A Walmart Comes to Town: Economic Impacts

Wal-Mart is the largest retailer in the world, their core business is a chain of large discount department and warehouse stores operating in various formats around the world. Founded in 1962 by Sam Walton and headquartered in Bentonville, Arkansas, their 2010 10-K reported $405.0 billion in sales (Annual Report, 2010). From the beginning, his guiding philosophy for his stores was to offer consumers a wide selection of goods at a discounted price. The strategy of the company is to locate stores in small towns where residents have few options for retail shopping. According to a recent article by Ronnie Lankford, Wal-Mart opens a store somewhere in the world every two days. Their staggering growth traces directly to its pioneering of an innovative business model that features sophisticated supply chain management and aggressive cost-cutting (Walton and Huey, 1993). Ultimately their success in small towns ironically has led to criticism that they took business from the smaller "mom and pop" stores, often forcing them out of business. This paper will pros and cons of 2 points of view, first for those owners of small businesses near a Wal-Mart store opening, and second from those nearby residents that will be affected - in some way - from the store's location.

One of Wal-Mart's many strengths is that they provide consumers with a great selection of quality merchandise at comparatively low prices, coupled with friendly service; shoppers are enticed to return again and again to great deals. It is not uncommon to find shoppers that don't support the Wal-Mart "machine" but are forced to shop there because there is no other option. As a retailer, they offer electronics, clothing, home essentials, pet supplies, toys, gardening products, shoes, groceries, movies, books, DVDs, video games, HDTVs, bedding and health and beauty products. Examples of name brands are well-known providers of quality products that include Apple, HP, Kodak, Sony, Dell and others. Their web site, Walmart.com, offers consumers an even wider selection of goods as it includes discontinued items along with free shipping to any store location. Finally, in 2003, 7.5 cents of every dollar spent in any store in the United States (other than auto parts stores) was spent at Wal-Mart (Mui, 2008).

When a Wal-Mart comes to town depending on the area, other stores come in as well. It is not uncommon that 4-5 retailers, 5-6 restaurants follow resulting in a large shopping district paying lots of sales tax to the local communities. A similar affect is seen when a McDonalds places a store on a corner and within months, there is a Burger King, a Wendy's and a Kentucky Fried Chicken (or similar fast food restaurants) on adjacent lots (Stevenson, 2009). Increased traffic means increased sales. On the other hand, having a Wal-Mart in a market makes roughly 50% of the nearby discount stores unprofitable. Wal-Mart's expansion from the late 1980s to the late 1990s explains about 40-50% of the net change in the number of small discount stores and 30-40% for all other discount stores (Jia, 2005). Wal-Mart stores also add to the quality of life in large and small communities because they provide consumer choices at a single location that otherwise such time saving and convenience would not allow. While a Wal-Mart store will add as many 300 - 500 jobs to a community, the poor pay contributes to low standards for their employees, with extremely low benefits and Wal-Mart has one of the highest employee turnover rates above industry counterparts, indeed they turn over nearly half their entire workforce every year (Frontline, 2004).

Residents of towns that are about to open a Wal-Mart see it as a good thing because of the convenience offered by "one stop shopping,"