Dana: Local Effects
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
Pro
- Increases consumer purchasing power which leads to increase in sales tax revenue for the area
Con
- Drives competitors out of Business
- Forces small business owners out of work or to work for lower wages
Specific Case Studies
The Impact of Wal-mart on Host Towns and Surrounding Commmunities in Maine
Research was performed by James C. McConnon, Jr. Associate Professor, Resource Economics & Policy Extension Business & Economics Specialist University of Maine and Georgeanne M. Artz Extension Program Specialist and doctoral student Iowa State University
- This research conducted a statistical analysis to examine short-term and long-term changes in retail salesand trade area size of each Wal-Mart host town and their surrounding communities in Maine. The research project also quantified, for the first time, a net redistribution effect that measures the amount of existing and new spending in the host town that is captured by Wal-Mart during the first year of operation. A statistical analysis was also employed to determine if Wal-Mart’s impact varies by geographic location and to identify factors that may explain this regional variation. In addition, a survey of local merchants of a Wal-Mart host town was conducted in order to isolate the effect of Wal-Mart and gain an in-depth understanding of how Wal-Mart impacted their businesses and community.
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
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.
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.
