EXISTING BUSINESSES These studies demonstrate how big-box retailers have significant negative effects on the number and vitality of nearby local businesses, in that they both lead to a loss of existing businesses, and contrary to the claims big-box retailers themselves often make, do not serve as a catalyst for new growth.
“The Impact of an Urban Walmart Store on Area Businesses.” Julie Davis, David Merriman, Lucia Samayoa, Brian Flanagan, Ron Baiman, and Joe Persky, Economic Development Quarterly, Oct. 2012.
The opening of a Walmart on the West Side of Chicago in 2006 led to the closure of about one-quarter of the businesses within a four-mile radius, according to this study by researchers at Loyola University. They tracked 306 businesses, checking their status before Walmart opened and one and two years after it opened. More than half were also surveyed by phone about employees, work hours, and wages. By the second year, 82 of the businesses had closed. Businesses within close proximity of Walmart had a 40 percent chance of closing. The probability of going out of business fell 6 percent with each mile away from Walmart. These closures eliminated the equivalent of 300 full-time jobs, about as many Walmart added to the area. Sales tax and employment data provided by the state of Illinois for Walmart’s zip code and surrounding zip codes confirmed that overall sales and employment in the neighborhood did not increase, but actually dipped from the trend line. Although Walmart claims its urban stores recapture dollars leaking to the suburbs, the findings of this study suggest that urban Walmart stores primarily displace sales from other city stores. “There is no evidence that Walmart sparked any significant net growth in economic activity or employment in the area,” the researchers conclude. The study also examines Walmart’s Job and Opportunity Zones initiative, which provided marketing for five local businesses, and found it largely ineffective.
“Business Churn and the Retail Giant: Establishment Birth and Death from Walmart’s Entry.” Carlena Cochi Ficano, Social Science Quarterly, 2012.
Within 15 months of a new Walmart store opening, between 4.4 and 14.2 existing retail establishments close, while at most 3.5 new retail establishments open, according to this study. The study’s methodology accounts for Walmart’s expansion strategy and controls for a variety of other economic and demographic factors likely to influence the birth or death of businesses. The author notes that, while the findings on store closures are robust, those on new store openings are not and should be interpreted cautiously. Also, the study only accounts for Walmart’s effect on businesses that have at least one employee and does not track the impact after the first 15 months. The results explain the seeming discrepancy in other studies finding that Walmart has a relatively modest effect on retail employment, but causes a substantial increase in poverty rates. This study suggests that Walmart triggers significant churn in the local labor market, with large numbers of people laid off, facing periods of unemployment followed by new jobs that may be only part-time or lower paying.
“Mom-and-pop Meet Big-box: Complements Or Substitutes?” John Haltiwanger, Ron Jarmin, and C.J. Krizan, Journal of Urban Economics, 2010.
In this study, economists John Haltiwanger, Ron Jarmin, and C.J. Krizan analyzed about 1,200 big-box store openings and looked at the impact on two sets of independent and small chain businesses in the vicinity: those competing directly with the new big box and those offering different products and services. For competing retailers, the study found “large, negative effects” on those within a 5-mile radius of the new big box, including a substantial number of store closures, and smaller but still significant impacts on those in a 5-10 mile radius. As for non-competing businesses, the study found that big-box stores generate no positive spillover. Nearby businesses offering other products and services neither increased their growth nor expanded in numbers after the big box opened.
“Major Flaws Uncovered in Study Claiming Walmart Has Not Harmed Small Businesses” [PDF]. Stacy Mitchell, Institute for Local Self-Reliance, Dec. 2008.
A new and widely publicized study, “Has Walmart Buried Mom and Pop?”, claims that there is no evidence that Walmart has had an overall negative impact on the small business sector. A close inspection of the study by the Institute for Local Self-Reliance, however, found major flaws. The authors failed to use the correct U. S. Census data when attempting to show that “mom and pop” businesses have not experienced a net decline over the past two decades. When the correct data set is used, it is clear that the small business sector is much less robust now than it once was, with the number of retail businesses with fewer than 10 employees declining by one-fifth from 1982-2002. This decrease is even more drastic when measured relative to the population. During the 20-year period, the number of retail firms with 1-4 employees per 1 million people fell by 38 percent and retail firms with 5-9 employees per 1 million people declined by 30 percent.
“The Impact of ‘Big-Box’ Building Materials Stores on Host Towns and Surrounding Counties in a Midwestern State” [PDF]. Kenneth E. Stone and Georgeanne M. Artz, Iowa State University, 2001.
This study examines several Iowa communities where big-box building supply stores, such as Menards and Home Depot, have opened in the last decade. Sales of hardware and building supplies in the host community and surrounding counties are tracked over several years to test what the authors call the “zero-sum-game theory,” namely that the retail sales gains generated by big-box stores are offset by sales losses at existing, often locally owned, retail stores. The results confirm the theory, finding that sales of hardware and building supplies grow in the host communities, but at the expense of sales in smaller towns nearby. Moreover, after a few years, many of the host communities experienced a reversal of fortune: sales of hardware and building supplies declined sharply, often dropping below their initial levels, as more big box stores opened in the surrounding region and saturated the market.
“What Happened When Walmart Came to Town? A Report on Three Iowa Communities with a Statistical Analysis of Seven Iowa Counties.” Thomas Muller and Elizabeth Humstone, National Trust For Historic Preservation, 1996.
This study examined the impact of Walmart on several Iowa communities. It found that 84 percent of all sales at the new Walmart stores came at the expense of existing businesses within the same county. Only 16 percent of sales came from outside the county—a finding which refutes the notion that Walmart can act as a magnet drawing customers from a wide area and benefiting other businesses in town. “Although some suggest that the presence of Walmart outside of, but near to, the downtown area results in additional activity downtown, both sales data and traffic data do not show this gain,” the study concludes. “None of the nine case studies was experiencing a high enough level of population and income growth to absorb the Walmart store without losses to other businesses.” The study documents losses in downtown stores after Walmart opened. “General merchandise stores were most affected,” the study notes. “Other types of stores that closed include: automotive stores, hardware stores, drug stores, apparel stores, and sporting goods stores.” The supposed tax benefits of Walmart did not materialize either: “Although the local tax base added about $2 million with each Walmart, the decline in retail stores following the opening had a depressing effect on property values in downtowns and on shopping strips, offsetting gains from the Walmart property.”
“Competing with the Discount Mass Merchandisers” [PDF]. Kenneth Stone, Iowa State University, 1995.
The basic premise of this study and others by Ken Stone is that the retail “pie” is relatively fixed in size, and grows only incrementally as population and incomes grow. Consequently, when a company like Walmart opens a giant store, it invariably captures a substantial slice of the retail pie, leaving smaller portions for existing businesses, which are then forced to downsize or close. This study of Walmart’s impact on Iowa towns found that the average superstore cost other merchants in the host town about $12 million a year in sales (as of 1995), while stores in smaller towns nearby also suffered substantial revenue losses. These sales losses resulted in the closure of 7,326 Iowa businesses between 1983 and 1993, including 555 grocery stores, 291 apparel stores, and 298 hardware stores. While towns that gained a Walmart store initially experienced a rise in overall retail sales, after the first two or three years, retail sales began to decline. About one in four towns ending up with a lower level of retail activity than they had prior to Walmart’s arrival. Stone attributes this to Walmart’s strategy of saturating regions with multiple stores.