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Walmart Creates Poverty
by Marietta Poshi
http://www.academia.edu/6224774/Walmart_creates_poverty#
Wal-Mart is undeniably on of the biggest retailers in the U.S as well as the largest private
sector employer (Zeiger, 2012). And while the organization is known for its cheap prices and
cornucopia of products, there is speculation as to what the hidden cost for all of it is. In September
of 2012, the strike from employees of Wal-Mart demanding higher pay and better working
conditions shed some light into the cost of cheaper products found in the stores (Logan, 2014).
However, the bigger issue with such a large corporation as Wal-Mart lies with the potential effects
that it has in its communities besides its employees. In the ten year study by Stone (1997), the
effect of Wal-Marts opening in small towns in Iowa, indicated a 35 % sales loss for local businesses.
The results are alarming for big towns as well. Merriman, Persky, Davis, and Balman (2012)
studied the Wal-Mart effect in the city of Chicago where they found that the probability of
businesses failing was higher the closer they were to the retail giant. This probability fell at a rate
of 6% per mile in all directions the further they were located from Wal-Mart (Merriman, Persky,
Davis, & Balman, 2012). The loss of businesses caused the loss of jobs as well. The amount of jobs
lost is accounted by the same amount of people that Wal-Mart employs in that particular area
(Merriman, Persky, Davis, & Balman, 2012). However the wages paid by Wal-Mart are significantly
40% less than what other stores pay (Kinsley, 2013). Taking into consideration the amount of
business loss in addition to the loss in pay that employees endure as a consequence of Wal-Mart
entering the market, it is easy to asses that the standards of living get lower as a consequence; if
employees in the community are making less than they were before, they are also bound to spend
less. So perhaps the issue is that while Wal-Mart is indeed the biggest retailer and the largest
employer in the U.S (Zeiger, 2012), its success is setting American communities back financially.
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It is very common practice to associate a wide selection of goods and services with a high
standard of living. Wal-Mart provides a very large and diverse amount of products in its stores at a
lower cost than other retailers, however along with the cheaper prices, it also produces poverty
rates for the communities involved (Bonano & Goetz, 2012). Creating jobs at a much lower pay rate
than the competition also lowers the standards of living for that particular community (Kinsley,
2013). The cheaper prices therefore are not as a result of trying to promote welfare for
communities, but rather creating a situation where individuals of a particular Wal-Mart community
can only afford to shop there as a result of smaller income.
The giant retailer’s mission statement is simple and catchy: “Saving people money so they
can live better” (Walmart, 2014). In first appearance such words sound very appealing to
communities as it would appear that they could actually save money if they switch their shopping
to the retailer. The hidden effect in it is that it takes Wal-Mart between 18 and 36 months to adjust
into a new entrance in the market (Hicks, Keil, & Spector, 2012). The process of affecting other
businesses by 35% and slowly driving those out (Stone, 1997) takes a little adjusting from most
individuals in the community. With other retailers gone and people needing jobs, Wal-Mart jumps
to the opportunity to help, however the help is at a much lower pay rate (Kinsley, 2013). To add
more to the problem, a lot of stores trying to compete with Wal-Mart, stock up on items in an
attempt to provide a larger variety. The large variety however costs more to store, to transport, and
even present to consumers, therefore driving themselves to failure as added expenses cannot
measure up with the amount of business generated (Matsa, 2011).
The actions that take place as a result of Wal-Mart entering the market result in job losses,
pay cuts, creates poverty, while forcing members of the suffering community to only shop in their
stores as they cannot afford to do so anywhere else. Perhaps the new mission statement of WalMart should be: Creating poverty so you may only afford to shop with us.
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The impact that Wal-Mart has on communities is undeniably large and very apparent.
According to the company website on a weekly basis, more than 245 million customers and
members visit their 11,000 stores under 69 banners in 27 countries and e-commerce websites in
10 countries. With fiscal year 2013 sales of approximately $466 billion, Wal-Mart employs 2.2
million associates worldwide (Wal-Mart, 2014). Being such a big and powerful company, WalMart has the potential to drive communities to success and get rid of poverty; it can actually
solve the inequality problem (Kinsley, 2013). According to Kinsley (2013) a raise from $8.81 an
hour to $12.50 an hour would make for a salary of 40% higher. A higher salary can give the
opportunity to consumers to still shop at Wal-Mart and yet save money as opposed to other
stores. The problem exists that Wal-Mart is not offering the higher salary; it sells cheap and
hires cheap as well (Kinsley, 2013).
The purpose of the study is to raise awareness of such practices in communities around
the US. Living in a capitalistic society it is common practice to have the ability of free trade,
however, the needs of the many and the effects it can potentially have on consumers should be
addressed in more detail. There is a cause and effect as a consequence of Wal-Mart entering a
new market (Yue, Rao, & Ingram, 2013). Wal-Mart drives businesses to lose up to 35% of their
share in the market which consequently employees lose jobs (Merriman, Persky, Davis, &
Balman, 2012). Job losses drive individuals to get employed as a means of making ends meet.
