Even before the current economic downtown, the Danville economy struggled to maintain its health and vibrancy after the loss of textile and tobacco production. As these two industries waned, the Danville economy had to recreate itself, a daunting challenge that continues today. This economic environment has given us a new appreciation of what economists call the Multiplier Effect.
The Multiplier Effect is caused when a locally owned business spends (or turns) the revenue received from its patrons. A portion of the revenue received by a business such as Rippe’s is subsequently re-circulated when it is spent by employees and suppliers. The multiplier calculates the potential impact of money spent at a locally owned business on the local economy (aside from the sales tax revenue collected for municipal and state governments). Estimating the effect of this re-spending is explained in “Everything2”: Imagine a tourist spends $100 on a hotel room. The hotel owner divides up that money to pay employees and suppliers, who then spend money buying groceries, for example. The original spending might be calculated to have a multiplier effect of 2, meaning that $200 was circulated through the local economy as a result of the original $100 purchase.
Another article on the subject, “What Do You Mean By Green?” by Chris Lowry, Network Director, Green Enterprise Toronto, states: “A great, and poorly understood, benefit of giving trade to locally owned suppliers is that the owners and their employees spend more money and pay more tax in the local regional economy, generating the economic multiplier effect that can be as high as three times more than the benefit of money left in local economies by non-local corporations such as chain stores.”
A highlight from the “Andersonville Study of Retail Economics” states that for every $100 in consumer spending with a local firm, $68 remains in the local economy.
Specifically to Danville, Virginia, Rippe’s, a retail store established in 1907, has accumulated data over a 17 year period. To demonstrate what customers have made possible, consider the following facts: Since 1992, Rippe’s has spent over $1Million in advertising to market the great products the store offers to today’s well dressed woman. Rippe’s expenditures for marketing have drawn many people into downtown Danville, Virginia. Presently, about 66% (2/3) of sales come from outside the Danville zip codes of 24540 and 24541. This is an increase from about 40% of sales from outside Danville in 1992. Thus, we believe Rippe’s marketing efforts have been effective in drawing people to Downtown Danville. Also, since 1992, Rippe’s has paid out a cumulative payroll of approximately $5Million to 15-18 full and part time employees (an equivalent of ten full time positions). Rippe’s also pays benefits, such as vacation and health insurance to full time employees.
During the period from 1992 through 2009, Rippe’s paid approximately $1.5M in Virginia State Sales Taxes, of which approximately $300,000 returned to the City of Danville. Furthermore, Rippe’s paid the City of Danville approximately $100,000 in business license fees, property taxes and real estate taxes. Utility fees amounting to approximately $180,000 were paid to the City during this time period.
Danville vendors and suppliers patronized by Rippe’s received approximately $3.4Million during the period in exchange for their goods and services such as:
If one estimates the local multiplier effect of this business at 4.5-5 turns, then the positive effect of shopping locally is astounding. An economic impact of approximately $50Million (yes, fifty million dollars) was achieved from this one small, locally owned, independent merchant over 17 years in downtown Danville.
Now imagine the benefit to the community of recruiting other locally owned independent merchants to Danville’s city center. Restaurants, Gift Shops, Pharmacy Kiosk, Small Grocery, etc. will support people living in converted warehouses and attract newcomers to the district. Parking hubs with electric shuttles and easy public transportation will follow.
The White Mill project of 400-500 jobs and the new YMCA at Memorial and Main may generate a tremendous amount of residential and retail needs. It is our position that a focused and diligent incentive program from the public sector that would encourage locally owned, independent retail development in the city center would provide an economic multiplier effect that would be significant and transforming to our community.
Dave Slayton is a Client Services Provider for the Longwood University Small Business Development Center, 300 Ringgold Industrial Parkway in Danville, VA, (434) 791-7321. He holds a BS degree from Averett University and an MBA from the College of William and Mary.
Ben Rippe is the third generation owner/operator of Rippe’s, Rippe’s Shoes and Rippe’s Furs, 559-563 Main Street, now celebrating 104 years of doing business in downtown Danville, VA. Ben received an AS degree from Danville Community College, holds a BS degree from VA Tech and an MBA from Fuqua School of Business at Duke University.