COLUMBUS – Low prices draw hoards of customers to stores like Wal-Mart. But these falling prices often hit smaller, neighboring stores hard, knocking them out of the retail race. The impact makes winners of the superstore and its customers, and losers of smaller retailers, wholesalers and Wal-Mart workers.
Elena Irwin, a regional and community economist with Ohio State University Extension and the Ohio Agricultural Research and Development Center, reviewed research findings about the effects Wal-Mart and similar stores have on communities nationwide.
While some of the studies did not differentiate between Wal-Mart and other big-box retailers, many specifically examined effects of Wal-Mart, said Irwin.
Low prices. Wal-Mart provides consumers with 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 super-center 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.
Ripple effect. 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 communities showed immediate price declines of 1.5 percent to 3 percent, and long-term 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.
Employees. 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 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.
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 helpful 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 estimated 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, wholesale work. 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.
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 of a producer-driven supply chain, we have a retailer-driven supply chain,” Irwin said.
With Wal-Mart’s leading, now every large retailer has that kind of bargaining position, she said. This means lower prices for consumers, but also a loss of manufacturing jobs to overseas.
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 Wal-Mart 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-Wal-Mart 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.
Social programs. 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.”
Wal-Mart at a glance