I am often inside Penn Station. Not only is my office directly across the street from North America’s busiest transit hub but my mother’s sister happens to live on Long Island and when she takes the LIRR into Manhattan she usually asks me to have lunch or dinner with her inside the station. I went to meet her underground for one of our usual meetings, earlier this month. Arriving early,I had some time to stroll around the station.
I felt disoriented. Where was the newspaper guy who sold candy and lottery tickets beside LIRR track 21? Where was the juice bar with the oversized carrots? Where was the bakery with the flaky palmiers? Formerly bustling with a cornucopia of small businesses, the station now reflects the mass commercialization that one hears about all the time without really paying attention. I was greeted by stores such as Magnolia, Pret-a-Manger and even a Shake Shack. Is Shake Shack a value-added use of the space, given another location is a mere 2 blocks away from the station? For some time now, small businesses have been uprooted and supplanted by bigger businesses with more resources. The phenomenon is not new. I had simply, somehow been able to ignore it. The changes to an ‘every man’s spot’ such as Penn Station brought home the fact that the landscape of business is changing in the United States of America.
In fact, when one thinks about the battles that small businesses have faced across Manhattan, it seems Penn Station may have been the ‘last man standing’. H&H Bagels, a bonafide New York City institution formerly on the Upper West Side, closed after thirty years in business in 2011. The owner of Cafẽ Fortuna, (a 31-year-old restaurant) that closed in 2008, said the restaurant was“another casualty in an out of control real estate market.” The list goes on. These local favorites have fallen victim to soul crushing taxes, steep rents and newly enacted social policies that favor big businesses. Ramon Murphy, the president of NYC-based Bodega Association of the United States and owner of two bodegas himself, stated: “In 25 years, this is the worst I’ve seen of things.”
Mr. Murphy is not alone. A resounding 92% of small business owners across the country believe their state’s economic initiatives provide unfair advantages to large businesses. It is easy to see why. Small businesses often struggle to get off the ground but large corporations are often offered incentives to lure them to certain areas. Tesla, for instance, recently announced it was considering building a site in one of five states. The states immediately began to compete for Tesla’s business and the company was able to negotiate a $1.25 billion tax break in exchange for opening a site in Nevada. In similar feats of victory, Amazon and Barnes & Noble were both offered a reprieve from sales tax on online sales. Small businesses cannot be competitive on such an uneven playing field.
This lack of competition will ultimately be a problem for the consumer. It was generally thought that ‘big box’ stores offer the best prices and that neighborhoods should welcome them. There is now however the view that when a chain store enters a market it initially lowers prices and operates at a loss to drive ‘mom and pop’ stores away. When the chain store becomes the dominant player, prices are then raised as there is no competition around to contain the behavior of what is to some extent a monopolist.
Elizabeth Humstone and Thomas Mueller conducted a study that analyzed prices at multiple Walmarts throughout the state of Virginia for a research project at Pennsylvania State University. They found that prices varied by as much as 25%. They concluded that prices were the highest in markets where Walmart stores faced the least competition. This indicates that although mega-corporations may temporarily offer the lowest prices, they inevitably raise them to former levels once the local competition is eliminated.
Another widely held misperception of chain-stores is the view that they offer a wider selection than would otherwise be available. Let us examine the rise of Barnes and Noble. They do have an immense selection of books, but the offering is typically the same in every location. On the other hand, local bookstores such as Gotham, Coliseum, and Academy (all of which were former fixtures in the New York City community and are now permanently closed) carried a far more eclectic collection. They took risks bystocking and promoting works of unknown authors and giving lesser-known writers a chance to succeed. Amy Tan and Barbara Kingsolver have both said that their first books (The Joy Luck Club and The Bean Trees, respectively) would have faded into insignificance without the help of independent booksellers.
The disappearance of the small business is increasing but it can be contained. Communities have a number of options at their disposal to help these businesses weather the winds of change. Many local governments are implementing restrictive land use legislation that favors smaller stores. By limiting the physical size of the storefront, they are deterring the spread of chain-stores. Other communities are allowing new retail development only if it meets specific guidelines set within community councils. Still others are banning uniformity, forbidding retail development outside of the central business district, and offering specific tax incentives to locally owned stores only. The Institute for Local Self Reliance, ILSR, outlines several initiatives that communities can implement to empower their small businesses.
Balance is the key. Large businesses may offer certain economies of scale and process efficiencies however smaller businesses are better able to tailor their offering to meet the needs of a neighborhood. They reflect local tastes and talent and form a part of the cultural fabric of a city. The cityscape may be changing but people are noticing and the movement to save small businesses is stronger than ever before. Organizations such as Take Back NYC are fighting for tenant rights to limit landlord practices of trying to oust small businesses in favor of those who will pay higher rents and Mayor Bill de Blasiosigned legislation in June 2016 to further those rights as well.
There is hope. I came across an article in Yes! magazine that chronicled the origin and survival story of Rossy’s Bakery. Amidst the numerous trendy spots dotting the streets of the Lower East side of Manhattan is a bakery with “a stream of customers…..construction workers and cab drivers, residents of the public housing complex across the street, and Spanish-speaking clientele who have lived in the neighborhood for decades. Inside, diners sit at wooden tables, chitchatting above steaming plates of rice, beans, and pork. Below a print of a succulent rose dripping with dew, a display case offers mouth-watering Dominican specialties, from Guava cake to corn pudding.”The bakery opened in 2010 and is ‘home away from home” for neighborhood folk (the owner has lived in the area since the 1980s) and Caribbean immigrants.
This cultural haven almost never made it into existence because the owner found it nearly impossible to secure a business loan. Where Chase Bank saw a risk (and denied the loan), the Lower East Side Credit Union saw an opportunity to positively impact a life. This lender not only gave the new entrepreneur a chance despite a lack of prior experience but it increased the loan amount when she had to revise her budget, gave her assistance when she fell behind on her rent and even met with the bakery’s landlord to negotiate the situation! This level of support from a financial institution is almost never heard of. I feel it is important for business owners to know that all is not lost; resources are available to help. If we work together to save the places that makes our communities special small businesses can fight back – and win.
To hear more from Alexi Harding, please visit his website.