Mpls. Gets Low Marks on Small-Biz. Vitality List

Minneapolis ranked 13th out of 15 major U.S. cities in a new "small business vitality" list due to a sharp decline in market share among the city's independent retail shops and dining establishments.

Minneapolis' independent retail and dining businesses have seen one of the largest declines in market share among 15 major U.S. cities during the last two decades, according to a national report released Tuesday.

The report, entitled The American Express Open Independent Retail Index, examined 15 major U.S. cities based on the percentage of total sales in each market that were made by independent businesses. It illuminates “the benefits to communities that support local independent shops and analyzes the economic vitality of locally owned retail businesses, dining establishments, and bars,” according to its authors.

The survey ranked the cities in terms of the “vitality of their small business sector” in both the retail and eating and drinking sectors. It used an index that reflects the performance of a city's independent business sector compared to the national average. According to the study's methodology, any independent, brick-and-mortar small business-including those that have several storefronts but are not franchised or corporate-owned-were counted in the study.

Of the 15 cities, Minneapolis' index score ranked 13th overall. It also ranked 13th in the retail sector, and it took 11th place for its independent eating and drinking establishments.

A key factor in the city's low ranking is that between 1990 and 2009, Minneapolis' independent retail shops saw their percent of the overall retail market decline from 62 percent to 43 percent-the largest decline among the 15 cities studied, tied with Washington, D.C.The 1992 opening of the Mall of America in Bloomington played a significant role in the sharp decline.

During the same period, independent restaurants and bars in Minneapolis fared slightly better, although they too ceded a portion of their market share to corporate chains-dropping from 66 percent to 61 percent, according to the report.

New York ranked the highest overall and in the shopping category. It placed second behind San Francisco in the eating and drinking sector.

The report also examined 27 neighborhoods throughout the nation “where small businesses have thrived,” including Minneapolis' Uptown/Lyn-Lake neighborhood.

The study states that successful small businesses in local communities lift real estate values. In the Uptown/Lyn-Lake neighborhood, for example, the housing market stagnated ahead of and throughout the recent recession, but it rebounded strongly in 2010 to again outpace the broader Minneapolis market.

Nationally, the report found that home values in neighborhoods whose small businesses have thrived have outperformed their broader markets by 4 percent annually and 50 percent cumulatively during the past 14 years.

Despite Minneapolis' low ranking on the list, its small businesses were not alone in ceding market share to larger corporate chains during the past two decades. Nationwide, independent bars and restaurants accounted for 64 percent of total sales in 2009, down 7 percent from 1990; small businesses in the retail sector, meanwhile, made up 46 percent of total retail sales in 2009, down 11 percent.

The study was conducted by Civic Economics, an economic analysis and strategic planning consultancy with offices in Austin, Texas, and Chicago. Click here to see how all 15 cities stacked up and to learn more about the study's methodology.

For an in-depth look at the history of retail in Minneapolis-including factors that have led to its decline and the actions that might help revive it-read the May 2011 issue of Twin Cities Business.