There are several reasons, but in my view they all basically boil down to this: the "purpose" of each buyer is not, as you say, "to maximize savings". Rather, each person's goal is to have a good life. When viewed narrowly, buying from large stores offers the best savings on the individual purchase; however, when viewed more broadly, the lower price may have hidden costs, or the higher price may have hidden benefits, which are not directly tied to the immediate transaction. In many cases, these benefits are diffuse, and often they are uncertain because they involve potential repercussions in the future. Thus, buying local is in some sense a hedge.

Here are two examples:

1. The large store offers lower prices in order to compete with other stores, large and small. However, if everyone always buys from the same large company, and all other stores go out of business, the large company will have a monopoly. It may then raise prices with impunity. Thus, by buying local you pay a small premium in the present as a sort of insurance against monopolistic price-gouging in the future.




2. Often, local businesses are supporters of local charitable causes and civic organizations. For instance, in my area, local businesses buy ads to support things like local theater companies, concert series, and festivals. Although large companies may do this to some extent, they are typically less likely to do so because they are not as in tune with the calendar of such events in the local community. This kind of community support does not appear on the bill when you buy a toaster or an onion, so its importance and its relationship to local business may not be immediately obvious, but you might well miss it if it were to disappear.

The overall idea of small, "non-local" effects of individual buying choices is well analyzed in an old paper by economist Alfred Kahn called The Tyranny of Small Decisions. (I've linked to the Wikipedia article about it, but you can find the paper itself online if you poke around.) Kahn's primary example involves people choosing whether to travel a certain route by train, bus, or plane. The train was the only option which provided reliable, timely service regardless of weather conditions or time of year, but people tended to use bus or plane when possible, and only use the train when the other services were not available (e.g., due to bad weather). The result was that the train service was stopped, leaving people with no transportation option during the difficult conditions that the train used to handle.

The basic idea there is the same: by focusing solely on the direct costs of a single purchase, you are making a very small decision. In so doing, you may gradually and unwittingly make a large decision (e.g., "this local store goes out of business") which you don't want to make. In particular, you may not realize the consequences of making that large decision until it's already happened (e.g., you may not think you would care if the local store went out of business, but it might have negative effects that you're not foreseeing).

One aspect of a buyer's concern is knowing what they are buying.

Eggs are a pain point for me. I can afford a premium egg price to satiate my morality. I don't like the idea of chickens in battery cages; I don't want to eat eggs from chickens in battery cages. I don't want to eat eggs from chickens in "furnished/enhanced housing" (large battery cages). I can tolerate eating eggs from chickens who only ever lived in barns. As long as the barns weren’t crowded. My preference is fenced-in, open-air uncrowded chickens.

Let's go back to your question. "What would be a good reason to keep buying local?" When I go to a supermarket, I see "free run", "free range", "enhanced housing", "cage free", "'organic'" and more labels on the eggs. Few of these tell me anything. The few that do require a special understanding of the vernacular. This is only for eggs, every other food has its own tricky marketing buzzwords. When I go to the producers' sites, the information is as vague and unspecific as the packaging. Some eggs carry a hefty premium because they have the right buzzword but are simply battery cage eggs.

At the local store or farmer's market, I can ask the person "how are the chickens raised?" I can go to the farmer's Facebook page or their farm. For local stores that carry smaller brands, the producers' sites are informative.

(This is out of necessity; they need to differentiate since the supermarket is often cheaper, quicker, and has a wider selection. The farmer's markets compete by claiming quality and transparency. My local grocer is actually 50% cheaper than the supermarket. They do this by being a building with four walls, fruits & vegatables, a cashier, and no backroom inventory. They carry two dozen different items. Little selection, albeit the selection changes each week.)

First of all, let me say that for me "local store" is no value in itself.
That is, I've met local vegetable stores that had lower quality produce than the LIDL around the corner and then the decision is clear for me.

Summary: while I can name a number of situations where I prefer the local store (which btw. then often isn't that local), I'd also like to question the implicit premise that local stores are overall dying. I do think they have better chances now with online markets than, say, 20 years ago when they had to compete offline against big chains/stores.

Say for example, Amazon usually offers you a better deal in a home appliance or a phone, way better technical support and extended warranty than a local store,

Better Amazon support is not my experience.

• Particularly with foreign Amazon sellers, I've had considerable trouble getting proper bills (I'm freelancer, so I need formal bills for tax reasons).




