Effects on Local Businesses
Introduction to Negative Impacts
- Wal-Mart is the largest private sector employer in the United States. There is constant controversy over whether Wal-Mart makes positive or negative contributions to the US economy or society in general. Although critics propose many arguments that show Wal-Mart's negative effects, there are three main points that they continuously bring up:
- Poor treatment of employees
- Affect it has on small businesses in the area
- Use of foreign products
- "First theres the clobbering of Main Street: Wal-Mart moves in onthe edges of towns, and the smaller downtown merchants soon go under. Second, there;s the miserable wage and benefits package offered by Sam Walton's creation. And third, there's Wal-Mart's purchasing strategy, which seems to be about buying American -made products only as a last resort -- to the point that today Wal-Mart, by itself, is China's eighth largest trading partner!"
Leo Hindry Jr. BusinessWeek
- Focusing on Wal-Marts effects on small businesses or local markets, popular belief says that because of Wal-Marts, “everyday low prices” it forces small “mom and pop” type businesses into bankruptcy. 99% of businesses in the US are considered small businesses. Small businesses are usually defined as an independent business that has less than 500 employees. They are responsible for providing anywhere between 60 and 80% of the net new jobs in the US and small business share of employment remains at about 50%. In other words, in many ways business in the US is centered on small firms and institutions like Wal-Mart are a threat to their existence.
How Wal- Mart Affects Local Businesses
Popular Arguments
Economic Cons on Local Economy
- Drives competitors out of Business
- Forces small business owners and employees out of a job or to work for lower wages
Economic Pros on Local Economy
- Increases comsumer purchasing powering which increases sales tax revenue in the area
Specific Case Studies
The Economic Impact of Wal-Mart Supercenters on Exsisting Businesses in Mississippi
Research was performed by Kenneth E. Stone, Professor of Economics, Iowa State University Georgeanne Artz Extension Program Specialist, Iowa State University Albert Myles, Extension Professor, Mississippi State University
- This study examined the impact of Wal-Mart supercenters on the sales of existing businesses Mississippi. Data from sales tax reports in Mississippi were used to analyze changes in the sales of food stores, general merchandise stores, furniture stores, building materials stores, miscellaneous retail stores and the total county. The Mississippi data have two main advantages. First, unlike most states, all food items are subject to the sales tax in Mississippi; therefore this data set allows us to account fully for food store sales. Also, since food items sold in supercenters are reported in general merchandise store sales and not in food stores sales, we have a unique opportunity to identify changes in market structure that have occurred with the addition of a supercenter. Second, supercenters have been open in Mississippi for several years, sufficiently long to observe market changes.
- Methods
- The resultant sample consisted of 18 stores in counties with an average population of 45,45 after eliminating counties with 2 or more supercenters and counties with a population of greater than 100,000
- The study compared sales tax data from fiscal years 1990 through 2001 which was received from the Mississippi State Tax Commission.
- The study was set up to determine the change in sales for various types of businesses in the supercenter trade area for each succeeding year after the opening of the supercenter.
- Results were concluded by comparing sales or pull factors for host and non host counties
- Results
- There are both positive and negative effects on stores in the area where the new supercenters are located.
- The following are a few charts showing the difference between host and non host counties in Mississippi.
General Merchandise Stores
The average pull factor for general merchandise stores in the host counties was from 0.99 to 1.03 for the four years preceding the opening of a Wal-Mart supercenter. That means that sales of general merchandise stores amounted to selling to slightly morethan the county population. The average county pull factor rose quickly after the supercenter opening, rising to 1.57 in the fourth year. This means that, on average, the host counties general merchandise stores were selling to the equivalent of 1.57 times the county population, in full-time customer equivalents.
Annual sales (pull factors) for the general merchandise category in host counties increased substantially, from 40.2 percent the first year to a peak of 41.6 percent three years after the opening of a Wal-Mart supercenter.
This figure shows the average change in general merchandise pull factors for the non-host counties in Mississippi. Although there were some supercenters other than walmart in very few of these areas, the steady decrease began when the first Wal-mart supercenters were opening up in Mississippi.
- Conclusions
- Annual sales or pull factors for the general merchandise category in host counties increased substantially, from 40.2 percent the first year to a peak of 41.6 percent three years after the opening of a Wal-Mart supercenter. Since food sales are taxed in Mississippi, this increase includes the sales of both general merchandise and food by the supercenter. Conversely, average general merchandise sales in the 52 non-host counties decreased nearly annually from the time of the opening of the first supercenters in Mississippi.
