Major Box Store Retailer: Friend or Foe?

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Wal-Mart’s presence in rural and urban communities is rising.[1] In Montana, there are currently 16 total retail units, including 14 supercenters and 2 Sam’s Clubs. WalMart reports $54 million in spending with suppliers and support of 6,244 jobs. However, lacking a counterfactual for supplier activity and hiring practices had WalMarts not located in Montana, it is difficult (if not impossible) to quantify the actual impacts of WalMart on the local economy.

Suppliers, local communities, and consumers all share numerous polarizing views on Wal-Mart franchises. According to Joseph R. Eckroth Jr., CIO at Mattel Inc. in 2002, “Being a supplier to Wal-Mart is a two-edged sword. They’re a phenomenal channel but a tough customer. They demand excellence.”[2]

WalMart has made phenomenal strides in making the supply chain more efficient, and it competes fiercely to ensure lower prices further up the supply chain. On the one hand, this could benefit consumers by reducing arbitrage in the supply chain and lowering retail prices. On the other hand, the economies of scale and scope that WalMart can leverage relative to its competitors may put other local stores out of business. This could harm consumers by reducing local choice of retailers. If WalMart additionally places downward pressure on wages, then consumers could also be harmed through reduced local incomes. Nevertheless, the empirical evidence on the effects of WalMart on other local businesses, wages, and employment are mixed.

Several studies have attempted to measure the effects of WalMart on local economies, but the methods for measuring the effects of the franchise without a clear counterfactual still leave doubts to the causal impact of WalMart. Bonanno and Goetz (2012) review the economic literature that evaluates WalMart’s impacts on local economies. Overall, the literature indicates that small businesses are negatively affected by the presence of a WalMart, while larger retailers have more resources to “fight back”. Effects on employment, wages, and job displacements remain mixed. Evidence shows that WalMart reduces retail prices with likely positive benefits on consumer welfare, stemming both from lower prices and increased variety.

As WalMart continues to expand and diversify its business model, it is unlikely that WalMart and other box stores are going away. The welfare benefits of these retailers are not likely evenly spread across actors in the economy, leading to some winners and some losers. More research is needed to evaluate the benefits relative to the loss and to consider policies that reduce potential losses to small businesses when a big box store enters the local community.

 

[1] See for example, NPR. (April 1, 2015) “The Urban Neighborhood Wal-Mart: A Blessing or a Curse?” https://www.npr.org/2015/04/01/396757476/the-neighborhood-wal-mart-a-blessing-or-a-curse

[2] Friedman, Thomas L. 2005. The World Is Flat: A Brief History of the Twenty-First Centurey. New York: Farrar, Straus and Giroux. pp. 129.

(Photo by frankieleon is licensed under CC BY 4.0)

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Diane Charlton

Diane Charlton is an assistant professor in the Department of Agricultural Economics and Economics at Montana State University. She received her Ph.D. in agricultural economics from the University of California, Davis. She has done research on agricultural labor markets in Mexico and the United States along with researching the determinants of migration. She never tires of talking about agriculture with her sister and brother-in-law from their almond orchard in the Central Valley of California, and she is looking forward to learning more about and researching agricultural production in Montana and the northern Great Plains.

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