• I've bought (and would go on to do so) expensive electronics in local stores that did give very good advise (questions that were not answered about reading up online).




• I could handle, test, try out a variety of devices there in order to arrive at a decision.
  
  Sure, I could buy the same range of devices online and send back all but the one I decide. In the case I'm thinking about, I did compare devices for > 10 k€ in the store.
  
  (BTW: for that order of magnitude, the "local" store may mean me taking half a day or a day and going to a specialized store in the big city - although one of the fun facts about Germany is that many specialized businesses are actually located outside the big cities).




• As for the better deal: in my experience that depends very much. With the local store, I can say "If I place this (large) order with you today and pay cash to take the stuff with me right now, what price can you give me?" - the resulting discount for the example above was a better deal than online price plus (insured) shipping back any tested devices I'd not buy in the end.




• If anything goes wrong with the device (warranty), I know where to physically find the dealer. Depending on what is wrong and whether I'm still in the warranty period, they may have the possibility to do some repairs in their workshop or immediately give/sell me a replacement.
  
  There are lots of foreign Amazon (or ebay) sellers (even with domestic VAT registration) - if anything goes wrong, that can mean a whole lot more hassle.




• So: if the local store has what I need, I can get it there faster (think e.g. bike repair parts).

or a supermarket chain that can deliver your fresh meat and groceries within two hours or in an allocated time slot, instead of going all the way to the local store to buy the goods.

• That possibility I do not yet have here (rural Germany): such delivery services so far operate only in the big cities. I do find this somewhat ironic, as that's where a supermarket or at least a smaller local store is available usually within a km or so, and where there are traffic jams all the time.




• For groceries that are either highly standardized (e.g. UHT milk 3,5 %) where I don't really expect any difference that I cannot read on the package/online description or that I anyways cannot try them previous to a buyng decision I don't see much of a difference in offline vs. online buying.




• But groceries like fresh vegetables and fruits or meat I'd like to see (or even smell or taste) before buying. Also, the buying decision is going to be faster for a piece of "loose" meat where a look and a quick question/description with the butcher gives a much faster overview of what they currently offer than reading this online. (See also @Lan's egg discussion.) And it's not unheard off to get a tiny piece of sausage to taste before buying at the butcher's or at the cheese counter if you are after something special.

• I'd expect a larger variation with small independent stores compared to bigger chains. I don't propose to artificially keep bad (quality) stores alive. But good quality stores: of course.




• Chains are good at standardizing, i.e. making sure the store brand bread will taste the same whether you buy it in Munich or Hamburg. So they help avoiding what many/almost all people agree is bad quality.




• But there are types of variation that are equally high quality. E.g. local butchers may use different spices for their sausages, or bakeries for their bread. They can be equally good, but I still may prefer one flavor over the other - and someone else may prefer the other flavor.
  
  In that case, everyone should buy where they like it best, and delivering that variety of tastes is not what big chains are very good at.




• Small local stores that too few people think deliver good value: IMHO it's totally fine if they close. The other ones, btw, may become local/regional chains. Which IMHO is fine: there's nothing inherently good or bad with chain stores as long as we're not ending up with an oligopoly.




• Oligopolies become a problem where you have large effects of scale (i.e. 10 small bakeries are per bread much less profitable than one bakery of the 10-fold size) and where you have big market entrance hurdles.
  
  I don't know that much about the perishable groceries market, but for things like cosmetics production costs are very much in favor of large producers because product safety testing/certificates cost about the same whether you produce hand-made soap as a tiny ebay side business or as a big factory making soap for half of Germany - and those costs are non-negligible for a tiny side business.

Some further thoughts:

I do see that the structure of local/small stores changes, but I'm not so sure about them dying in general.

• When I was a kid, my village had 2 grocery stores and there was a supermarket and further stores in the next town (few minutes by car, 1/2 - 1 h by foot or bus). Both of them closed when the owners retired. The larger/later one did try to rent out the store, but several attempts failed after a while.
  
  This is what people refer to as local stores dying. I'd like to add a few more observations, though.




