Local Impact: Buy Local Builds Economy

Can the impact of buying local change our economy?

by Gremlyn Bradley-Waddell

Buy LocalIt’s a simple catchphrase that’s become as much a part of the American vocabulary as “economic downturn,” and, by now, most folks have seen a “Buy Local” sign amidst the treasures at a downtown antiques shop or tacked onto the cash register in an independent clothing boutique. But as much as the “buy local” approach — in all its various connotations — is promoted, is it changing the Valley’s economy?

By all means, say those who advocate a local focus, even though it’s being executed in different ways. Kimber Lanning, the Valley entrepreneur and founder and executive director of Local First Arizona who has been at the front of the movement since its inception years ago, says the evidence that consumers are interested in and will support the “buy local” approach includes the 50 to 75 or so new, locally owned businesses that have popped up in the downtown Phoenix corridor over the past several years and are holding their own. She adds that supporting area entrepreneurs just makes sense because it strengthens the local revenue stream by keeping tax dollars and jobs in the state and bolsters the recovering economy by creating new jobs.

“Small business, in general, is a substantial percentage of the state’s gross domestic product. From an employment and revenue generation point of view, it’s a substantial portion of any growth metric in Maricopa [County], the Greater Phoenix area or the state,” says Ed Zito, president of Alliance Bank of Arizona, observing, “The efforts to encourage ‘buy local’ have been a meaningful factor in the growth of small business locally.”

Alliance Bank, which, Zito notes, is the largest bank locally headquartered and owned, has helped keep money flowing in the state by continuing to lend throughout the recession and has experienced more than $1 billion in net loan growth and more than $1.25 billion in net deposit growth since January 2009. Zito, who sits on the Downtown Phoenix, Inc. Board of Directors with Lanning and sports a T-shirt with the message, “Local First: Buy Local, Bank Local,” says that, in the past three years, he has seen a large drop in the number of bankruptcies — personal and business — and a tremendous increase in business originations, or start-ups. “The local entrepreneurial movement has grown tremendously in the last three years.”

And Bill Gates, vice mayor of Phoenix, proudly points to the city’s year-old procurement policy that favors Arizona-based businesses over out-of-state firms when it comes to awarding contracts of $50,000 or less. After all, the policy not only has the potential to positively affect local businesses in a multitude of ways, but also the city and state, which benefit from being regarded as respected arenas in which to do business and for growing firms that can navigate the marketplace. Gates says the policy has thus far been successful, with $2.5 million already awarded to Arizona firms in roughly nine recent months.

In a nutshell, buying and shopping local is a win-win situation, says Lanning, who says the movement is about creating, growing and supporting Arizona-owned companies. Anyone can get behind that, she says. “That’s really hard to argue with.”

Searching for Civic Soul

While Lanning says buying and shopping local helps keep tax dollars and jobs within state boundaries, she believes it creates something intangible that’s just as desirable: soul.

“Two things were on my mind when I started Local First,” says Lanning, who has more than 25 years of retail experience as the owner of the independent record shop, Stinkweeds, in Phoenix. One was the local economic playing field, which she felt was altered unfairly by subsidies the cities seemed to be giving to national retail chains. The result was a marketplace that was “about as far from the free market” as imaginable, she says. The other issue: Arizona was “hemorrhaging bright, young talent.”

“‘We’ve got no soul’ — that’s what they would say,” she recalls of the creative types she encountered who lamented the region’s lack of identity. “The more I thought about this, the more I thought that business equates to ‘soul.’”

While Phoenix has “tremendous potential,” she says it still has a ways to go in terms of establishing its identity and finding its niche among other cities that people really connect with, like Austin and Seattle. And so Local First and its backers continue to promote unique and independent retailers and showcase local talents from all around the state, all with the intent of inspiring other entrepreneurs to open or further grow their homegrown ventures and attracting other businesses and jobs, not to mention tourists and would-be residents. After all, one statistic cited by Local First is that for every two jobs national retailers bring to a community, three jobs are lost as a result of local businesses closing down.

And, of course, another of Local First’s intentions is to keep tax dollars passing through local tills. Indeed, one of Lanning’s most frequently cited points is “studies have shown that for every $100 spent in a locally owned business, roughly $42 remains right here in Arizona, while for the same $100 spent in a national chain store, only $13 remains here.”

