Does Wal-Mart Really Hurt Small Business?

Posted by: Amy Barrett on June 30, 2008

It’s conventional wisdom that when it comes to small companies, Wal-Mart is bad news. The press is full of stories about how Wal-Mart comes to small towns and leaves a trail of failed Mom and Pop businesses in its wake. But is it true?

Turns out the answer is yes and no. According to a paper that will be published in an upcoming issue of the journal Economic Inquiry, Wal-Mart has had no real impact on the number or health of small businesses around the country. Russell Sobel, professor of economics at West Virginia University, http://www.be.wvu.edu/divecon/econ/sobel/co-author of the paper says no matter how you slice it-number of small companies, employees working for small businesses or financial health of small operators-Wal-Mart doesn’t have a positive or negative impact on those overall stats.

But that doesn't mean some small companies don't suffer. Sobel says what tends to happen is that local small companies that are competing directly with Wal-Mart may go out of business when the giant comes to town. But other businesses, mostly likely those that don't go head to head with Wal-Mart, pop up in their place. Painful for those whose businesses go under, but not a hit to the overall small business economy.

How, or if, that equation changes now that gas is over $4 a gallon will be interesting to watch. Already some are predicting Wal-Mart and other big box retailers will suffer as consumers stick closer to home to shop. So does that mean we'll see small grocery stores and other upstart retailers reemerge in small towns where Wal-Mart had previously stomped them out?

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Reader Comments

Lauren

July 2, 2008 07:26 PM

My vote is no.

As any small biz owner can attest to, launching a new business requires startup costs and initial investments of daunting proportions. And that's in the best of times.

The present context of economic downturn, the housing crisis, exponential oil cost explosions, and widespread cries of financial instability does not lend itself to extensive small business growth.

Unless, of course, your family business happens to be offshore oil drilling.

www.dtelepathy.com

website design

July 3, 2008 07:37 AM

Of course it does. This was a needless question to ask.

Lauren

July 3, 2008 10:27 PM

Web Design:

I'm sure you have a number of strong reasons for feeling the way you do.

I'd love to hear the concrete reasoning behind your opinions. I find that listening to other's opinions helps to make me more open-minded.

I based my opinions on watching my mother's experience as a small business owner through differing economic conditions, as well as from news articles such as these:

http://www.foxbusiness.com/blog.html?bbPostId=BEmdkMWG9cPjCz27RgV1CiwxDCzCg0BdY7FpqUCz4QdDiGCLGmN&bbParentWidgetId=B9QaqQATdoWoCwXplrOT1CO

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/03/AR2008070303456.html?sid=ST2008070303747&pos=

and

http://www.latimes.com/business/nationworld/wire/ats-ap_business10jul03,1,7623309.story?page=2

published online by FOX, the Washington Post, and the LA Times this week, respectively.

Respectfully,
Lauren

Tim Leon

July 6, 2008 10:22 AM

Wal-Mart is just another factor that small local businesses must deal with. The owners that are smart are proactive and make sure they offer something that Wal-Mart doesn't offer. The ones that go head to head will no doubt lose as they should if they are that foolish.

Mike Buckley

July 7, 2008 05:54 PM

After reading the actual study, it's clear that Sobel and Dean set out to prove a conclusion that they had already drawn. Their contention that a hot dog stand opening in Seattle somehow compensates for the loss of a 100+ year-old business in middle America is off the mark.

Using this "one small business is just as good as another" mindset, they content that Wal-Mart has had no effect on small business.

In their paper they cite the example of an art gallery taking over the space once occupied by a locally-owned hardware store. What they fail to recognize is the local economic impact of this "swap". Replacing a business that buys and sells merchandise, hires employees, and pumps money back into the economy with a one-man art gallery selling a self-produced "product" with little impact on the economy is not a good trade.

Meanwhile, local residents are forced to buy cheap Chinese-made hardware with little selection and even less service. At the end of the day, the receipts are sent off to Bentonville instead of being deposited in a local owner's account to be put back into the local economy.

