Expert Alert: The Economic Impact of Shopping Local

Small Business Saturday is November 27, 2021, and with news of supply backups and holiday shortages, shopping locally is especially smart this year.

In addition to convenience, Monica Haynes, director of the Bureau of Business and Economic Research, breaks down how local businesses feed the Twin Ports economy, what consumers are looking for this season, and strategies for holiday shopping.

Duluth's working waterfront

How do small businesses invest in the local economy? 

Economic impact modeling tracks the amount of money that is circulated throughout the local economy as a result of some initial spending or investment. One of the simplest metrics used in economic impact modeling is called a “multiplier,” which measures the additional economic impact created as a result of a direct impact. For example, a multiplier of 1.25 would imply that for every dollar spent in the economy an additional $0.25 of economic activity is generated locally, through indirect (business to business), and induced (household) spending.

Just by the nature of being local, small businesses are investing in their local economy. Small, independent businesses are more likely to purchase inputs (goods and services) from local suppliers and distributors, are more likely to hire a local workforce, and are more likely to do business with local financial institutions than are businesses with headquarters elsewhere. These things add up to a bigger multiplier for every dollar spent by the local business. 

What's the correlation between shopping local and the creation of jobs in the community?

According to an economic impact analysis by the American Independent Business Alliance, 48% of each purchase at local independent businesses was recirculated locally (a multiplier of 1.48), compared to less than 14% of purchases at chain stores (multiplier of 1.14). This means that small independent retailers return more than three times as much money per dollar of sales to the local economy than chain competitors. So, in short, shopping at local independent retailers creates more revenue for local businesses and more local jobs.

By comparison, shopping online from large retailers located elsewhere creates almost no local economic benefit. With the exception of the delivery person, there is no additional economic activity happening in the community from these types of purchases. 

What should businesses expect from consumers this holiday season?

According to the 2021 Deloitte holiday retail survey, consumers are, not surprisingly, more likely to shop in-store this year than they were in 2020. And consumers are expected to spend more this year than in previous years—anywhere from a 7% to 9% increase compared with a year ago. However, they have come to expect certain conveniences, such as online shopping options and curbside pickup that were established to do business during the pandemic. Local retailers may have to continue offering these types of services if they want to compete with larger businesses. 

What should consumers expect from local businesses?

This is a challenging year for small businesses for a lot of reasons. Small retailers are being disproportionately impacted by supply chain disruptions, price increases, and shortages, compared with large retailers like Walmart and Amazon. And nearly every business is struggling to find qualified workers. 

Therefore, shoppers will probably see fewer discounts, longer shipping times, and limited inventory at stores due to supply chain issues and worker shortages.

What are some strategies consumers should consider as they plan for their holiday shopping this year?

There are a number of things you can do to help support local businesses while also meeting your holiday shopping needs.

  1. First, be flexible! Because of the product shortages and supply chain backups mentioned, it’s better to keep an open mind and see what appeals to you once you’re in the store rather than going to a local retailer looking for a very specific product. 
  2. Second, consider buying gift certificates to local restaurants, memberships to local attractions, local art, or giving the gift of an experience such as a play or outing. Not only are these things more likely to be in stock, they have a larger economic impact throughout the community. Because of the labor-intensive nature of restaurants and service-based businesses, more consumer spending is recirculated back through the economy in the form of wages and benefits to local employees, therefore generating a higher multiplier.
  3. Finally, start your holiday shopping early!! This year more than ever before, you don’t want to wait until the very last minute to start.

Anything else we should know?

While consumers are expected to spend more this holiday season, the Deloitte holiday survey found that most of that growth is coming from high-income consumers. Meanwhile, many low-income households are struggling financially. Deloitte predicts that low-income households will spend 20% less this year on holiday purchases due to budget constraints. With that in mind, those with the financial means might consider foregoing one or two gifts in exchange for a donation to one of the many non-profit organizations located throughout our region that serve those in need, such as CHUM, the Salvation Army, Second Harvest Northern Lakes Food Bank, or the Damiano Center. What’s more, donations to local non-profits tend to have a larger economic impact than retail spending. One study on the economic impacts of nonprofit organizations in Florida found that more than half of all spending by health and human services nonprofit organizations was recirculated locally, for a multiplier of more than 1.50.

About Monica Haynes

Monica Haynes

Monica Haynes is the director of the Bureau of Business and Economic Research, which collects, analyzes, and disseminates information regarding the economy of Duluth, Northeast Minnesota, the State of Minnesota, and Northwest Wisconsin. Haynes’s expertise includes regional economics, energy, tourism, local industry, and economic impacts. 


Monica Haynes

Director of the Bureau of Business and Economic Research 

[email protected] | 218-726-7895