Is Wal-Mart smothering small town America?

Entenza, Rachel R. ; Maniam, Balasundram ; Leavell, Hadley 等

ABSTRACT

Everywhere there is evidence of new establishments being built. It seems that cities are now reaching out further and small towns growing up over night. Some call it progress; others call it sprawl. One of the most recognizable faces popping up in the new development is the brainchild of Sam Walton, the founder of Wal-Mart. New Wal-Marts are being constructed as currently estimated at the rate of one a day. These superstores invite strong feelings pro and con and the effect of their presence is much debated. The purpose of this paper is to examine the effects of the discount superstore entering into a community.

INTRODUCTION

Is Wal-Mart an example of the great American dream or a small town nightmare? It is difficult to travel far without finding a Wal-Mart looming on the horizon bustling with shoppers scrounging to save money. Founded in 1962 in Bentonville, Arkansas by entrepreneur Sam Walton, Wal-Mart has grown into a commercial superpower offering products and services in a one-stop shopping format that may include: automotive service, banking, fast food, optometry, photography, and hair and nail salons. Wal-Mart provides low-cost shopping for the cash- strapped consumer. However, the question continues as to whether the end result is positive or negative when Wal-Mart locates a store, which can sometimes be over 200,000 square feet, on the edge of town.

Proponents of the mega-superstore cite the creation of new jobs, lower-priced goods and increased city revenue as benefits. However, many people in the communities are convinced its presence will have negative effects on the smaller, existing community "mom and pop" stores, and lead to the dissolution of a unique small-town atmosphere. Studies as to the effects of introduction of big-box retailers, those with merchandising establishments over 100,000 square feet, have been conducted in various regions with conflicting results. This study will analyze those previous studies and also the various viewpoints for and against the introduction of large discount superpowers into a community. Emphasis will be placed on the introduction of Wal-Mart as it is currently the United States' largest retail establishment. There will also be some discussion as to how currently operating small businesses can perhaps adapt to doing business in the shadow of the giant.

LITERATURE REVIEW

The debate about large retail establishments entering communities is not a new one. Authors have been discussing this issue for almost forty years. "Reactions of a Small Town to a Rumored Discount House," was written in 1965 with many of the same arguments regarding Sears and A&P that are now being voiced about Wal-Mart.

Kenneth Stone researched the introduction of Wal-Marts into Iowa, with data collected on the resulting impact on the host town, non-Wal-Mart towns, cities and small towns. The most comprehensive study done regarding the effect of a discount superstore is "Impact of Wal-Mart Stores on Iowa Communities: 1983-1993."

"The premise of the study is that in areas of somewhat static population (such as in states like Iowa) the size of the retail 'pie' is relatively fixed in size for a geographical area. Consequently, when a well-known national chain like Wal-Mart opens a large store in a comparatively small town, it invariably will capture a substantial slice of the retail pie. The end result is that other merchants in the area will have to make do with smaller slices of the retail pie, or get out of business. In areas of the country where the population is growing rapidly, there is room for more retail establishments and the effect will be diluted considerably" (Stone, 1995).

Unsurprisingly, Stone's findings support the argument that the introduction of a Wal-Mart into a town has a negative impact on already existing businesses resulting in the demise of the pre-existing businesses. Statistical information for the years 1983-1993 such as sales dollars for each retail arena was gathered, analyzed, and compared to pre-Wal-Mart conditions. On a positive note, there was an increase in retail trade due to the Wal-Mart drawing shoppers from nearby towns. Businesses selling merchandise that differed from Wal-Mart's selection usually experienced a slight increase in sales due to a spillover effect but stores competing with Wal-Mart typically experienced a decrease in sales. Neighboring towns that did not have a Wal-Mart experienced decreased sales in nearly all areas except dining. Overall the study reported a change in the shopping habits in consumers, moving from local merchants to discount merchandisers, resulting in the loss of many stores across the state. According to the results of the Stone study of Iowa and the study conducted in the Northeast, there may regional differences in the impact of a Wal-Mart opening. Of the categories of retail studied--building materials, general merchandise, food, auto supplies, apparel, home furnishings, eating and drinking, and drug stores--several had different results.

