Hardware Retailing

JUN 2018

Hardware Retailing magazine is the pre-eminent how-to management magazine for small business owners and managers in the home improvement retailing industry.

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HARDWARE RETAILING | June 2018 66 T o analyze the local economic impact of independent home improvement stores versus Amazon, research firm Civic Economics worked on behalf of NRHA, Independent We Stand and PDRA. Civic Economics used prior research, including its study Prime Numbers: Amazon and American Communities; public company data from Amazon, Home Depot and Lowe's; and NRHA's 2017 Cost of Doing Business Study. Civic Economics' research compares the economic impact of the typical independent hardware store, which has average annual sales of $1.9 million, to big-box competitors and Amazon. To quantify the advantage customers gain from buying home improvement products at local stores, Civic Economics considered the four major ways businesses contribute to a local economy: labor, profit, procurement and charity. Spending on local labor generally includes a larger share of operating costs for a locally owned operation than for an outlet of a national chain. Online retailers, including Amazon, have little or no local labor force in many U.S. cities. The larger companies consolidate administrative functions, such as bookkeeping, at a national headquarters. Independents often carry out those functions in-house, resulting in a larger share of sales being paid to local residents in wages and benefits. Local businesses also tend to hire local attorneys, financial advisers and technology professionals. Amazon's operations take place in its headquarters and in sporadically placed distribution centers and data centers, which, unlike independent hardware stores, do not employ residents in most U.S. communities. Purchases from large public companies, such as Home Depot or Amazon, generate profits that are reinvested in national or global operations or are distributed to shareholders. An independent retailer's profits may be reinvested in the business or community. Owners often procure goods and services locally and contribute to local causes that interest their families and staff. Methodology & Findings Methodology T he Home Sweet Home: Locals vs. Amazon study tells a story that every small business owner should promote loudly—independents keep a vastly greater proportion of their revenues in local economies than Amazon, the giant. The average independent hardware store with $1.9 million in sales recirculates at least 30 percent, or about $577,600, of its sales each year into its community. In comparison, Home Depot and Lowe's recirculate 13.2 percent of $1.9 million in sales and Amazon only contributes 3.9 percent of the same amount. Payroll is one of a business's largest financial contributions to a community. The average independent hardware store or home center pays wages that are about 20 percent of store sales. Amazon needs strikingly fewer employees to generate vastly more revenue, operating with disproportionately lower labor costs than small businesses do. On average nationwide, Amazon employees' wages are only 3.9 percent of the company's sales. In the states where Amazon doesn't employ anyone, the company essentially contributes nothing to local economies. Locally owned hardware stores beat Amazon nationwide at a dollar value that is 676 percent higher than what Amazon offers communities. Small business owners contribute by hiring their neighbors, spending their profits where they live, paying for goods and services locally and giving donations to their local churches, 4-H Clubs and Little League teams. Findings Locally owned hardware stores beat Amazon nationwide at a dollar value that is 676 percent higher than what Amazon offers communities.

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