• As I recall those stores, they neither distinguished themselves in the variety of goods they had (less than supermarket), nor in the quality (same or older). Their only point was that if you had forgotten something you didn't have to go all the way to the supermarket in town. (And selling sweets to school kids who were too small to go to town)




• My guesstimate is that those small stores probably always were economic only under their peculiar circumstances: they were run by their owners who also lived above the store. When there were no customers, they'd do some other work (e.g. gardening for vegetables, go upstairs to do some housework or repairs etc.). But they are not economic if you have to pay someone for standing around idle when no customers are there (same concept btw. for small bakeries or butchers).



• 
  

  On the other hand,

  
  
  
  • we now have a fish store's van coming along I think once per week (something that hasn't ever been available before - we're 500 km from the sea)
    
    Other villages also have baker/butcher/cheese store/egg & chicken farm vans calling, or the butcher selling eggs or cheese now in addition to meat.
  
  
  • A local medium-sized supermarket some 10 km away has a pilot project where they have a minibus collecting (old) people from the surrounding villages, get them to the store and take them together with their groceries back home.
    
    I put this in because I don't see that much of a difference between carrying people to the goods vs. carrying the goods to the people for offline sales.
  
  
  • Many organic farms (or organic farm cooperatives) sell "veggie boxes" that are delivered e.g. weekly or twice a week.
  
  
  • One organic farmer has a farm sale and half ways to the next village you get organic eggs, then comes the next organic veggie farm
  
  
  • At least one conventional farmer has a "potato box": this is a sales form we have quite a lot now. Something between wooden box and garden house with shelves and sometimes even fridge/freezer where the currently available produce are together with a price list, a drawer with some change and a piggy-bank style cash box into which you put the bigger money. While there is noone to directly keep you honest, everyone knows that this super-convenient form of "store" is stopped immediately if there's too few money there at the end of the day.
    Egg and milk automats are a recent addition in this line.
  
  

  • We do see a slowly increasing number of stores doing deliveries. The first one I was aware of is the pharmacy next village.

  
  

  • While they don't have online shops, I'd expect all of them take orders/"reservations" by phone or email - the self-service ones probably by putting what you want into a bag or box with a paper with your name on it.

  
  

If you ask yourself why I list all those more-or-less new economy type sales:
Note that all these (at least over here) including the ones doing deliveries of online or off-line orders are small stores.

• In general, many local/small stores here actually do sell online as well - so there isn't that much of a distinction. Without having checked, I expect that the spice and herbs store coming by van to the town market once a week will take online orders juse as they take "offline" orders for stuff they don't currently have with them. All either to be picked up at a given town market or sent by post.




• Actually, many of the stores where I buy, say, small electronic or bike parts online are local stores somewhere (and I think many of them use the same type of flexibility the old village store used - but they are working other niches than flour and pasta).
  
  I think what see here is at least partially that even big stores (supermarket or electronic) can have only a selection and even for big supermarkets that selection isn't that wide. But having many (big or small) stores across the country that do sell on online marketplaces each having some specialty allows in total a much wider selection. And my personal impression is that in this actually small stores can do better compared to big ones than they did before: the local small store really didn't have a point above a larger supermarket in the last so many decades. But with the online sales, a small store can specialize on a narrow field or even a few products (and be located somewhere where rent is low - which is good for rural economics) and does have a chance in competing in that narrow selection with big stores that have a wider selection.

Surprising, nobody has explicitly stated this yet, but the local store is local, therefore closer, so buying local saves the buyer time. It takes much less time to go to the shop around the corner to pick up some milk that I ran out off, than to travel to the other end of town where it's cheaper. If I buy a book in the local village bookshop, I have it right away (if they have it); it may be cheaper in the city or online, but then I need to travel and/or wait. This applies both in cities and small towns.

Buying local saves the buyer time and effort. This is certainly not the only reason and perhaps not the most important reason, many other reasons apply as well, but other reasons have been well covered in other answers.

"Use them or lose them". I will happily pay a premium to get something now, all other factors not considered. It comforts me to know they are there. If I do not support the deli, or the convenience store, and enough other people shun them, they do not remain viable. Not having to get into the car, or be available at a set time for delivery.

Now, on the other side of the coin is delayed gratification. I live in Australia. Australia has recently decided to tax mail order purchases from outside our borders. It's a small tax for now, 10%.

I also pay the same consumption tax if I buy locally.

I can buy "item A" for $1 from Shenzen, and have it shipped free in about a week. Depending upon how I was introduced to the seller, and how I pay, I will likely be charged $0.10 in GST. It will cost the Australian Government a dollar or two to collect it, and it will likely cost an aggregator such as eBay or Amazon a dollar or two to collect it as well. No biggie for me, it is still $1.10.

