Advantages of Mom and Pop Businesses

1. Winders, Rebecca M. Small Business Creation and Economic Well-being of Nonmetropolitan Counties: The Case of Georgia. Contractor Paper 98-8. TVA Rural Studies Program, University of Kentucky, December 1997.

Previous studies have shown:

Externally owned firms tend to purchase inputs from distant suppliers and channel profits to other regions, thus generating smaller local multiplier effects than homegrown businesses.[1]
Small firms pay lower wages and offer fewer fringe benefits than large businesses to workers with similar qualifications.[2]
The higher wages of large businesses may not translate into higher income and employment overall for counties where large firms predominate (e.g., because residents commute from other towns; see below).[3]

Winder’s findings:

The addition of one new small firm results in an overall gain of 21 jobs in total employment, while the average direct employment effect of a new small firm is fewer than 5 workers – thus, small businesses have large multiplier effects (4).
The formation of a new small firm adds $2.5 million to the tax digest (5).
Small business development is strongly correlated with growth in employment and property tax base. Recruiting establishments owned by external large enterprises is not. The strong effects of small business development supports the idea that independent firms tend to “keep money in the community.” The lack of economic growth associated with new large firms suggest that they may be displacing small firms in the process (6).
The only positive consequence of large business development is increased sales growth. In other words, new large businesses contribute to sales but do not add to employment or property tax levels. This suggests that they are efficient and perhaps better able to serve local consumer needs than the firms they replace (7).
Neither small business creation nor attraction of large businesses influences wage levels or employment stability. The implication of this is that strategies other than business creation must be used to raise wages and employment stability, e.g. job training and education (7).

Limitations of this study: rural; single state; small sample; limited time period; focus is on “small firms” versus branch plants, which is similar, but not the same as, “mom and pops” versus chain stores.

See bibliography for more possible sources.

2. Percentage of Profits Retained in the Community. National Main Street Center/National Trust for Historic Preservation. 1997

Retained by large superstore discounters - $.06 on the dollar (Source: Rocky Mountain Institute)
Retained by chain stores - $.20 on the dollar (Source: Small Business Administration)
Retained by independent, “mom and pop” businesses - $.60 on the dollar (Small Business Administration)

3. Boulder Independent Business Alliance. www.boulder-iba.org

Big box retailers create economic costs exceeding the benefits due to loss of existing jobs and increase infrastructure demands (among other things). (Analysis by cities of St. Albans, VT, and New Paltz, NY).
84% of sales among new Wal-Marts in Iowa were just shifted away from existing local merchants (Iowa State University study).
The multiplier effects of independent merchants is up to five times that of chain outlets (no source).
Chain stores displace more than one job for each (mostly part-time and lower-wage) job created (no source).
Profits of the 200 largest corporations grew 362.4% between 1983 and 1999, yet these corporations are now disemployers, firing more people than they hire despite record profits (no source).

4. Institute for Local Self Reliance/New Rules Project – www.newrules.org

Importance of independent businesses:

“Retail is where business meets household, where enterprise meets community, where the value-added of the extraction, processing, manufacturing, wholesaling and distribution chain culminates with sales to the final customer. Retail is the sector most closely tied to our sense of community. For these are what sociologist Ray Oldenbeurg calls the “Great, Good Place,” where neighbors meet, community news is exchanged, and a sense of civic culture is built. Which is why we think the increasing distance between store and household and the equally rapid increase in absentee ownership of retail stores poses a threat to our sense of community.”

Mitchell, Stacy. “Fighting the Chains.” - www.newrules.org

Chain store v. independent merchants facts:

11,000 local pharmacies have failed since 1990.
Local hardware stores are losing ground, while two chains now control more than one quarter of the market.
Independent bookstores have seen their market share decline from 58% in 1972 to just 17 percent today.
Blockbuster rents one out of every three videos. Starbucks has 2200 outlets nationwide.
One firm, Wal-Mart, controls fully 7 percent of all consumer spending.”

Most chains have a stated policy to offer deep discounts when they enter a new market, until they secure a dominant position. In Virginia, researchers found that prices at several Wal-Mart stores varied by as much as 25% depending on the level of local competition.

Several studies confirm that the end result of new chain store development is at best marginal overall improvement in taxes and jobs, and, at worst, a decline (need source info).

Local merchants are more than providers of goods and services; they chair neighborhood organizations, host community events, and contribute more time and money to local causes than absentee-owned firms (no source).

Fact Sheet. Institute for Local Self Reliance. From Stacy Mitchell.

Eight reasons for preserving independent retailers:

Independent retailers protect competition and consumer choice. They select products based on the needs of their customers and sell products made by small manufacturers and local companies.
Chain stores destroy as many jobs and as much tax revenue as they create.
Local stores contribute far more to the economy. Locally owned retailers keep profits in the community and support a variety of other local businesses.
Local businesses are rooted; chain stores are highly mobile. Chain stores will abandon a location if profit margins fail to meet expectations. The US is now home to more than 350 vacated Wal-Mart stores.
Small stores foster active streets and interactions with neighbors. Chain stores encourage auto-dependency and favor massive, impersonal shopping centers.
Independent stores create a sense of place and unique local identity. This not only enhances our quality of life, but gives us an edge in generating new investment and tourism.
Local businesses enrich the civic and cultural life of the community. Studies show that small businesses give more than twice as much to charitable organizations than do large companies.
Chain stores shift decision-making to distant board rooms.

Additional sources: Homegrown Advantage report by Stacy Mitchell (ordered); Reclaiming Capital, book by Christopher Gunn, recommended by Mitchell (have not ordered yet; waiting to get abstract).

[1] Watts, H.D., The Branch Plant Economy. London: Longman, 1981; Pred, A.R., “The Interurban Transmission of Growth in Advanced Economies.” Regional Studies, 10, 2, April 1976, 151-177.

[2] Charles Brown, James Hamilton, and James Medoff, Employers Large and Small. Cambridge, MA: Harvard University Press, 1990.

[3] David S. Kraybill and Jayachandran N. Variyam, “The Effects of Employer Size and Human Capital on Rural Wages and Employee Benefits.” SRDC Series No. 170, Starkville, MS, 1993; Green, Gary P., “Is Small Beautiful? Small Business Development in Rural Areas.” Journal of the Community Development Society, 25, 2, 1994, 155-171.

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