New Wal-Mart in Town? Community
Impact Likely to be Mixed
By: Martha Filipic
COLUMBUS, Ohio -- Low prices draw hoards of
consumers to big-box stores like Wal-Mart. And big-box
stores often drive smaller neighboring retailers out of
business. How communities respond when the big boys
come to town could make a difference, says an Ohio State
University economist.
Elena Irwin, a regional/community economist with Ohio State University Extension and the
Ohio Agricultural Research and Development Center, reviewed research findings about the
impact that Wal-Mart and similar stores have on communities nationwide and shared her
findings with local Extension educators and regional specialists at an in-service in late
January. Irwin coauthored the study, "The Local Costs and Benefits of Wal-Mart," with Jill
Clark, program manager with Ohio State's Retail Market Analysis Program. The report is
online at http://aede.osu.edu/programs/ComRegEcon/retail.htm.
While some of the studies analyzed made no differentiation between Wal-Mart and other bigbox retailers, many specifically examined effects of Wal-Mart, said Irwin, who is also an
associate professor in the Department of Agricultural, Environmental, and Development
Economics.
"There are definite costs and benefits associated with Wal-Mart, and they are not evenly
distributed," Irwin said. The clear winners are consumers; losers include smaller retailers
attempting to compete head-to-head with Wal-Mart and, to a lesser extent, wholesalers; and,
often, Wal-Mart workers, she said. Details include:
Wal-Mart prices. Wal-Mart provides consumers low prices. For example, studies
show that Wal-Mart Supercenter's food prices can be anywhere from 8 percent to 27
percent lower than large supermarket chains for an identical shopping cart of goods.
One study estimates that the average savings on groceries alone from a Wal-Mart or
other food retail supercenter is about 20 percent of the average household’s food
budget, which is an average annual savings of $1,335 for a household of four. Irwin
said it's important to remember that lower food prices are especially beneficial for
low-income consumers, who spend a higher percentage of their income on necessities
such as food. "When communities try to keep a Wal-Mart out, it hurts all consumers,
but in particular lower income households," Irwin said.
Lower-price ripple effect. In addition, prices at neighboring stores -- grocery stores,
drug stores or variety stores -- tend to decline when a Wal-Mart enters the local
economy. "So, even if you never shop at Wal-Mart, your budget will likely benefit
from having one nearby," Irwin said. One study examining store prices in 165
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communities showed immediate price declines of 1.5 percent to 3 percent, and longterm reductions reaching up to 13 percent. Another study showed food costs at
traditional grocery stores drop an average of about 5 percent after a Wal-Mart opens
nearby. Some economists theorize that Wal-Mart's low prices have had a large
enough effect on the American economy to deserve some credit for keeping inflation
at bay in recent years, Irwin said.
Wal-Mart workers. Wal-Mart is often accused of paying workers low wages and not
offering affordable health-care plans. A paper presented at a social sciences
conference earlier this year showed average retail wages per person decline by about
7.5 percent countywide after Wal-Mart arrives, with wages in the South suffering the
most. "This was a very careful study and it showed a causal link," she said. Another
study showed Wal-Mart workers earn an average of 31 percent less than the industry
average for large retail store jobs, and that 23 percent fewer Wal-Mart workers are
covered by employer-sponsored health insurance. While these findings are sobering,
Irwin said, a Wal-Mart job may be a blessing to previously unemployed workers.
"The suggestion is that workers are worse off, but that depends on where, or if, they
were employed before the Wal-Mart opened," she said.
Small retailers. "Here the research is crystal-clear," Irwin said. "Small retailers get
driven out of business when Wal-Mart moves into town." One national study showed
that five years after a Wal-Mart or Kmart opening, an average of four small retailers
shut their doors. Another researcher estimates that Wal-Mart's expansion in the late
1980s to late 1990s accounts for 50 percent to 70 percent of the decrease in number of
small retailers across the United States.
