The Big-Box Swindle: The True Cost of the Mega-Retailers

The Big-Box Swindle: The True Cost of the Mega-Retailers

Date: 28 Feb 2007 | posted in: Retail | 0 Facebooktwitterredditmail

From Multinational Monitor:

Stacy Mitchell is a senior researcher with the New Rules Project, a program of the nonprofit Institute for Local Self-Reliance. She has advised numerous communities on strategies and policies to limit chain store proliferation and strengthen locally owned businesses. Mitchell is the author of Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses (Beacon Press, 2006), as well as Hometown Advantage: How to Defend Your Main Street Against Chain Stores and Why it Matters (Institute for Local Self-Reliance, 2000). She is chair of the American Independent Business Alliance.

Multinational Monitor: What is the big box “swindle?”

Stacy Mitchell: The swindle is that many of us believe that we are doing well by shopping at big box stores, that the chain retailers are bringing us economic growth, prosperity, jobs and low prices. But, in fact, we are paying a huge hidden cost for these retailers. That is the swindle.

MM: But people are shopping at them; they must be happy with what they are getting.

Mitchell: People say, well this is just the free market at work. But I think what’s happening is more complex than that, for a number of reasons.

For one, there are the many externalized costs that these companies impose. These are costs that do not show up on the price tags at these stores, but that are borne by society as a whole. Hidden costs distort the market.

The playing field has also been tilted by government policy, which, for more than two decades, has fostered and underwritten the expansion of big-box retailers while systematically undermining the survival of independent businesses. For example, every year, cities across the country provide hundreds of millions of dollars in development subsidies to retailers like Wal-Mart and Target to help them build new stores. About half the states have enormous tax loopholes that enable multi-state retailers to escape paying all or part of their state income tax.

A third way that the market is distorted is that mega-retailers routinely use their market power to undermine their rivals. They win not by being better competitors, but by using their size and power to gain an unfair advantage. They pressure suppliers to give them special deals that are not available to independents. They often build far more square footage of retail space in a community than the spending power of local consumers can support. They do this because they know that by flooding a market with excess retail capacity, it is a lot easier to capsize independent retailers.  No matter how well-run or popular, independents often lack the deep financial resources to withstand a sustained attack by a global corporation.

Consider what happens if Blockbuster Video locates a new store across the street from an established independent video store, in a neighborhood that only has enough spending on movie rentals to support one video store. Blockbuster doesn’t have to be the most popular of those two stores. All it has to do is to skim off just enough of the independent’s revenue to put it in the red. Blockbuster has the financial wherewithal to operate at a loss and to hang on for as long as it takes. The independent can’t do that, so the independent ends up closing — even though it was the more popular of the two stores. That’s consumer choice in a market where antitrust laws are no longer enforced.

MM: Can you give a brief sketch of the spread of chains over the last two decades?

Mitchell: To some extent, the growth of chain retailers in recent years is a continuation of a trend that started quite a long time ago with A&P and Woolworth. But the pace of chain store growth picked up significantly about 20 years ago and the level of consolidation we have seen over the last two decades is staggering and unprecedented.

The top 10 retail chains 10 years ago had 15 percent of the market. Today, they have 30 percent. Every category is now dominated by two or three companies. Home Depot and Lowe’s, which barely existed 20 years ago, now have half of all hardware and building supply sales nationally. The top five U.S. grocery chains in 1998 captured one out of every four dollars that Americans spent on groceries; today they capture one out of every two. In books, you have Barnes & Nobles and Borders — again, companies that were quite small 20 years ago and today capture half of all bookstore sales. There is Best Buy and Circuit City in electronics; CVS, Walgreens and Rite Aid in the pharmacy market.

And, of course, Wal-Mart dominates them all. Wal-Mart captures one out of every 10 dollars that Americans spend in retail stores. Wal-Mart is the largest grocer in the country. They sell more toys, clothing, CDs, jewelry, furniture and a host of other products than any other retailer in the country.

Over that period we’ve lost tens of thousands of independent businesses, a die-off that is unprecedented in history.

MM: How has retail space expanded during this period?

Mitchell: Since 1990, the amount of retail store space per capita in the U.S. has doubled.

I don’t know about you, but I don’t remember 1990 as being a time when there was a dearth of shopping options in this country.

We now have five times as much retail store space as in Western Europe. Our land binge is even worse than that suggests, though, because for every square foot of store space built in the last 15 years, we also built three to four square feet of parking lots. These companies have transformed the American landscape, with major implications for both the built and natural environment.

MM: What is the Geoffrey loophole?

Read the rest of the interview.

Follow Stacy Mitchell:
Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance, and directs its Independent Business Initiative, which partners with a wide range of allies to implement policies that counter concentrated power and strengthen local economies.