New data from JPMorgan Chase looks at the places where people do and don’t patronize the little guys.
I always get irritable upon setting foot in big-box stores. Things are never where I expect them to be —why is it so hard to find garbage bags?— and it’s easy to get lost in the endless rows of merchandise arranged like a maze to prevent me from ever leaving. That’s one of the reasons I prefer spending at smaller, more manageable shops, even if the high numbers on their price tags sometimes make me laugh out loud.
But in some cities, particularly poorer ones, consumers don’t have much of a choice of where they shop.
That’s one conclusion that can be drawn from new data from The JP Morgan Chase Institute, a think tank that analyzes the company’s proprietary financial data. For this study, researchers analyzed 12.4 billion credit and debit-card transactions from 48 million customers in 15 cities to see where people are spending their money. The data covered spending on fuel, restaurants, retail shops, and services.
Overall, the cities with the greatest share of spending at small and medium-sized businesses are very large, wealthy ones, according to the data. They include New York, Los Angeles, Chicago, and San Francisco.
In the New York metropolitan area, for example, consumers spent three-quarters of their money at small and medium-sized enterprises (defined as businesses with less than 8 percent market share in their category and specific market). While New Yorkers were spending their money at independent bodegas and coffee shops, though, residents of Columbus, Ohio were spending much of their money at bigger businesses, like McDonald’s or Target, according to the report. Only 54 percent of money spent by Columbus consumers went to small and medium-sized shops.
Spending share at small and medium-sized enterprises
Source: JP Morgan Chase Institute/Datawrapper
Opening a small retail business can be risky, so it makes sense that there might be more of them in cities that are home to greater concentrations of wealthy shoppers. Why open an independent jewelry store in Detroit, for instance, when there is not a deep customer base to patronize such a place?
The differences in consumer spending are important for more than just business owners. Providing consumers with more diverse retail options may be good for the local economy, too. Every $100 spent at locally based business in Portland, Maine, contributes an additional $58 to the local economy, a 2011 study showed. By contrast, every $100 spent at a chain store yields just $33 in local impact.
A separate study found that if consumers in Kent County, Michigan, redirected 10 percent of their spending to locally owned businesses rather than spending it at chain stores, they’d help create $53 million in additional payroll and 1,600 new jobs. Locally owned restaurants return more than half of their revenues to the local economy, the study found, because they employ only local residents and because they purchase locally. Chains only return 37 percent of their revenues to the local economy.
Consumers in smaller cities might not be able to make those changes even if they want to if there aren’t small businesses to patronize. But local governments have the power to change that. Municipalities can make choices about what incentives they give to big-box stores to open up shop there, and about what they want their towns to look like. And as the economy improves and consumers prove more willing to spend, the time might be ripe to enact such changes. In New York and Los Angeles, spending at smaller businesses is feeding more money back into the local economy. In Columbus and Detroit, though, much of that spending is going somewhere else.
This post originally appeared on The Atlantic.