Chain stores and local economies: a case study of a rural county in New York.

Author:Halebsky, Stephen
Position:CD CASE - Report
 
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Retailing in rural America has been transformed over the last several decades by the explosive growth of retail chains. Cortland County, a rural county in central New York State, is examined to assess the effect of chain stores en masse on a rural county. Data on individual establishments were generated by an original census of all the chain stores in the county. Additional data came from the Economic Census and other sources. Results show that chains account for about two-thirds of sales in the county. The percentage of the proceeds of the sales at chain stores that leaves the county, and thus is not available to be recirculated locally, is estimated to be approximately 14%. It is argued that the contribution of chain stores to the local economy is less than that of local independent merchants. Chains, furthermore, have problematic implications for social capital, political capital, and other aspects of community development.

Keywords: retail trade; economic development; assessment-economics; rural economic development

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Students of community development have long been interested in the relationship between rural communities and the urban (and suburban) society of which they are a part. A key concern has been to understand the degree to which such communities can maintain independence and self-sufficiency in economic, social and political matters. Vidich and Bensman (1958, p. 101), in their classic study of "Springdale," a small town in central New York, conclude that "A central fact of rural life ... is its dependence on the institutions and dynamics of urban and mass society." The independence and economic health of rural communities in the US has been a concern since at least the 1940s, when technological change initiated a transformation of American agriculture, resulting in the ascendance of corporate agribusiness and the decline of independent farms and farmers (Albrecht & Murdock, 1990; Davidson, 1990). The fortunes of other rural areas have been tied more closely to manufacturing. Beginning in the 1970s and continuing into the present, deindustrialization and the search for cheaper labor have made many rural communities painfully aware of the extent to which their economic well-being is tied to the decisions of large corporations head-quartered elsewhere (Falk & Lobao, 2003; Flora & Flora, 2008). Many communities saw their fortunes fall as local production facilities closed or moved abroad, while others (i.e., those in the sunbelt) saw their fortunes rise as they became the hosts of new facilities.

The decline of manufacturing and other production-oriented industries has been accompanied by the growth of services and consumption-oriented industries. One manifestation of the increasing importance of consumption is the increasing importance of retailing, as evidenced by the proliferation of stores, the appearance of stores in more and more venues (airports, museums, schools, etc.), and the merging of shopping with entertainment (Gottdiener, 2001; Lowe & Wrigley, 1996). The wave of rationalization that has swept over American industry since the 1970s has affected retailing as well and can be seen in the use of new and more sophisticated techniques and technology, especially in data processing, communications and logistics (Bluestone, Hanna, Kuhn, & Moore, 1981; Foster, Haltiwanger, & Krizan, 2006). One result of this rationalization is the decline of independent local merchants and the rise of corporate retailers who operate extensive chains of stores. The "retail revolution" has advanced to the point that most areas of retailing are now dominated by corporate chains. In the subsector of retailing that includes general merchandise stores, large chains (retailers with at least one hundred stores) account for 95.9% of all sales (US Census, 2002, Economic Census, Retail Trade, Establishment and Firm Size).

Many major cities have increasingly shifted from centers of production to centers of consumption (Urry, 1995; Wrigley & Lowe, 1999; Zukin, 1998), a phenomenon that has affected rural towns and cities as well. Small towns that were once hubs of farm-based activity or that boasted a number of factories are now home to an array of stores, restaurants, hotels and other consumption-oriented enterprises, and many of the small independent merchants that were the mainstay of rural retailing have been replaced by corporate chains (Flora & Flora, 2008). Vias (2004) reports that between 1988 and 1999 employment in retailing in non-metropolitan counties increased 27.9% and average store size, operationalized as the average number of employees per store, increased 17.1%, an indication that small independent stores are being replaced by large chain stores.

The present research is an empirical examination of what these trends look like on the ground in one rural county, Cortland County in central New York, which happens to be about 65 kilometers from Candor, the small town made famous by Vidich and Bensman under the pseudonym of Springdale. While numerous journalistic accounts as well as a number of academic studies have focused on the effect of Wal-Mart superstores on small towns, the present research analyzes the impact of chain stores en masse on a community, based on data from the US Census, commercial sources, and an original census of local chain stores. And while previous studies of chains have used aggregate data only, the present study is based on estimates of sales and other statistics for every chain store in the county.

One important question that has not been addressed in the literature is-how much money do chain stores take out of local communities? The present research provides an estimate of this amount, referred to as the unique outflow and conceptualized as the amount (or percentage) of the proceeds from chain store sales that uniquely leaves the county, unique in the sense that these dollars would have remained in the county had they been generated by sales at a locally-owned establishment instead of a chain. The unique outflow is not a one-time event but reoccurs every year.

Also, historical data on the composition of the retail sector and the size of establishments are used to gauge how retail restructuring has affected the county over the last several decades, and the location of chain stores are plotted on a map to illustrate their centrifugal effect on commercial activity.

It is argued that when local retailing becomes dominated by chain stores, as has occurred in Cortland and many other communities, there are important implications for the local economy and other aspects of community development including social capital, human capital, political capital, and the built environment.

Retailing and community economics

"Retail" and "retail trade" refer to establishments included in the North American Industry Classification System (NAICS) sectors 44 and 45. Retail trade is divided into the following subsectors: motor vehicle and parts dealers; furniture and home furnishings stores; electronics and appliance stores; building material and garden equipment/supplies dealers; food and beverage stores; health and personal care stores; gasoline stations; clothing and clothing accessories stores; sporting goods, hobby, book, and music stores; general merchandise stores; miscellaneous store retailers; and nonstore retailers. An "establishment" is a separate location where business is conducted, so that a typical independent local retailer would operate just one establishment, while a corporate chain would operate many. The essence of a chain is that similar establishments exist at more than one location, where establishments are similar insofar as they sell similar products and use similar signage, advertising, logos, and operating procedures. Because of the extensive similarity of their establishments, chains are known also as "formula" businesses.

A local economy may be conceived as an open system that produces and consumes goods and services (Hustedde, Shaffer, & Pulver, 2005; Shaffer, Deller, & Marcouiller, 2004). A community produces goods and services using a combination of local and non-local sources of raw material, labor and capital. Some portion of what is produced within the borders of a community is consumed locally; the rest is "exported" to other communities. An establishment that sells its product or service outside the community is known as a "basic" or "export" establishment. It is generally advantageous for a community to have export establishments because they bring money into the community, which can then be used to generate additional jobs and income. (1) While a manufacturing facility such as an automobile factory is the archetypal export establishment, a local retailer that attracts many customers from outside the community functions similarly (Pittman & Culp, 1995). Although it is typically considered beneficial for a community to have such retailers, touted by their promoters as "destination retail," most retailers sell mainly to local customers.

A key function of the retailers operating in a community is to provide the goods and services that local residents want. Beyond this, however, retailers can contribute to the local economy by employing local residents; generating profit, rent, and interest for local business owners, landlords, and financial institutions, respectively; and paying taxes to local municipalities. Given this model of community economics, we can specify the business practices that maximize retailers' contribution to the local economy and thus ultimately to local welfare: buy raw materials and goods locally, hire local residents, obtain financing from local financial institutions, rent or lease real estate from local landlords and landowners, use local business services, and generate profit for local owners (see Figure 1). For these actions to have maximum benefit the money received by the various parties must be spent or invested locally...

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