Barnes, Connell, Hermenegildo, and Mattson (1996) studied the regional impact of introduction of Wal-Mart in the Northeast. The Northeast study cites difference in the results when compared to the Iowa report. Results of the northeast study did not mimic the very negative impact of the reported effects on Iowa. A year after the Wal-Mart introduction, almost every industry reported the number of retail establishments remained constant. The authors of the study contribute these positive results to differences between the two regions such as the population density of the areas studied. The Northeast has a greater population density and the geographical areas studied already hosted a large number of retail outlets that may account for the dilution of the impact expected for the opening of Wal-Mart. The authors also note that the Northeast has had a large consumer opposition to Wal-Mart in recent years and the heightened awareness may have negated the novelty attraction of the new store that other areas may face (Barnes et al., 1996).

Forty years ago, McNeal (1965) was researching the same subject, fears about the impact of Sears & Roebuck and A&P on small towns. The debate about large retail establishments entering communities is not new. Today thee is concern regarding Wal-Mart where in the past there was much to-do over such establishments as Sears and A&P. During the research of this paper, an article surfaced entitled "reactions of a Small Town to a Rumored Discount House," written in 1965. It appears that much of the sentiments expressed by the research subjects in this previous paper, including the reactions of retailers as well as consumers, are still some of the same sentiments described today.

A third study, the Shils report, touches on not only the economic but also the sociological impact that the discount chain may have on small businesses in communities. The majority of the report echoes the study done by Stone regarding the decrease in the number of retail establishments in the areas. It supports the thesis that such mega-retail discount chains have an overall negative impact on the area by citing sociological effects perceived to have occurred since the opening of such a store. Shils goes as far as to declare that a loss of retail stores creates "social instability."

COMPETITIVE ADVANTAGE

The main concern of those opposed to the introduction of a Wal-Mart or other discount superstore is the effect on existing businesses in the community. Category killers are another type of large retailer, described as such because they specialize in one type of product and usually obliterate the competition. Wal-Mart and other national enterprises involve such large networks of stores that the buying power they have in the industry is unmatched. Wal-Mart does not solicit vendors; they solicit Wal-Mart. The financial advantage for manufacturers with a relationship with the super-giant is remarkable. Wal-Mart has such power that they can make demands for products designed specifically for their retail establishments.

Since Wal-Mart is the world's largest retailer of music merchandise, their desires quickly become reality. When Wal-Mart wants artists to produce alternate versions of their albums with cleaner lyrics, the record companies comply. (Peled, 2001). This demand is causing a rift in the industry. For example Wal-Mart demands cheap DVDs which Universal is unwilling to create for fear of damaging the profitable rental business. Meanwhile Warner obliges with its high-volume, low-margin approach. Tandy Brands Accessories sell 39% of its total sales to Wal-Mart; Clorox sells 23% of its total sales to Wal-Mart. In a study by Useem, Schlosser, and Kim, "One Nation under Wal-Mart," they describe the manufacturing executive's trip to Bentonville to close a deal with Wal-Mart. They state, "there are two types of executives these days: those who have learned to play by Wal-Mart's rules, and those who still haven't learned the right answer to ... 'Who's No. 1?'" (Useem, Schlosser, and Kim, 2003)

So can the small business compete in the shadow of a retailer that has the power to set their own price? "Industries that sell commodity products--which are as diverse as drugstores and lumber retailing--have been quick to fall to superstores, notes Dun & Bradstreet's David Kresge" (Ehrenfeld, 1995). Still, some companies have chosen to maintain direct competition with "big-box" retailers. In the attempt to be able to offer comparable prices, many have formed purchasing collectives to be able to purchase larger quantities than possible independently and receive larger discounts. Two of these collectives are the hardware alliances Cotter & Co. and Ace Hardware Corp. These purchasing arrangements have helped some stay competitive (McCuine, 1994).

Although some companies have continued to thrive against Wal-Mart including Dollar General and Save-A-Lot, experts unsurprisingly suggest avoiding direct competition. Dollar General and Save-A-Lot have been able to survive based on low overhead costs; the stores are usually around 6,000 square feet and use palletized displays rather than shelving. They generally carry one brand of an item and use opportunistic purchasing to sometimes beat Wal-Mart pricing (Barron, 1999). Faced with a Wal-Mart or category killer, local retailers have few choices: lost revenues and possibly failure or adaptation and co-existence. Experts recommend differentiation when it comes to competing with a large discount store. Businesses must offer specialty items not carried by the larger businesses or emphasize something that will create a niche market. Customer service and expertise are two of these areas. Faced with a Home Depot in the area, Joe Waksler, owner of a local hardware store employed these methods. He stocks more items per square foot in his 5,000 square foot store because he is able to purchase oddball items not feasible for the big retailer, who buys in volume (White, 2001). Nurseries are also very successful in competition with discounters by specializing in rare or exotic items not carried in superstore garden departments.

