Economic Impacts of Local Merchants versus Chain Retailers

Some economic developments can hurt the local economy, not help it. That's the message of an innovative economic study released today by local nonprofit Liveable City.

The study, conducted by the Austin-based economic analysis firm Civic Economics, focuses on the much-anticipated new development at 6th and Lamar. Tenants include the Whole Foods corporate headquarters, a new Whole Foods store, and Borders Books & Music, a national chain with a similar product mix as nearby successful local businesses BookPeople and Waterloo Records. The study found that, despite increasing sales of both books and music, Borders will actually result in a decrease in economic activity to Austin.

The City of Austin previously granted $2.1 million in development incentives for the project, of which $710,000 has been used. The developer is now seeking additional incentives for the next stage of the project.

"People are worried about our economic downturn and how to 'Keep Austin Austin'" said Bill Spelman, Chair of Liveable City Board of Directors. "6th and Lamar is a symbol of what's happening all over Austin. Our community needs to come together to redefine how we protect the things we care about," Spelman said. "When the City of Austin is subsidizing a development, citizens have a right to hold the project to a different standard."

Local retailers return more than three times as much economic value back to the community as chain retailers like Borders. Specifically, on an annual basis, the report estimates $4.1 million for Waterloo Records, $2.8 million for BookPeople, with only $800,000 for Borders.

The study estimates that Borders will divert $11 to $14 million from local success stories BookPeople and Waterloo Records over five years.

Dan Houston, a partner at Civic Economics, said, "The proposed Borders at 6th and Lamar will yield a net loss to the local economy. Moreover, previous decisions have placed the City in the position of subsidizing such an outcome."

Robin Rather, research director for Liveable City, explained, "Local merchants keep much more of their labor, profits and spending here instead of out of town. Shopping at local businesses instead of national chains with equivalent products and prices injects three times as much money back into Austin's economy."

Dan Houston of Civic Economics added, "The study also shows that if each area household spent $100 during the holidays at local stores rather than at national chains, the impact on the Austin economy would be as much as $10 million. For each $100 spent by consumers, the total local economic impact from Borders is only $13 - while the same amount spent at Waterloo or BookPeople yields over three times as much - $45."

Bill Spelman said that the study suggests that current City development program needs to be more sensitive to local businesses. "We must consider the broader impacts of public decisions if we hope to ensure that Austin retains its unique local culture. Re-developing this corner is important, but it must be done without hurting the economy and nearby local businesses."

The City Council is expected to act on the project during the early part of 2003. Rather said, "Liveable City hopes this study raises questions that will lead to a better community dialogue. Clearly the situation requires more in-depth discussion and creative resolution before the Council or the developer takes further action."