By taking jobs that pays less, consumers also spend less, which in return creates poverty and
lower living standards for that given community (Bonano & Goetz, 2012). The purpose of my
study is to shed light into the economic effect Wal-Mart creates in communities it operates.
Figure 1 showcases the effect that Wal-Mart has on communities according to existing
studies that have been conducted. The consumers are placed at the center of the effect as they
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ultimately get to experience the consequences of a Wal-Mart driving businesses to failure,
losing their jobs and getting pay cuts, having to spend less on items and as a consequence,
affording to shop only Wal-Mart.
Wal-Mart
initiates
poverty and
maintains it
Less
Spending
Ability
Consumer
Businesses
Fail and lose
35% market
share
40% Lower
Paying Jobs
Figure 1. Showcasing the effects of Wal-Mart
The ten year study by Stone (1997) brought shocking findings to light in regards to what
Wal-Mart does to a particular community. Wal-Marts would have an exponential growth of 50%
within the five years they opened up in a particular place (Stone, 1997). Their success however
would come at a price for other retailers which would lose as much as 35 % of their business due
to Wal-Mart venturing in their towns. In addition, the customer’s attitudes as to where they shop
would change tremendously in regards to supporting local businesses; over the years they would
grow accustomed to one stop shopping and the large variety of products that Wal-Mart would
provide them with (Stone, 1997).
The fact that a Wal-Mart sets up in a given community is not the only reason which
drives other retail businesses to failure. However, other businesses feel threatened with what
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Wal-Mart has to offer being cheaper prices and a large variety of products. So in an attempt to
keep up with the competitors, other retail stores invest in product quality and variety (Matsa,
2011). Such bold moves on their part turn out to be risky and costly, which ultimately causes
them to downsize or even shut down.
Wal-Mart has an impact on big cities as well. The empirical research by Merriman,
Persky, Davis, and Balman (2012) looks at the three year effect that Wal-Mart has in the city of
Chicago. The study found that there was a high probability of retail stores going out of business
the closer they were to a Wal-Mart Store. The probability decreased at a rate of 6% per mile the
farther they were from it (Merriman, Persky, Davis, & Balman, 2012). In addition the authors
estimated the job losses that the closing of businesses attributed to and they found that the same
number allocated to the Wal-Mart employment in the area.
In first appearance it does not sound too bad to have a store close its doors and have
another one open which in addition provides cheaper prices for its consumers. However, WalMart pays in average about 40% less than other retailers (Kinsley, 2013). So offering cheaper
products does come with the cost of cheaper labor (Logan, 2014).
It is puzzling as to why there are not many regulations and protests in regards to the
matter especially when considering that it leads people in the community to lose jobs (Merriman,
Persky, Davis, & Balman, 2012) and even when they get employed by Wal-Mart they make 40%
less in average (Kinsley, 2013). The effect of Wal-Mart is not very apparent as it takes
somewhere between 18 and 36 months for it to drive other businesses and communities to really
see their affect in the area it operates (Hicks, Keil, & Spector, 2012).
Overtime the perspective consumers have on Wal-Mart changes as well. According to
Latimer, Hempson, and Kendrick (2011) the process of deliberation involved with Wal-Mart
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along with the grandiosity associated with it has a big effects on consumer’s attitude. Such
attitude change comes in the form of support for an organization such as Wal-Mart who is
involved in sustainable energy, and green movements among other involvements in the
community (Meeks & Chen, 2011).
Summary
There is significant existing research which indicates that Wal-Mart has a potential
negative effect on areas where it conducts business in the US. The change that a Wal-Mart
brings to the area is not just economical but psychological as well, as Latimer, Hempson, and
Kendrick (2011) conducted in their study. The change while it appears positive in the beginning
as it takes a Wal-Mart store somewhere between 18-36 months to set their appearance in the
community (Hicks, Keil, & Spector, 2012) has a have negative effects on consumers. Wal-Mart
leads to loss of retail businesses up to 35 % (Stone, 1997). The same amount of jobs that are lost
by retailers in the area is attributed as employment by Wal-Mart (Merriman, Persky, Davis, &
Balman, 2012). Employment by Wal-Mart however pays in average 40% less than other retail
stores (Kinsley, 2013). Lower pay leads to consumers and communities drifting into poverty
(Bonano & Goetz, 2012).
There needs to be stricter control imposed in regards to the areas where Wal-Mart can
operate or venture in new businesses to. In addition, there needs to be better pays for employees
as a way to generate economic growth in communities and promote welfare. At the current
business strategy all that Wal-Mart is securing, are more customers in communities where
individuals make less money than prior to Wal-Mart, lowering the standards of living, and
creating poverty. It is to wonder and be concerned about what could potentially happen if WalMart decided to open more stores and ran more retailers out of business in the future.
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