If I buy "item A", retail locally. It costs $20.00 - the same item. That is before I pay $15 in petrol to drive there, $8 to park, and take a hour out of my day only to find out it is not in stock.

So my need would have to be pretty urgent to buy locally, as it is going to cost me.

But, in a large city with serious infrastructure issues, there are so many things I cannot buy locally. Fresh flavoured milk is rare in Sydney (all UHT), as it goes bad when turnover is low. Fresh food can be fresher from interstate. Outside of fast food, iceberg lettuce is not used, arugula (rocket) keeps up to a week and is now a cancer on the face of Australian cuisine.

In summary, these factors appeal to me.

1. Products available on demand.


2. Can pay cash (of diverse origin) which can be hard to get rid of.


3. Can see what is on offer, hold it in the hand.


4. Need not expend effort traveling, receiving goods, dealing with damage.


5. Supporting the proprietor, a neighbour.


6. Minimising storage space used, and wastage due to spoiling.

There's a great scene in the movie Guardians of the Galaxy where Rocket asks Quill why he should care about saving the stupid galaxy anyway, and Quill responds, "because I'm one of the idiots who lives in it!"

Buyers who can look beyond price tags see value in promoting the health of their community, and understand that they should support it because it's supporting them. The idea of keeping your money local is based mostly on recognizing this, and it's not a new idea by any means. Adam Smith's famous "invisible hand" quote from The Wealth of Nations was actually written in this context:

By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is ... led by an invisible hand to promote an end which was no part of his intention.

The Human at the other end

For a lot of items I don't care much about the person on the other side of the counter (Let me buy the gas and move on). For many other items / reasons I want a human on the other end.

I'm just starting out (ie electronics) I want the person to guide me through the maze of products for general help explaining some differences. Google search can replace this but someone knowing what you don't know will/should help greatly.

I want something custom and unique. A local store where you can see the artisan working with their trade has increased value over non brick and mortar stores. You might be able to ask for an alteration and you might be able to bring your purchase for maintenance / repairs.

As long as I can see repeat service the person running the store is very important to me. This goes for any service I work with.

If this store supplies your profession then it is also a source of networking.

A normal store that offers you simply a product more expensive than online WILL NOT SURVIVE long.

Big box stores did this to small Mom and Pop stores and the ones that knew how to stay relevant are still around. The ones that tried to match prices, complained and then went out of business.

A product that a GOOD and successful small store has is not the reason why I'm going there. I'm going there because I like the person, they know more than I do (most times), I can get special treatment.

If the local store sells exactly the same product as a supermarket or Amazon, the only valid economic reason to buy from a local store is a lower total cost of purchase. If a supermarket sells a loaf of bread for 2€ and a local store sell is for 3€, it's reasonable to get it from the store if going to the supermarket costs more than 1€ in expenses and time.

Many people will go to the supermarket anyway, and pay 50€ for additional stuff they don't need just to justify the driving costs. That's exactly how marketing works: believing something is a good deal is what sells the product, not necessarily the facts.

In practice, many successful local stores often sell products which have no direct substitutes in a supermarket. Be it a great bakery produce, fresh meat from a local butcher or eggs from chicken held in a barn - the buyer gets (or at least believes to get: the same marketing strategies apply) a superior product, so it's absolutely reasonable to pay a premium for it.

As pointed out in the comments, another reason to buy from a local shop is immediate product availability. If the local store sells you a loaf of bread on a Sunday morning, you may choose to pay an extra to get it right away instead of waiting for a supermarket to open on Monday when you could get the same loaf cheaper.

Local business owner here, I will add on to other answers, but also add some information.

When you buy from a real locally-owned business (see below), the people who receive any profit from you will typically be shopping and dining and investing in the community they share with you. This even extends to our contributions to things like schools through our property tax or local initiatives through sales and income taxes, depending on your location. We are responsive and sensitive to local issues, naturally, and open our doors to volunteer groups, etc. when they need meeting space on off-days or whatnot.

NOW. Something to point out:

'What is a locally owned business?' In Portland where my wine bar is located, the city is also saturated with what appears to be a locally-owned business, but in many cases is one of hundreds with unique branding owned by someone far, far away. If you want to support truly locally-owned, do a little digging to see what is legit.

