Capital Commerce

Wal-Mart To Destroy Small Businesses, Time Magazine Reports

September 9, 2009 RSS Feed Print

Here's the lead from a Time magazine story on Wal-Mart from yesterday:

Walmart loves to shock and awe. City-size stores, absurdly low prices ($8 jeans!) and everything from milk to Matchbox toys on its shelves. And with the recession forcing legions of stores into bankruptcy, the world's largest retailer now apparently wants to take out the remaining survivors.

It is certainly true that Wal-Mart has a tendency to "crush competitors," as the headline says. But is it true that, as that last sentence presumes, the more successful Wal-Mart is, the more there will be bankruptcies of smaller businesses?

There's actually some pretty compelling evidence that Wal-Mart could help smaller businesses overall. You can't just look at businesses that directly compete with Wal-Mart. There are also many businesses that do not compete with the retail giant but have customers with more money to spend thanks to Wal-Mart's dampening effect on prices of everyday goods.

I think that analysis makes intuitive sense. So why do people keep writing about Wal-Mart like it's assumed that it is destroying businesses? Yes, there would be more bankruptcies if Wal-Mart gets a leg up on competitors. But that doesn't mean "taking out the remaining survivors," because businesses will also be aided and maybe even created thanks to lower prices.

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I'll keep the numbers small for simple math:
Let's say there's a town or city with 100X People with 12X stores. Walmart puts 10X stores out of business, and with those 10X stores going out of business 60X people lose their jobs.
Walmart hires 6X people. Which means 54X people are out of work.
Now, those 2X stores out of the 12X are still able to stay in business because they don't compete at Walmart.
The 2X Store loses 54X potential customers, but 46X customers are still able to purchase from them. Depending on what the specialty store sells, who knows how many of the 46X people or the 100X people (before) would actually buy from the specialty store.
In any case, 54X people are now unable to feed their children or themselves, or make home payments, car payments, car repairs, etc.
Those 54X people move out of the town. Empty houses start showing up on the block. There's 10X empty stores on main street. The crime rate goes up as desperate people start committing crimes to survive.
The town or city isn't making as much in taxes since 54X people out of the 100X people aren't able to pay taxes, and they have to let police and fire departments go. People start breaking into the 2X stores that survived, and the 2X store's insurance rates go or their losses are really high. Besides, why would these expensive 2X stores want to stay in an area that is now a ghetto? Eventually the 2X stores go out of business or move to a town or city where there is less crime and more people with money.
Even if the 2X stores manage to stay, the whole town or city is ruined because there's no work left for more than half its population.

Juggler of IL 11:56AM August 13, 2011

When customers complain to the people greeter at the door then something is wrong. When associates are working two to four departments something is wrong. When you are told by a manager that you can't help a customer get a cart then something is wrong. If you complain about something, nothing is done, then something is wrong. When people can go to other stores and buy merchandise at the same price or less then something is wrong. When the over all shopping experience at your competitor is better than at your store then something is wrong. I could go on but I think can see a pattern big doesn' mean better

Roy White Jr of AL 9:02AM June 21, 2010

Wal-Mart really does more harm than good. Small businesses tend to PAY and TREAT their employees better. With Wal-Mart hurting small businesses, they can't afford to hire or keep their existing employees. The result is a dastardly economic cycle. The one we are viewing right now.
Corporate giants like Wal-Mart will continue to poison industries until you don't have any option BUT corporate giants, because the bastards put everyone out of business.
A future ruled by giant corporations and no small businesses to turn to? Sounds like doomsday.

Sue of FL 11:32PM February 16, 2010

Wal-Mart To Destroy Small Businesses, Time Magazine Reports

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