Lately Walmart has taken to claiming that its stores are actually good for nearby small businesses, at least those that do not compete in the same product lines. As Walmart tries to elbow its way into cities from New York to L.A., this assertion has become a standard part of the company’s PR rhetoric, repeated in media interviews and marketing materials.
On a website set up to promote its expansion in Seattle, the company contends: “Walmart stores often serve as magnets for other new businesses, large and small. The small businesses that surround our stores generally have products and services we don’t offer or are strong in areas where we can’t compete.”
On a similar web site devoted to its Chicago plans, the retailer even provides a list of the types of small businesses that supposedly thrive in the shadows of Walmart stores. The list includes everything from appliance stores to specialty grocers.
The empirical evidence, though, indicates otherwise.
In a study published in the Journal of Urban Economics, 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 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. Although the impact was greatest in the immediate vicinity, the researchers also documented significant negative effects on competing businesses as far away as a 10-mile radius from the new store.
In addition to the closures, the number of new retail stores opening in the neighborhood dropped sharply.
As for non-competing businesses, the study found that big-box stores generate no positive spillover whatsoever. Nearby businesses offering other products and services neither increased their growth nor expanded in numbers after the big box opened.
The study found that small chains did not fare any better, with the exception of small chain restaurants, which experienced a modest positive effect when a big-box store opened nearby.
Most ominous for cities like Chicago, where about half a dozen Walmart stores have already been approved, the study found that big-box stores have a greater negative impact on local businesses in densely populated cities, compared to low-density suburbs, and the effects are worse still in low-income neighborhoods.
- Mom-and-pop Meet Big-box: Complements Or Substitutes? — by John Haltiwanger, Ron Jarmin, and C.J. Krizan, Journal of Urban Economics, 2010.
- For information on dozens of other studies, see Key Studies on Big-Box Retail & Independent Business