(Aside: use cash when you can, instead of cards!)

I skimmed most of the answers looking for someone mentioning this point -

Many large companies, some like Target and Wal-Mart exist online and in physical locations, have a measurable business and community impact and evident goal. Some acquire, like Amazon. Some are run by CEOs who constantly display behavior that rubs people the wrong way. Some appear to be trying to make a difference in the world. And many are a mixture of all.

When you choose to forego a local shop in favor of price and convenience, you are choosing to add further monetary power to the companies you are buying from, enabling them to continue on their courses outlined by the measurable business and community impact. In many cases, this is not a good thing.

Ask yourself, do you want everything run by Amazon? Or Wal-Mart, or McDonald's? If you're OK with everything being discounted for card holders of their special club you have to pay for, then proceed. Buy online or at the big box stores. When those stores gain so much power they can effectively decide the prices of goods and services are determined not by economic standing, but their arbitrary rules (the pharmaceutical industry does this notoriously), you will see the value of choosing to support your community over the abstraction of a corporation who values only the numbers in their quarterly reports to the share holders.

Now, granted, not every large company is completely corrupt. Many do their diligence to support charitable or humanitarian efforts, or just don't run a shady business. You won't have a hard time looking into the history of any major retailer for yourself and coming to your own conclusions. Reading it from an internet post sounds a lot like a conspiracy theory rant, so I encourage you to research your own options and see how you feel about supporting the merchants you choose to support.

Buying local not only helps the locals who own those companies (who can be just as corrupt as the big corporations, mind you), but it also reduces the revenue flow to the would be world rulers like Amazon, who now owns Whole Foods and a number of other companies they decided to acquire. The local merchants prosper and keep things personal and friendly... generally I mean. And web interfaces maintain a dictation of advised copy designed to minimize the levels of discomfort to their user base, and avoid legalities by adhering to the laws of compliance - which really is designed to avoid lawsuits so next time you hear of a website being all politically correct, it's not because they believe the socio-political stance of the objections, but that they don't want to be sued.

The problem with the approach that says - I will not support some whack corporation - is that it's really just a drop in the bucket to not participate. You're not choosing local to change the world. You're doing to because you are aware of the impact you contribute to. If you have goals to overthrow Wal-Mart or Amazon just by not buying from them, you'll be disappointed. But if your goal is to keep your local comic store open because you went there as a kid, then you'll be doing your part fine by shopping there instead of some online retailer.

We'd be remiss not to consider some of the practical physical benefits of buying from a small local store.

• Quality Inspection - Compared to buying online, you can physically inspect the item you're buying for quality before making the purchase.


• Shipping - There is no shipping cost. While Amazon offers free shipping, it is either Prime-exclusive(a subscription fee) or on orders of $25 or more (a minimum purchase requirement), plus the latter has a significant shipping delay. For a small item that you need relatively soon, local stores are a superior choice.


• Uniqueness - Compared to the choices offered at a larger store, smaller stores tend to have more unique items, especially if the store is a craft store. For a gift purchase, this can greatly improve the quality of your purchase.


• Personal Service - Some local stores will offer to gift-wrap your item for free, or offer other additional services on top of the purchase, which online stores simply aren't equipped to offer.

There are also of course moralistic reasons people would prefer to buy from local stores, as well as long-term strategic reasons for keeping local stores competitive with online and big retail marketers.

But if you're looking for practical reasons, the small retail store is a superior choice for small gift purchases, especially if you want the purchase gift-wrapped.

Another point that I may not have been clearly spelled out - when you're shopping from a big conglomerate like Amazon there's a high likelihood that there are hidden costs in that savings you're getting. It's pretty well known by now that many of Amazon employees receive government assistance. They also employ armies of lawyers and accountants to make sure their tax bill is as low as possible.

If you buy in a local store it's unlikely that this is the case.

Of course, their employees may also still be on welfare, or the company too small to be legally required to offer benefits for their employees. So it all depends on what you want to support.

If your goal is simply to minimize the direct cost to yourself, then you should always shop where you can get the cheapest price.

But if you have alternate goals, such as minimizing the impact of shipping, buying locally sourced goods, etc. then you may want to consider shopping local - though you still have to make sure that your local stores are actually locally owned.

Side note - I once visited a farmers market in Little Rock, Arkansas, which had a truck from Ohio. That's uh... not very local produce.