Now more and more industries are feeling the pressure from Wal-Mart. Most recently gas stations have found themselves pitted against the sales giant. People are very willing to trade convenience for price. By 2003, over 700 Wal-Marts had gas stations, pumping over one million gallons a day (Useem, Schlosser, & Kim, 2003). As Wal-Mart expands its services, more areas are feeling the pressure.

The issue of the growing rate of Wal-Marts is also a concern when competition is in danger of being eliminated. Many believe that Wal-Mart practices a saturation policy, placing several stores impractically close together to drive out competition. Sam Walton grew his empire by placing large stores in under-served areas. However, today, Wal-Marts are often placed less than 20 miles apart. CEO Lee Scott describes the expansion of Wal-Mart: "We've found that a smaller population than what we originally had thought can support a Supercenter. So you can put two Supercenters--Rogers (Ark.) and Fayetteville--roughly four miles apart. Same thing is true in Dallas, Houston, and Atlanta." And within those four miles Wal-Mart is building new Neighborhood Markets or "Small-Marts" (Useem, Schlosser, & Kim, 2003). Once saturation has eliminated the competition, the least profitable stores are then shut down. In 2002, there were 350 abandoned Wal-Marts in the United States (Jacobus, 2002). This has been referred to as a scorched earth policy of retailing (McCuine, 1994). Some business analysts can not resist expressing sentiment while retaining a business perspective. Michael LaFaive is quoted as saying, "While it can be heartbreaking to personally see small, family-owned businesses get 'crowded out' by the big boys, a proper economic analysis must consider productivity increases in net terms. To this end, it is important to remember that the successes of megastores like K-Mart or Staples is based on the voluntary association of consumers" (1997).

SPILLOVER EFFECT

While businesses in direct competition with discount warehouses do not generally fare well, the introduction of large retailers actually increase sales in unrelated firms such as restaurants due to a spillover effect. In the Stone study, eating and drinking establishments in the Wal-Mart towns grew faster than the state average. People living in a town without a Wal-Mart are traveling to shop at the Wal-Mart towns and consequently dining there. There was a corresponding decrease in sales for eating and drinking establishments in nearby non-Wal-mart towns. Stone attributes the increase in sales in home furnishing stores to the spillover effect as well, since Wal-Mart has a limited selection of these items.

MIXED REACTIONS

Reactions by a community to the announcement of a discount superstore vary from one extreme to the other. In Bristol, Tennessee the town council attempted to sue the townspeople lobbying to block the construction of a Wal-Mart on the grounds of the lost revenues that would be generated by the store.

Many residents support the construction of Wal-Mart because of the low prices offered and the variety of products readily available at the one-stop shop. It is very appealing to think you can get your oil changed and a new car loan all in the same 30 minutes. "The average Wal-Mart carries between 60,000 and 75,000 SKUs (Stock Keeping Units) ... The number of SKUs is used to measure the number of individual items carried by a store" (Clarkin, 1998). Wal-Marts are especially attractive to the low income individuals residing in the town. In the 1965 study McNeal found that 85 percent of the consumers were in favor of a new establishment that would offer lower prices. The crowded parking lots at local Wal-Marts are often filled to capacity, demonstrating that the enthusiasm for lower priced merchandise overrides the opposition. While there are concerns among the public for the welfare of existing merchants, the individual's strongest commitment is more personally related to their own budget. Wal-Mart's low pricing has actually been recognized for helping the United States economy.

"Wal-Mart has begun to generate an economy-wide Wal-Mart effect. Economists now credit the company's Everyday Low Prices with contributing to Everyday Low Inflation, meaning that all Americans--even members of Whirl-Mart, a ritual resistance group that silently pushes empty carts through the superstores--unknowingly benefit from the retailer's clout ... 'You add it all up,' says Warren Buffet, 'and they have contributed to the financial well-being of the American public more than any institution I can think of'" (Useem, Schlosser, & Kim, 2003).

Wal-Mart and large retail establishments also provide more revenue to the community in the form of sales taxes gained from the sale of goods, as well as property taxes that would be paid by the store. According to Stone's study, general merchandise sales in a town hosting a Wal-Mart increased 53.6 percent on average after the first year of the opening. The increase in sales spawns new revenue for the town which can be used at the discretion of the city council. Another example of the benefits of introducing a big-box retailer is the case of the redevelopment of St. Anthony Village, Minnesota. In an effort to revitalize the town's retail district, it was proposed by a city planner to introduce a big-box retailer. At first opposed to the idea for fear of losing the small town identity, the project became a reality when it was estimated that the current property tax of $370,000 would shoot to $2.5 million with the increase in property value (Werner, 2003).

