Frequently Asked Questions regarding Wal-Mart's effect on area Small Businesses
Q: Will Wal-Mart create more retail sales in the Midway area?

A: Not necessarily. Retail sales in a given geographic area are a relatively fixed "pie". At any given time, one thousand people can only wear one thousand pairs of underwear. Likewise, they can only eat so much bread and use so many Q-tips. Without an increase in either population or household income, the retail sales that Wal-Mart gains will be sales that another retailer loses.
A study of seven Iowa counties revealed that "84% of all sales at the Wal-Mart stores come [at the expense of] existing businesses."(1)

Q: What impact does Wal-Mart have on overall area retail sales?

A: In the long-term, area retail sales may decline. While area sales will likely increase in the short-term, the full impact of a Wal-Mart is felt 5 to 10 years after its arrival, when many small businesses will have closed.
According to Iowa State University Professor Kenneth Stone.s study of 34 Iowa towns, the "total sales for Wal-Mart towns increased by six percent by the second year and held nearly steady through year seven. However, by year eight, a decline began and by year 10, sales were four percent below the pre-Wal-Mart level.. the non Wal-Mart towns, however, suffered a worse fate than the Wal-Mart towns as their total sales continually decreased over the 10-year period, ultimately ending up 15 percent lower than the pre-Wal-Mart level." In fact, his study revealed that "some small towns lose up to 47 percent of their retail trade after 10 years of Wal-Mart stores nearby."(2)

When faced with a proposed Wal-Mart, numerous cities have done Economic Impact Assessments and come to similar conclusions:

  • South San Francisco "projected a loss of sales to the area of $11 million to $24 million per year and the closing of up to 30 businesses."(3)
  • Greenfield, Massachusetts judged that the construction of a 134,272 s.f. Wal-Mart "would lead to a loss of 239,000 s.f. in retail space, with a loss of nearly $36 million to existing businesses."(4)
  • North Elba, New York ruled that an incoming Wal-Mart "will likely result in a large amount of impacted retail space, which could take up to 14 years to refill, over 20,000 s.f. of which could become chronically vacant."(5)

Q: What is the difference between Wal-Mart and Kmart?

A: About $27.8 million per year in Midway sales. Wal-Mart is 8 times the size of Kmart and sells over twice as much per square foot. In 2002, Wal-Mart had $244 billion in sales(6); Kmart had $30 billion(7). Wal-Mart's average sales per sq ft in 2002 was $455; Kmart's sales per sq ft for the same year was $212.

With 114,608 sq ft of space in the Midway Marketplace store, Wal-Mart is expected to have nearly $27.8 million in sales that Kmart never had.
With $52.1 million in sales projected for this Wal-Mart and 84% of those sales likely to come from existing retailers, a projected $43.8 million in sales will be lost from existing Midway retailers.

Q: What businesses are most affected by Wal-Mart?

A: Any retailer that sells what Wal-Mart sells will be negatively affected. Some businesses, however, will be positively affected. As a rule, businesses that sell goods and services that Wal-Mart doesn't do better than businesses that directly compete with Wal-Mart. For example, home furnishing stores and some eating establishments see business increase when a Wal-Mart is built nearby. However, Wal-Mart negatively impacts neighboring apparel and shoe stores, stores that sell building materials, including lumberyards, hardware stores, paint & glass stores, grocery stores, specialty stores, including drug stores, sporting goods, card and gift shops, fabric stores, and jewelry stores. Businesses providing any service that Wal-Mart provides, for example, optical services and car repair, also suffer losses.(8)

Q: What is Wal-Mart.s competitive advantage?

A: Wal-Mart cuts costs. The size, scope, and speed of its operation are currently unmatched. By controlling its own logistics and co-managing its inventories with its suppliers Wal-Mart is able to cut costs at every stage of the process. For example, when controlling labor costs Wal-Mart has used these three practices:

  • Cutting employee healthcare: Wal-Mart passes on staffing costs by restricting employee health benefits: "Last year, average spending on health benefits for each of the company's roughly 500,000 covered employees was $3,500, almost 40% less than the average for all U.S. corporations and 30% less than the rest of the wholesale/retail industry."(9)
  • Refusing to pay overtime: Wal-Mart has systematically asked thousands of employees to work off-the- clock or simply deleted employees. hours from time cards. "There are currently 37 separate off-the-clock cases seeking class-action status in 29 states..." including, most recently a case filed in Minnesota's Dakota County District Court.(10)
  • Paying women less than men: Wal-Mart is currently being sued for what would be the largest sex discrimination case in the history of the U.S. For example: Women employed by Wal-Mart on average make 5-15% less than men working in the same jobs. 65% of Wal-Mart's hourly workers are female, while only 33% of its managers are. Women employed hourly on average make $.34 less an hour than males working in the same positions.(11)

Q: Does Wal-Mart really have the lowest prices?

