Posted on October 16, 2007

The Locally Owned Business Fallacy

William Gibson had a new novel out. Because he’s one of a very short list of authors whose works I make a point of buying as soon as they’re released and because he was doing a reading at a bookstore in town that weekend, I forwent my usual Amazon purchase and turned to the brick and mortars. Three are within an easy drive from my house: Borders, Barnes & Nobel, and a local establishment called the Tattered Cover. This last happened to be across the street from where I have my morning coffee, and reading Gibson while consuming caffeine appealed to me at seven o’clock that summer morning. So I called up the Tattered Cover and asked a rather reasonable question. Did they discount hardcovers? The chain shops do, taking thirty percent off the list price, saving me a good ten bucks. Amazon takes upwards of forty percent off, but I was willing to forgo the few extra dollars to have the book before the signing.

But, no, Tattered Cover doesn’t discount and, if you make the mistake of asking, you’ll be treated to a lecture about the plight of the locally owned business in a world increasingly ruled by impliedly evil chains. “We discount for teachers,” the clerk said. “Are you a teacher?” I’m not. “There are only three Tattered Cover stores,” she continued, “and they’re all locally owned.” These final two words she said with such gravity I felt like I was at a political revival on a college campus, not making a simple sales inquiry. “If we were to discount everything like the chains do, we’d go out of business.” I thanked her, hung up, and resigned myself to making the longer, post coffee drive to Borders. Ten dollars is a lot of money.

What the clerk was asking of me–because she very clearly wanted me to spend my dollars at the Tattered Cover and support local businesses to the exclusion of the national chains–was that I increase my out of pocket expense for William Gibson’s novel in order that a bookstore whose owner lives in the state can add another line on its sales report. She was, in effect, arguing that “localness” is a market trait worth ten dollars.

Why would a patron choose one bookstore over another? Price is an obvious consideration, but there’s also selection, atmosphere, friendliness and helpfulness of the staff, location, and a continuing list of whatever other intangibles we might choose to add, all those characteristics that make one store feel right. Is localness on the list? Many would say that it is and, in fact, they go so far as to argue that it trumps such values as price and selection. “Think globally, act locally” is the rallying cry of this mindset.

Let’s take a moment, then, to examine what “locally owned” means and how a business claiming that label differs from a national chain. The Tattered Cover employs a rather large number of people. For simplicity’s sake, say the store down the street has one-hundred workers. Borders, also a big store, has one-hundred, too. Further assume the wages are roughly the same. Unless they’re fans of long commutes, the folks working at both stores are local to the area. So far, then, the two businesses look much the same.

Yet Borders has its home base in Ann Arbor, Michigan, while the Tattered Cover’s owner lives in Colorado. Here’s where we find the locally owned difference. But as anyone in retail knows, almost all the money a store earns goes to upkeep and most of that upkeep takes the form of wages. Since both bookstores employ Coloradans, except for a tiny percent going to the owner, nearly every dollar they bring in is payed out to people living in the state. In fact, when the clerk at the Tattered Cover thrilled me with her microeconomics lecture, what she really wanted was for me to give money to one more person who lives in Colorado than would get a portion of the purchase price of the book if I went to Borders. One person. Why should the benefit of a lower price for the customer be ignored in order to line the pockets of one lone business owner in Colorado, a business owner who can’t otherwise compete with the offerings of a national chain? The ten dollars still in my wallet after shopping at Borders will probably eventually be spent at yet another establishment employing Coloradans, after all.

William Gibson has spoken of a post geographical world, recognizing that technology has altered our lives to the point where nearly anything we want is available nearly anywhere we can be. I can withdraw funds from my bank account not just in Denver, Colorado, but also at an ATM in Mumbai, India. I can have products shipped from warehouses in Maine to my home half a continent away. And I can form a business with employees spread around the globe, connected by wires and radio waves. Why, then, does it matter if a single business owner in Denver is earning very slightly more than a group of owners in Ann Arbor? Are we really so provincial?