Those against the developments cite several reasons for their opposition. Many view Wal-Mart as a bully and they do not believe that the benefits described by proponents outweigh the costs to the community. Local retailers are the number one opponents, fearing for their future in the face of super-sized competition.

Residents also fear that sprawl will accompany the introduction of a "big-box." Big-box is a term used to describe retail establishments over 100,000 square feet that are typically characterized as large concrete structures devoid of any attempt at a pleasing appearance. Sprawl is the dispersed development outside of compact urban and village centers along highways and in rural countryside. Some of the negatives are:

* the loss of open space and unique natural areas

* overdependence on the automobile and superhighways

* the impact of traffic on air quality standards

* the threat to water quality and aquifers

* the expense of costly new infrastructure

* the homogenization of rural landscapes

* the reduction of wildlife habitat

* the mismanagement of stormwater and sewage

* the deterioration of historic commercial centers (Peled, 2001)

In the past, small town shopping was centered around the downtown district, where many consumers spent time leisurely shopping and socializing. Some blame the demise of these small town activities on the discount warehouse outside of the town center, a concrete eyesore. Aesthetics are also a problem for some people. The image of a cozy, united town is contradicted by a huge concrete building without windows on a plain of seemingly endless blacktop.

The intense struggle that may manifest between those in favor and opposed to a Wal-Mart opening is documented in the film "Store Wars: When Wal-Mart comes to town" by Micha Peled. He chronicles the struggle between the Ashland, Virginia city council and residents, who formed an opposition group called the Pink Flamingos. Although the council wins in the end and Wal-Mart is allowed to open, this documentary takes a close look at the viewpoints involved in such an emotional battle. Many of the points described in this paper are expressed in the film (2001). JOBS

The creation of jobs is often a key selling point to gain support for the introduction of a large store such as Wal-Mart. However, this is open to debate. An employer such as Wal-Mart needs a large staff to operate its facilities. One source estimates that the building of a Wal-Mart introduces 250 jobs into the local community. However, this figure is countered by opposition claims that since Wal-Mart drives other businesses out of business, the net employment effect is closer to 100 (Jacobus, 2002). A dramatic difference was noted by Shil. That survey found that only four percent of respondents saw their employment rising as the result of the new chain, while fifty-nine percent predicted serious losses in employment (1997).

The quality of the jobs created by Wal-Mart is in question as well. Wal-Mart is under scrutiny for many of its labor relations and business practices even though they were voted one of the 100 best companies to work for by FORTUNE magazine. However that survey was by corporate executives and not the line employees themselves. Wal-Mart typically hires part-time, entry-level positions. Generally part-time positions do not qualify for benefits such as healthcare. This results in many workers working for a limited number of hours, at much lower wages, and ineligible for healthcare.

Wal-Mart is also staunchly anti-union. When a union successfully formed in the meat cutting section of one store, Wal-Mart's next move was to remove the meat packaging operations of the store. When threat of a legal battle ensued, Wal-Mart contended that that section was being phased out anyway and the persons who had formed the union were offered other, comparable jobs in the store. The butchers argued this story was merely a cover because the store had just invested in a $40,000 wrapping machine. Wal-Mart officials say that there is an open door policy in regards to the labor relations which renders unions unnecessary.

The United Food and Commercial Workers (UFCW) assert that Wal-Mart squelches employee unionization so that they may maintain control over the masses and maintain sub-par practices (Cray, 2000). Studies have shown that although workers at Wal-Mart enter their positions with pay comparable to the union wage, a significant gap begins to emerge after a period of two years. According to a survey conducted by Wal-Mart itself, employee turnover is due to lack of recognition and inadequate pay (Peled, 2001). Al Norman, a self-proclaimed "sprawl-buster" and one of the largest activists against Wal-Mart warns in an interview that, "We're putting an enormous downward pressure on the quality of jobs in this country" (Raphael, 1999). A Wal-Mart employee takes home on average less than $250 per week (Peled, 2001). The study conducted by Barnes and Connell on the introduction of Wal-Marts in the Northeast showed increased unemployment two years after the introduction of Wal-Mart. They feel Wal-Mart's propensity to hire part-time help explains the lack of positive widespread impact on the unemployment rate of the area (1996).