A: On some items: yes; on most items: no. Wal-Mart frequently uses "loss leaders", pricing popular items at or below cost in order to attract customers. According to Kenneth E. Stone of Iowa State University, Wal-Mart "has created an illusion that the prices of each of the 75,000 products carried in a typical Wal-Mart store are the lowest. In fact, that is only true for about 1 percent of the products, but those products are the ones popular with consumers -- General Electric lightbulbs, name-brand shampoos, deodorants and cleaning products."(12)

Wal-Mart's practice of selling items below cost has repeatedly led to charges of predatory pricing. In a case brought by a group of Arkansas pharmacists, "Wal-Mart did admit selling below cost, but denied the predatory charge. David Glass, Wal-Mart's CEO, said that the Bentonville, Arkansas retailer regularly sells a variety of items below cost, including such standards as Crest toothpaste and Listerine mouthwash."(13)

Q: How much does Wal-Mart spend with neighboring non-retail businesses?

A: Less than it might. Local businesses spend more of their money with local suppliers and service providers.
A recent study in Maine compared Wal-Mart to locally owned business and discovered that when local residents spend $100 at Wal-Mart "their purchase generates $14 in local spending by the retailer. That same $100 spent at a locally owned business generates $45 in local spending, or three times as much."(14)

In other words, 86 cents of every dollar spent at Wal-Mart leaves the local community.

(1)Thomas Muller and Elizabeth Humstone, "What Happened When Wal-Mart Came to Town? A Report on Three Iowa Communities with a Statistical Analysis of Seven Iowa Counties", For the National Trust For Historic Preservation, May, 1996, pp.8.
(2)Kenneth E. Stone, "Impact of the Wal-Mart Phenomenon of Rural Communities," Increasing Understanding of Public Problems and Policies, Farm Foundation, Oak Brook, IL, 1997.
(3)Lansing State Journal, June 5, 2003, "When Wal-Mart arrives, towns should tremble", Robert Potter.
(4)Economic Impact Studies, A Sampler: Studies of Big Box Retailers Conducted in Various Communities, Compiled by Al Norman, Sprawl-Busters, 1997, p. 25.
(5)Town of North Elba Planning Board, Statement of Findings and Decision, Proposed Wal-Mart Store, January 9, 1996.
(6)10K Report filed with the Securities and Exchange Commission, Kmart Corporation, file # 001-00327, filed on March 24, 2003.
(7)10K Report filed with the Securities and Exchange Commission, Wal-Mart Corporation, file # 1-6991, filed on April 15, 2003.
(8)Small Business Forum, Spring 1991, Vol. 9, No. 1, "Competing with the Mass Merchandisers", Kenneth E. Stone.
(9)Wall Street Journal, September 30, 2003, "Wal-Mart Cost-Cutting Finds Big Target in Health Benefits", Bernard Wysocki, Jr. & Ann Zimmerman.
(10)St. Paul Pioneer Press, September 11, 2003, "Wal-Mart sued for labor abuses," Julie Forester.
(11)Business Week, March 3, 2003, "No Way to Treat a Lady," Wendy Zellner.
(12)The Hartford Courant, March 17, 1996, "David Vs. Wal-mart", David Owens.
(13)The Shils Report, Measuring the Economic and Sociological Impact of the Mega-Retail Discount Chains on Small Enterprise in Urban, Suburban and Rural Communities, Edward B. Shils, Ph.D., Director Emeritus, Wharton Entrepreneurial Center, The Wharton School, University of Pennsylvania, February 7, 1997, Ch. VI, pp. 127.
(14)The Economic Impact of Locally Owned Businesses vs. Chains, A Case Study in Midcoast Maine, Stacy Mitchell, Institute for Local Self-Reliance, September 2003, pp.3.