Wal-Mart Always Low Prices (And Low Wages)- Always Depending on who you talk to, Wal-Mart is either one of the great American success stories and the driving force behind the upsurge in American productivity, or it is the emblem for low-wage, no-benefit, dead-end jobs, and the destroyer of small business. The reality is that it is all of that. Begun by Sam Walton as a small discount store in Bentonville, Arkansas, it has grown over the last thirty years to become the largest non-governmental employer in the United States responsible for more than 2% of U.S. GDP. With nearly every new store there is a debate about whether a new Wal-Mart is good or bad for the community. Several communities, and one state, Vermont, have banned large discount stores on the argument that what Wal-Mart brings, low priced merchandise and low-wage jobs, is not worth the cost in terms of other lost jobs and lost local character. This web chapter explores the pros and cons of “big-box stores” in general and Wal-Mart in particular. It does so, like the other web chapters, with a local flavour. I use the debate about whether my home town, Terre Haute, Indiana “needs” another Wal-Mart. Who Will be Affected? There are many stakeholders in any “Wal-Mart” debate. There will be winners and losers when Wal-Mart builds a (or another) Supercenter. First, consumers unambiguously win because WalMarts tend to charge substantially less for identical items when comparisons are made between its prices and those of other big grocery stores like Kroger, Safeway, Food Lion, or Albertsons. Second, workers may win or lose depending on two things: 1) whether there is a net increase in jobs or whether the jobs gained at the Wal-Mart are countered by lost jobs at competitors, and, 2) what Wal-Mart pays its employees. Third, taxpayers may win or lose depending on whether or not there is a net addition to sales in the community that results in a net increase in sales taxes. Finally, some of the owners of small businesses and other, existing corporate retailers may be affected negatively, while others may benefit from such an endeavour. Let’s examine some data. Consumers Stand to Gain We’ll take each set of stakeholders in turn, starting with the buying public. The gain to consumers from paying less for their groceries is substantial. The average Wal-Mart Supercenter sells between $75 and $100 million worth of goods in a year. Estimates vary considerably, but a trade association of mass marketers suggests that Wal-Mart’s prices are 22% lower than national averages, while Kroger’s prices are 7% higher. While I drive 15 additional minutes past a relatively close Kroger to shop at the Terre Haute Wal-Mart, I can't say that I save 29% on my grocery bill as a result. I would estimate that, relative to Kroger, my savings are closer to 15%.
Using that estimate, the gain to consumers (per store) is between $11.25 and $15 million annually. On the other hand, if the trade association’s figure of 29% is correct, the boon to consumers may be as high as $29 million (per store). Workers Probably Lose It’s hard to tell what the impact will be on workers because it is unclear whether there will be any net addition (or net loss) to the workforce. If there is a net addition, it may not be great enough to offset the loss associated with the fact that nationally, Wal-Mart's pay is $5 to $10 less per hour (including benefits) than the typically-unionized grocery store’s it is challenging. Nearly every Supercenter that has opened in the last two years has employed approximately 450 people. However, there are problems with that number: first, some of the jobs are part-time. Approximately 65% of employees hired at a Supercenter are full-time. The literature on displacements suggests that between 75% and 133% of such jobs will be displaced elsewhere in the community. (One non-academic source suggests that Wal-Mart gets so much more work out of an employee that the total number of workers falls when a Wal-Mart comes to town.) If we assume that a work year contains 2,080 hours, and, further, if we assume Wal-Mart pays its employees $8 per hour and its competitors pay $18 per hour there will be a loss to the community of workers that is somewhere between $4 million and $10 million per store. Sales Tax Revenues Won’t Be Affected Much The question of whether taxpayers will gain or lose depends on whether the net sales in the state increase. The literature on the degree to which new Supercenters increase total sales in a community suggests that between 70% and 80% of their sales displace sales that would have taken place in that community anyway. The problem with saying that sales taxes would therefore increase is that a) a sizable portion of the sales are for tax exempt items like food and b) very little of the taxable sales would go to people who would have spent their money outside the state. The latter point is important because sales taxes in many states like Indiana go directly to the state. Therefore, whether the sales are in Terre Haute or in one of the neighbouring counties, the sales taxes collected are the same. So, though more sales taxes would be collected in Vigo County, there would be little effect on total sales taxes collections. Some Businesses Will Get Hurt, Others Will Be Helped Another local store, Baesler’s, is owned and operated by a genuinely nice guy. He charges substantially more than Kroger, but he employs nice people, he supports local charities, and he sponsors many local children’s athletic teams. To estimate the impact on the owners of displaced businesses and their lost profits we need to consider the affect that Wal-Mart has on local
businesses. Those businesses that try to compete directly with Wal-Mart almost always lose. Baesler’s thrives because he stocks food products not often stocked at a Wal-Mart. Few people do all of their shopping at Baesler’s but many frequent his store to pick up one thing or another or to buy something Wal-Mart won’t stock. The service Baesler’s store offers and the good he does for the community would, in all likelihood, be lost were he to go out of business. What is also important in the mix is that Wal-Marts tend to lead to the creation of complementary businesses. Fast-food and chain sit-down restaurants often follow, as do other “big-box” retailers like Home Depot, Circuit City and Staples. Wal-Mart can be the instant “critical mass” for a depressed area to become economically vibrant. The Bottom Line The net result is what you would expect. Consumers win and workers lose with the net being somewhat positive depending on the particulars of the community. If the new store simply replaces sales that would have occurred in the town anyway and the gain in employment is offset completely by the closing of other businesses then what consumers gain is approximately equal to what workers lose. If, as is more likely, there is some net addition to employment and complementary businesses grow along side the Wal-Mart then it is a net addition to the community. The local business leaders will gain or lose depending on whether they try to go head-to-head with Wal-Mart (a suicidal venture) or they attempt to complement the Wal-Mart by selling what Wal-Mart does not, service.