Retail and wholesale employment. The research findings on the overall effect of a
Wal-Mart on total retail jobs in a community are mixed, Irwin said. One study found
a community loses between 180-270 retail jobs after Wal-Mart settles in; another
showed an initial increase of 100 retail jobs that was then reduced to an additional 50
retail jobs five years after a Wal-Mart opened. Jobs in the wholesale sector tend to
decline because Wal-Mart, in effect, acts as its own wholesaler. One study estimated
counties could expect a decline of 20 wholesale jobs after Wal-Mart moves in. "It's
reasonable to look at this as a range of what a community might expect -- possibly a
significant loss of jobs, or possibly a very modest increase," Irwin said. Based on the
research results, communities shouldn't expect a large net increase in jobs because a
Wal-Mart moves to town, she said.
Impact on manufacturing. "This is a revolutionary time," Irwin said. "In previous
years, retail didn't have any power. The retail sector simply paid manufacturers for
their goods, and then sold them to consumers." Global retailers, including Wal-Mart,
have changed that, Irwin said. In its early years, Wal-Mart made innovative uses of
technology and transport to lower its costs and pass low prices onto consumers.
Consumers responded, which increased Wal-Mart's market position. "At that point,
they could take advantage of their size to reverse the direction, pushing back on
suppliers, saying 'We're not going to pay more than X amount for your product.' Now,
instead a producer-driven supply chain, we have a retailer-driven supply chain," Irwin
said.
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"This trend is larger than Wal-Mart -- every large retailer has that kind of bargaining position
now -- but Wal-Mart has been a leader in this area. And it has meant lower prices for
consumers," as well as a loss of manufacturing jobs to overseas.
Impact on tax revenues. Many communities hope a new local Wal-Mart store will
stimulate retail sales and add to the local government budget through higher sales tax
revenues. By attracting consumers from across county lines, they hope for budget
growth without relying solely on expenditures -- or tax increases -- from local
residents. However, one study of Iowa communities showed such increases to be
short-lived. Total sales in these towns increased by 6 percent two years after a WalMart opening, and that figure held steady through year seven, Irwin said. By year
eight, sales began to decline, and by year 10, sales were 4 percent below pre-WalMart levels. The author of the study speculated that as more big-box retailers opened
in nearby communities, the benefit of drawing out-of-town consumers diminished.
Impact on social program costs. Irwin said some studies establish a link between
Wal-Mart stores in a community and increased poverty and reliance on public
assistance programs. A California study estimated that Wal-Mart employees use an
estimated 38 percent more in public assistance programs than the average large-store
retail employee. Another study showed a correlation between higher poverty rates in
a county in 1999 and the number of Wal-Mart stores in that county from 1987-1998.
Irwin calls these studies suggestive, but not definitive: “While they imply that the
presence of a Wal-Mart store in a community generates added social costs, these
studies have not rigorously demonstrated such causal links.”
Given all of this data, Irwin said communities face complex choices when a Wal-Mart or
other big-box retailer sets its sights nearby.
"Should a community try to keep Wal-Mart out? Maybe that's not a good idea," she said. "In
the first place, you're not likely to be successful in those efforts. And if you are, chances are
Wal-Mart will go to a neighboring community and drain retail sales out of yours. And your
local residents won't get the benefit of lower prices without driving far away."
Possibly the best thing a community can do is to minimize effects on those likely to lose in
the big-box battles, Irwin said. For example:
Plan for development. Communities can be proactive with zoning and development
standards to address big box retail before it comes to town. Such standards should
consider the optimal timing and placement of large retail development so that it
utilizes existing infrastructure, is consistent with the community’s master plan and
generates potential benefits to the community. This includes identifying locations and
designing structures that are the most likely to attract people to other businesses and
community assets.
Promote existing retailers. Communities can help smaller retailers promote what
they offer consumers that the big-box store on the edge of town cannot: customer
service, special ordering, or distinct types of merchandise. In addition, road signs and
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promotional campaigns should be designed to attract out-of-town big-box shoppers to
other retail centers in the community.
Educate consumers. Consumers vote with their dollars, but often the larger costs of
low prices aren't clear to them. Communities should consider public education
campaigns to make them aware of the economic impact of their shopping decisions.
Advocate for change. "If Wal-Mart wages aren't enough to keep an average
household out of poverty, is that Wal-Mart's fault? If the United States had national
health care, then the health insurance Wal-Mart offers its workers wouldn't be an
issue," Irwin said. "If there's a failure here, it's a government failure." Consumers and
communities working together could advocate for changes on a national scale to
reduce the negative economic effects of the changes occurring in retail.
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