GIVING BACK

Many large retailers have corporate fundraising programs designed to contribute to the communities in which they are located. Wal-Mart's community involvement program is titled Good Works and has received many awards for its contributions. Wal-Mart is one of the leading supporters of education in the United States as well as the leading supporter of children's health issues. According to the Wal-Mart website, they contributed $196 million to the communities they serve through local grants and programs. Huge corporate donations are definitely a plus to hosting the retailers. These funds may be used to the benefit of the community and its inhabitants.

Even though Wal-Mart donates millions to charitable organizations, its philanthropy has still come under fire. Many report that although Wal-Mart's contributions are high in total dollar figures, their contribution as a percentage of sales is far below traditional industry standards which is estimated at around one and a half percent. Wal-Mart counters these claims with the statement that they are helping communities every day with low prices.

NEW DEVELOPMENTS

It appears that as Wal-Mart's numbers grow, so does the community competition against the store. There have been some towns that have successfully lobbied against Wal-Mart opening. But the opposition has extended beyond community organizations such as Ashland's Pink Flamingos. In some areas legislation is being drafted to prevent big-box retailers from entering. California has hosted several legislative projects. Los Angeles and San Diego have considered legislation that would limit the size of a retail establishment. There are many concerns regarding what would happen when government begins to interfere with capitalism (Desjardins, 2002).

Whether or not legislation is involved, it appears that retailers may be heeding the call of the consumer. There are currently projects being undertaken by the big-box retailers to generate a friendlier image for themselves. Wal-Mart is currently introducing Neighborhood Stores which are less than a quarter of the size of the usual superstore. Other retailers are downsizing as well. Home Depot is experimenting with smaller stores that carry much of the same items but allow easier in and out for those who do not want to fight a crowd to pick up one or two items. Part of this movement may also be due to a study which shows that more than 20 percent of respondents are shopping less at major retailers and more at smaller stores than they were four years ago (White, 2001).

The sensitivity over big business crowding in and damaging communities has become so intense that it has spawned the creation of countless websites aimed at providing information regarding businesses and their business practices. One of these sites is corpwatch.com. Other websites seem to take an almost militant approach to Wal-Mart and other organizations. Two of these are walmartsucks.org and sprawl-busters.com

Just as opposition to Wal-Mart continues to grow, so does the realm of Wal-Mart itself. Wal-Mart is continuing to make efforts to become the only retailer a consumer could need. Although courts recently put a stop to the effort of Wal-Mart to acquire a bank, they continue to propose ways in which to expand. "Some see Wal-Mart's expansion into financial services as the business equivalent of the 19th century 'manifest destiny' doctrine, and one that Wal-Mart is quite content to allow to take its course, however long that may take (Cocheo, 2003).

CONCLUSION

While there may be much hype and negative publicity circulating for Wal-Mart, they have gotten where they are today for one reason, customers like them. This can be evidenced by the overflowing parking lots 24 hours a day, seven days a week. As long as people are shopping at the stores they will continue to succeed. If they face opposition that succeeds in one town they will simply move one town over and open an establishment. The supporters from the initial proposal will follow that store and drain revenues from the first town.

Some changes for the company are anticipated. Changes such as those that have begun with the smaller Neighborhood Markets and more aesthetically pleasing exteriors may help Wal-Mart shake the bully image that it has garnered throughout the last decade. Just as small stores near a new Wal-Mart have had to adjust their marketing strategy, it is anticipated that Wal-Mart too will begin to adapt to appease the consumers. Although there appears to be growing opposition to the erection of stores, this should dissipate along with the growth rate of the stores, due to the advent of Internet shopping and trends that are hinting that consumers are not shopping at massive discounters as much as they were four years ago.

As mentioned earlier, if small stores are going to attempt to compete with Wal-Mart they will need to adjust their marketing strategy. Differentiation appears to be the most effective strategy although some have succeeded in direct competition through the development of purchasing collectives and opportunistic buying or low overhead formats. So the battle continues to rage and ultimately the question of Wal-Marts' has been left unanswered. Is Wal-Mart good for the community or detrimental? The question may fade in importance as the variety of shopping options continues to expand. However, with the remarkable empire that has been created with Wal-Mart, it is unlikely that the company will not continue to draw customers as they continue to adapt to customer wants.

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Rachel R. Entenza, Sam Houston State University Balasundram Maniam, Sam Houston State University Hadley Leavell, Sam Houston State University