Going Local, in Moderation

Of course, buying or shopping local isn’t something most consumers can do, or might even want to do, on an unlimited basis. And that’s not a bad thing, either, some say. Essentially, buying and shopping local should be done — like everything else in life — in moderation. That’s the take, at least, from Dennis Hoffman, Ph.D., director of the L. William Seidman Research Institute at the W. P. Carey School of Business at ASU.

While there are elements of the “buy local” approach that make sense to him, Hoffman says he would be concerned if it were taken to the extreme. Exclusively buying goods and services on a local basis would be stifling to the economy; as counterintuitive as it may seem, there is a need to send dollars outside the state.

“Where do new dollars come from then?” the professor asks rhetorically. “We just continue to circulate dollars around. Absent credit markets, there’d be no way of growing the economy. Growth is based upon the ability to export product. It’s export-based businesses that are crucial to the health and prosperity of an economy. If everybody [in every community] goes and buys local, the export market dries up by definition.”

On the other hand, an export-only economy would also be damaging, he notes. It’s all about finding a happy medium, Hoffman says, not to mention understanding that businesses are driven by the desire to reduce costs and find the lowest pricing source for the best price. And local goods and services, as most people realize, are not necessarily the cheapest. Produce at a farmers’ market, for example, may not cost less than that found at the grocery store and, in fact, may cost more. In a case like this, he says, many folks are willing to pay that higher price for a local good because “it’s intuitively appealing to some, and very lucrative for others.” The point is to give people choice. “Consumption’s all about feeling good.”

Another argument in the “buy local vs. buy cheapest” debate is that low prices aren’t low when a community factors in, for example, a retailer’s healthcare options for its employees. And everyone knows at least one nationwide discount retail chain that prides itself on its low prices has often faced criticism for allegedly paying its employees so little in wages they end up on public assistance programs, thereby putting an even bigger strain on the local economy that it presents itself as trying to serve.

“Buying cheap goods from a company with thousands of employees on the state’s healthcare program is actually not saving money at all,” Lanning says. “That kind of ‘cheap’ is costing us a fortune!”

Policy Is ‘A Powerful Message’

For Gates, the reminder to go local frequently came to him after he and the rest of the city council — which deals with an annual budget of $3.2 billion — awarded contracts to firms from all around the country, time after time. He says Mayor Greg Stanton, himself and their fellow council members realized they needed to find a way to more effectively support Arizona businesses. Especially, he says, when the city was urging residents to do so. “We looked at ourselves in the mirror and said, ‘We’re not doing this as a city,’” he says.

After getting advice from attorneys, the council proposed a procurement policy that’s now known as the Local Small Business Enterprise Program. The intent of the policy is to not only assist current Arizona business owners, but also to stimulate the economy by bringing in or even growing more local firms. When there are at least three Arizona-based businesses willing to bid on goods and general services valued between $1,000 and $50,000, the city will select one of them over out-of-state competitors, according to Jeff Dewitt, Phoenix’s chief financial officer. He says that from July 2012 to March of this year, the city awarded 317 contracts to Arizona firms, to the tune of the $2.5 million cited earlier by Gates. And that’s a dramatic increase from the results seen with the city’s prior policy, Dewitt notes, which saw only 14 contracts awarded to local firms, for a total of $42,500, from around July 2011 to June 2012.

Gates says the $50,000 figure could be revisited and bumped even higher to, say, $75,000 or even more. In the meantime, he and Dewitt say the city is working hard to get the word out about the program. There’s already a database in place that alerts local business owners when contract opportunities are available. “I think it sends a powerful message,” Gates says of the policy, which he also hopes will inspire other communities to adopt similar programs. “This is really about getting that door open for the small business person.”

Other communities around the state also are making attempts to advance the “buy local” and “shop local” mentality as a way to realize revenue, and others are experimenting with business incubators. LaTricia Woods, public information officer for the City of Maricopa, says that city recently completed a successful “Shop Local” pilot program that, as an incentive for residents to keep purchases within city borders, included a gift card contest. In the Town of Gilbert, however, economic development director Dan Henderson says the “Shop Gilbert” campaign is more of an educational program. The city’s not striving to change buying habits. “We want them to understand the role that tax dollars play in funding municipal services like the police and fire departments,” he says.

