Local officials have yielded to the seductions of national warehouse chains, looking only at the promises of jobs and tax revenues without evaluating the greater loss that occurs when the local retail base is undermined. Local governments often give tax and regulatory breaks worth millions of dollars to national chains. Some landlords have contributed to the problem, by renting key locations only to national retailers at lower "anchor tenant" rates. Franchisors often impose onerous restrictions on their franchisees, preventing them from functioning as the entrepreneurial businesses that most of them want to be.

But the most destructive force has been large manufacturers and distributors who have blatantly favored large retail chains in many types of businesses with cash and other benefits, thus enabling them to wear down local retailers with expensive promotions and price wars.

The illegal favoritism of large manufacturers towards national retail chains has been the subject of recent anti-trust litigation in the book, record, and pharmacy businesses. This favoritism takes different forms, but most of it is illegal under the Robinson-Patman Act and other anti-trust laws. The themes are different, but the results are the same. In the clothing business, big manufactures like Levi Strauss cut off smaller retailers and refuse to allow them to sell the manufacturer's products. In the record business larger retailers have benefited unfairly from big promotional allowances. In the pharmaceutical business drug manufacturers have arbitrarily classified retailers into different categories, giving institutional retailers a far lower price than they give to neighborhood retail pharmacists. In the book business major publishers have, according to a Federal Trade Commission and other investigations, given illegal advantages in price and promotional allowances to Barnes & Noble, Crown Books and Borders.

How can this situation be changed? Better law enforcement of existing anti-trust laws is an important first step. Big manufacturers often tilt in favor of big retailers both because of institutional inertia and because of a shortsighted view of their own economic interest. The anti-trust laws are there to protect the community from the consequences of such misguided behavior.

But a conceptual change is also necessary. Somehow the real, daily needs of local communities and local economies must be quantified and conceptualized into terms that will command respect among economists and hard-headed business people. Only then will the work of local retailers be valued for what it is: the glue that holds a community together.
-- WRP

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