- Wal-Mart supercenters took a lot of the food sales away from local food markets. Consequently, host county food stores experienced average annual declines in sales from 10.1 percent after the first year to over 19 percent after five years. Counties that did not have a Wal-Mart kept their grocery store sales at a fairly steady level after the opening of a supercenter in an adjacent county.
- Furniture stores in host counties were found to have an increase in sales for the first 3 years following the opening of a supercenter, but decreased in years 4 and 5. Building materials stores in host counties experienced average losses of 8.2 percent to 14.9 percent for the first five years after the opening of a Wal-Mart supercenter. Meanwhile, non-host counties experienced a nearly continual reduction of building materials sales.
The Economic Impact of Wal Mart: An Assessment of the Wal - Mart Store Proposed for Chicago's West Side
Research was performed by Chirag Mehta, research associate at the UIC Center for Urban Economic Development, Dr. Ron Baiman, research associate at the UIC-CUED and Dr. Joe Persky, Department of Economics at University of Illinois at Chicago
- The prospect of the opening of a new Wal-Mart store on the west side of Chicago has raised concerns about its potential impact on existing retailers. While Wal-Mart suggests that the store will have a positive impact by adding jobs and income to the local economy, this case study proposed a more careful analysis of the development.
Who are Wal - Marts competitors and will it draw in suburban Consumers to Chicago?
This image shows the 763 retail businesses that will compete directly for Wal-Mart's customers within a three mile service area of the proposed Wal-Mart site.
- Wal-Mart indicates that it will create 250 jobs, and it further suggests that the store will add $600,000 in annual tax revenue to the City of Chicago. These claims suggest that the new Wal-Mart store at the proposed location will result in net employment, income and fiscal gains for the City of Chicago and its residents.
- The econmic impact of the proposed Wal-Mart store was derived using and innput- output analysis, customer survery data, publicly avaibe business sales and tax data.
Impact:
- If Wal-Mart opens, it is expected that while it will create 200 jobs for Chicago residents, 254 jobs held by Chicago residents will be lost by other competing general merchandise stores in Chicago and an additional 11 jobs will be lost mostly in other sectors of the retail industry.
- Overall, the opening of Wal-Mart at the proposed location would directly eliminate 65 net jobs
- Estimates indicate that there will be a net annual tax revenue gain from the new Wal-Mart of $197,000, considerably lower than the estimate of $600,000 provided by Wal-Mart.
Has Wal-Mart Buried Mom and Pop?: The Impact of Wal-Mart on Self Employment and Small Establishments in the United States*
Conclusions
- Due to their expanded data to include more than simply the directly competing retail businesses within the specific county in which Wal-Mart open, there research results differ from similar research previously performed.
- The entry of a specific Wal-Mart store might cause some individual small, ‘mom and pop’ businesses to fail, but these results suggest that these failures are completely offset by the entry of other new small businesses somewhere else in the economy. For example: this research suggests anecdotal evidence suggests that this reallocation allows an opportunity for new entrepreneurial ventures, such as coffee shops, art galleries, and high-end restaurants, to emerge.
- Also showed that average real revenue and net income for small businesses continued to grow substantially throughout the entire period in which new small businesses replaced the old ones who failed
Sources
- Stone, K, Artz, G, Myles, A "The Economic Impact of Wal-Mart supercenters on exsisting Businesses in Mississippi," Mississippi State University Extension Service (Fall 2002).
- Bernstein, J andBivens, J. L The Wal-Mart debate: A false choice between prices and wages, Economic Policy Institute, June 15, 2006 EPI Issue Brief 223
- Sobel, R and Dean, A. M. "Has Wal-Mart Buried Mom and Pop?: The Impact of Wal-Mart on Self Employment and Small Establishments in the United States" West Virginia Univerity 2006
- Mehta, C, Baiman, R, Persky, J "The Economic Impact of Wal-Mart: An Assessment of the Wal-Mart Store Proposed for Chicago's West Side" Center for Urban Economic DevelopmentUniversity of Illinois at Chicago March 2004
- Leo Hindry Jr."Wal-marts Giant Sucking Sound" October 7, 2005 BusinessWeek