For her part, Lanning says consumers should be aware that municipal “shop local” campaigns are often focused more on the “short-term gains” of sales tax dollars, so the focus is on supporting businesses located within a city boundary as opposed to supporting locally owned businesses. “That’s an important distinction,” she says. “It confuses people when the cities use the words ‘buy’ or ‘shop local,’ when, in fact, they aren’t talking about supporting locally owned businesses at all. They are talking about keeping sales tax in the city where you live, whether you spend them at chain store or not.”

Helping the Little Guy

Just as an entity like the City of Phoenix is making strides by promoting local business, retail powerhouses like Macerich and Fry’s Food Stores are doing the same, aware of the public’s desire for local goods and services.

At Biltmore Fashion Park in Phoenix, the east end of Macerich’s distinctively upscale open-air mall now features UNION, a 5,200-square-foot collection of 18 independently owned and unique local businesses all under one roof. The concept, which debuted in November 2012 and is the brainchild of Biltmore’s senior leasing manager Mary Boyd-Williams, has proven popular enough to have a wait list. She had a desire to bring back local flavor to the upscale center and felt confident it would succeed not only because the economy was turning around but also because the Biltmore has, historically, had a nice mix of independent retailers, including longtime tenants Cornelia Park and The Clotherie. It didn’t hurt any, either, that the mall had the retail space available and it was economically feasible to locate all the shops together. Boyd-Williams says she’s even gotten calls from other developers from around the country asking how she put the project together.

“It’s what we envisioned, and it’s really been embraced by the community,” she says, adding that while she cannot comment on sales figures, foot traffic, repeat customers and sales are in line with expectations. In addition, shoppers who otherwise would not have been drawn to the mall also make up some foot traffic at UNION. “We’re also seeing shoppers we might not have seen at Biltmore at all.”

One of the lures UNION has for the small-business owners like Georganne Bryant has been the short-term leases, which allow for a low-risk entry in a shopping center with an established clientele. Some leases are as short as a year, as opposed to the mall’s typical 10-year lease. “It’s a great incubator to see how they would do and flourish,” says Devon Hoffman, Biltmore’s senior marketing manager.

Bryant, who owns three UNION shops that feature some locally made goods — Frances, Smeeks and Frances & Charlie Newsstand — says the tiny, tight-knit retail community has not only attracted the notice of local shoppers but also local tourists, who frequently mention they want items and souvenirs unique to Arizona and the Southwest. Exactly the kind of feedback Boyd-Williams and Macerich hoped to hear.

It’s also important for Sharon Lantz, the deli and bakery merchandiser for Fry’s Food Stores throughout Arizona, to reach out to local, family-owned companies. A 39-year employee, she is proud of her Ohio-owned company’s support of local Arizona suppliers, whose products — although she cannot divulge figures — make up a “significant” amount of sales space in the grocery chain’s deli and bakery areas. She says she and Fry’s, both, want to help others achieve the American dream. “Helping people get their foot in the door is what we like to do at Fry’s” — because buoying the local economy and the small businesses that make up the majority of it is part of the company philosophy.

But it’s not always the easiest route, Lantz concedes. Working with local suppliers can require a considerate amount of time, as many often only have product on hand, not necessities like packaging or assigned UPC codes. But knowing dollars and jobs are being retained in the state makes the extra work worth it, she says. And, she adds, there’s no denying the popularity of many Valley-based products, like My Nana’s tortilla chips from Phoenix vendor La Canasta, Chompie’s bagels, and organic bread from Mesa’s Alpine Valley Breads, whose owner approached the company to carry his products at a time when “organic” wasn’t in the lexicon. “We didn’t know what the heck he was talking about,” she recalls. Truth be told, Lantz wasn’t convinced the breads would sell — until she tasted them. In the end, Alpine Valley Breads has proven to be a winner, and it’s the bread she puts in her own grocery cart.

Like the implementation of Phoenix’s procurement policy, the rollout of Biltmore’s UNION or even the early acceptance of an organic bread company, the public’s buy-in to buying local hasn’t just happened overnight. Rather, it’s a slow and steady process, and the fact that the approach has taken root and gotten the traction it has is proof that it is, indeed, having an impact on the economy.

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