Consumer studies and statistics are clear: There’s value in buying locally, especially during the holidays. Local businesses are more than twice as generous to hometown nonprofits that fulfill community-specific needs, according to the American Independent Business Alliance (AMIBA), and they are more loyal and accountable to the people they employ and live among. Local businesses are typically small, and this sector of the economy employs about half of the private sector workforce.

Shopping locally reduces environmental impacts associated with transportation. It supports businesses that offer products and services that reflect local tastes and a community’s distinctive character.

But the best reason to spend money at a local business rather than an absentee-owned business — including during the critical holiday shopping season — is the financial recycling that results.

A Dollar Multiplied

Numerous studies reinforce the concept of the “local multiplier effect.” Simply put, a dollar spent at a locally owned business has a much greater likelihood of staying — and recirculating — in the local community than a dollar spent at a national chain store.

A study funded through a USDA Rural Development Rural Business Development Grant found that every dollar spent at a local store or restaurant returned to the local economy four times as much as a dollar spent at a national retailer. The 2020 study commissioned by Vital Communities found that the retailers and restaurants they examined returned “a total of 55.5% and 68.4% of their revenues, respectively, to the local economy.” In contrast, the study found “four major national retail chain stores (Barnes & Noble, Home Depot, Office Depot, and Target) recirculate only an average of 13.6% of all revenue within the local markets that host its stores.” The difference was even more dramatic when Amazon and Whole Foods Market were included.

A survey conducted in Albuquerque for the Buy Local Business Alliance in 2013 found that the local circulation of revenue from national retail chains was 13.6 percent compared to 39 percent for locally owned retailers. If the two studies are assumed to have used similar criteria, the multiplier effect of local retailers appears to have grown since the pandemic. National restaurant chains recirculated 30.4 percent of revenue earned, and independents 77.3 percent, according to the Albuquerque study.

According to AMIBA, “restaurants and service providers generate a large multiplier because they are labor-intensive and, therefore, more business revenue goes to local payroll.” Employees who spend their wages on local services retain money in the community, keeping local businesses alive.

New Mexico’s nonprofit lenders support local small businesses by offering resources and small business loans.

Community Benefits

Multiplier impacts are direct and indirect. A local business makes a direct impact by buying inventory, services and equipment from local suppliers and paying wages to area employees. When employees and business owners spend revenue and wages in the local economy, that represents an indirect impact.

The AMIBA website graphics and YouTube video below demonstrate how the multiplier works.

These and other studies can compel individuals and businesses to think beyond the short-term savings of a big-box bargain. Keeping local wealth closer to home pays social, environmental, and economic dividends over a much longer term.