New Economic Study Finds Independents Dominate in San Francisco

A new economic and market share analysis of the city of San Francisco has provided some surprising results. Despite recent high-profile closings of independent bookstores in the Bay Area, the new "San Francisco Retail Diversity Study" shows that, as a whole, independent bookstores in San Francisco are not only thriving but are dominating the city's book market. Furthermore, the study clearly demonstrates yet again that independent bookstores provide more economic value to a community than do chains. The study, which creates a model that can be used to conduct similar studies in other markets, was commissioned by the San Francisco Locally Owned Merchants Alliance (SFLOMA) and conducted by Civic Economics.

Independent bookstores aren't the only retailers contributing significantly to San Francisco's economy; the study focuses on four other retail segments (sporting goods, toys and gifts, limited service dining, and hardware) in which locally owned merchants also have strong market shares. Hut Landon, executive director of the Northern California Independent Booksellers Association (NCIBA), who provided oversight for the study, said, "This study shows the market strength of independent bookstores and other locally owned businesses and underscores their value to San Francisco's economic well-being."

While previous economic studies have gauged independents' local economic impact, this new study went a step further. It analyzed locally owned merchants' total market share in the San Francisco area and determined what the effect would be if there were an increase in consumer spending in locally owned businesses.

Overall, the goal of the study was "to provide consumers and policy makers with an understanding of the economic benefits of redirecting spending from chains to independents." And, importantly, the study created a model that can be used to conduct similar market share studies in other communities.

Among its highlights, the report noted that books purchased from a locally owned bookstore bring approximately one-third of the revenue back through the economy as compared to less than 20 percent for national chains. Furthermore, online merchants bring only "nominal value" back to the local economy.

The study also provides an analysis of what the economic impact on the city of San Francisco would be if there were a 10 percent increase in the market share of locally owned businesses. Among the findings for the book market, the study found that redirecting 10 percent of book purchases to the local market would result in an increased economic input of approximately $3.8 million, 25 additional jobs, $1.3 million in new income for workers, and almost $325,000 in additional retail activity.

Further, the study notes that a 10 percent increase of the total independent market share across the five studied categories "would yield nearly $200 million in economic activity and nearly 1,300 new jobs; [however,] it must be remembered that the reverse is also true: shifting a further 10 percent of sales to chain merchants would deprive the community of that same $200 million and put those 1,300 employees out of work."

Oren Teicher, COO of the American Booksellers Association, one of the study's sponsors, said, "With each new economic impact study, it becomes more evident that, regardless of the region of the country, independent booksellers -- and independent retailers as a whole -- bring far more economic value to their communities than do chain stores." He noted that "this San Francisco study takes it a step further and provides a clear example of how a small shift in spending toward local businesses would be a significant boon for a community's local economy. This is a crucial tool that any bookseller can use to open the eyes of their local officials as they strive to help maintain their town's uniqueness and its economic vitality."

The study underscores that very little is required of consumers and policy makers to reap these economic benefits for the local economy. For consumers, the study notes, "it simply means directing an occasional shopping trip to a locally owned business." For policy makers, it means a reexamination of "thoughtlessly drafted and applied zoning and permitting processes that tend to favor large chains and the developers who build them" and an end to subsidized developments designed to house chains.

For the "Retail Diversity Study," Dan Houston and Matt Cunningham of Civic Economics estimated the market share of independent businesses in each category, calculated the economic impact of those independent businesses, and forecast enhanced impacts associated with redirected consumer spending. The report notes that, in selecting lines of goods for the study, the number of chain competitors likely to be present was one significant factor. In the five categories, "the chain competitors were both limited in number and largely publicly held, allowing a somewhat labor-intensive but achievable analysis."

"What pleases me the most about this is that the study has created a way to figure locally owned business market share in communities," said Landon. "The San Francisco study clearly has some great information for San Francisco, and it will help locally owned merchants make a case for their value and importance in the city."

Of the study's findings, perhaps most remarkable is that, unlike many other communities, independent bookstores in the area own an unusually high market share, estimated at between 55.4 percent to 58.8 percent, while chain bookstores account for between 12.6 percent to 15.5 percent of the market. In addition, the study found that the Internet accounted for about 19 percent of area book sales; general merchants between 2.6 percent and 3.3 percent; and book clubs about 7 percent.

Landon emphasized that the bookstore component underscored that media reports "writing off independent booksellers may be significantly premature. San Francisco is a hugely important channel for new books. This is a big city market, and independents are selling a lot of books here."

The study notes, however, "Barnes & Noble ... and Borders have each made significant inroads into the City of San Francisco. Urban expansion of large-format book chains has been easier than for other lines of goods due to the smaller footprint of the stores."

The San Francisco data confirmed the findings of previous economic studies that local economies receive far more from dollars spent in locally owned businesses that those spent in chains or with online retailers. "Looking at the book sector ... it is easy to see how dramatic an effect Internet sales have on a local economy," the study states: "Buying a book from an online merchant such as Amazon there is basically no economic impact at all for San Francisco. There are no local employees to pay a salary to, no local services are contracted for, and the profit is divided up to shareholders across the country. Additionally, no sales taxes are collected and the loss of revenue for the city actually results in a loss of sales tax revenue."

While Landon acknowledged that the retail environment in San Francisco, where chains struggle for market share, was somewhat unusual, he stressed that this new study is not only helpful to San Francisco merchants, but to independents everywhere. "We knew San Francisco would not be reflective of most other communities -- we recognize that this market share is probably not reflective of anywhere else ... and that booksellers elsewhere might think, 'This doesn't help me.'" But, he added, "The study shows the benefits that a shift in spending can create. Just a 10 percent shift to locally owned retailers has an enormous impact. And that's not just true of San Francisco; it would have a similar impact in other communities."

Moreover, the model that Civic Economics devised to conduct the San Francisco study can now be readily applied to other communities. As an example, Landon noted that Civic Economics is considering conducting the same type of study in Phoenix, Arizona, an area of the country where chains dominate. One of the reasons that NCIBA helped to fund the study, he said, was "to create a model so [other community] studies would be more cost-effective."

In addition to NCIBA and ABA, other funding for the study was provided by the Great Lake Booksellers Association, the New Atlantic Independent Booksellers Association, the Pacific Northwest Booksellers Association, the Mountains & Plains Independent Booksellers Association, along with individual San Francisco booksellers and SFLOMA merchants. --David Grogan