Ted

July 12, 2008 12:52 AM

I have to agree with Lauren. I was in the wolesale womens apparel busines for over 26 years before the Wall Marts and Sams and Costco's were in business. I sold on the western US over 1300 specialty accounts. Within a three year period over 700 of those stores had to close due the Wall Mart and other big box retailers. They could not compete at a moderate price level with those stores. If you shop at Wall Mart today in the womens department you will see one brand name, White Stag. Many of you may remember this was a very old manufacture of mens and womens apparel. They closed and the name is now owned by Wall Mart. That price level of merchandise is gone forever. You have to be in the high end merchandise that they cannot sell due to their customer type. But even the high end retailer has been hurt over the last 15 years. They is a place in the market for the Wall Marts of the country but the little guy has suffered by loosing many smaller retailers that just could not compete.

Saurin, New Zealand

July 12, 2008 06:23 AM

i think it will impact on the day to day business of the company. the weekly sales will decline marginally. if the crude prices go further then the company has to rethink on its expansion projects.

Jim Moran

July 13, 2008 03:09 PM

Without a doubt Wal-Mart's expansion brings pricing pressure on small retailers competing directly with the company. On balance, however, I would say that most Small Businesses are better off.

The largest constraints for fledgling entrepreneurs is capital, and to the extent Wal-Mart can mitigate this by providing lower costs for small businesses and their employees I think they're better off on balance.

Jim
http://blog.yipit.com

Phil Nguyen

August 4, 2008 06:19 AM

Well wal mart would give us more material things because they sell them for cheaper. It makes us have a lot of items letsay from China and it profits the Walten brothers. I mean the walten brothers are rich enough I don't think they should consume the small business sector who are ordinary people like me trying to live the American dream. I don't think wal-mart is a good thing. Yes there price is competitive but it just mean we will have more junk in our house, I rather pay a higher price if it ultimantely turn out to help small business owner have there American dream one day I would suppose.

Tim

September 21, 2009 08:12 AM

Yes because I run a small business and alot I hear alot of customers whispering that the prices are cheaper at walmart and that they're just going there instead. We can't beat the prices at walmart because they sell their stuff cheaper than what they pay for, which is wierd. My theory is that they are going to lower there prices of everything until all there competition is out of business and then they are going to raise the prices of everything to make it hardly unaffordable and outrageous. So if you can, help small businesses out because they desperately need it.

Jami Hyde

November 29, 2009 04:26 PM

Absolutely I think that people need to start looking at the real question here? Have Americans really given up on the American dream? The only argument that I hear in this blog that sticks up for Walmart is THIS IS SOMETHING SMALL BUSINESS'S ARE GOING TO HAVE TO DEAL WITH! To whom ever wrote those comments I'm sorry for you. Its disturbing that citizens feel they cannot live with out a Walmart in their lives. Not only is Walmart the largest, richest corporation in the world, they use Dead peasant insurance, they sell all China made products that are made in sweat shops, and there food comes from the darkest of situations. Is this where we have come? We don't carry our selves with dignity anymore? I think that people need to go back before there was a Walmart. Seriously sit down and read the facts. Don't argue an opinion just to believe that you can. We are loosing ourselves and the only way to get it back is to become smart consumers. We should have a Smart Consumers Day!

Sean Daugherty

November 30, 2009 10:29 PM

While some of you may not agree with me on this, I personally believe that Wal-Mart IS running other companies out of business and making a monopoly for itself. Regardless of the new companies trying to start up in an area and not having the funds due to the area where a Wal-Mart has already capitolized the market, there are those shops who were there originally and are now having to sell the company and work for the beast that shut them down to begin with.

Example: In Dickson, TN, there is a Wal-Mart that shut down a Cat's Music and after the music store was shut down, Wal-Mart started matching the prices the music store had to begin with. And I agree with Jami Hyde about those who feel like they NEED Wal-Mart. That's just pathetic. And do you know what's disturbing? AMERICAN FLAGS SAY "MADE IN CHINA". How pathetic is that? Have the American people lost their spines?! Stand up and tell our government to bring our industries home! And furthermore, after what Wal-Mart did to their employee a few years ago, I'm surprised anyone's still shopping there. But, you can hear me rant more about this in my web-show, January 1st.

matt

March 19, 2010 05:49 PM

good gosh people,
quit making this store out to be all evil and ruining small biz. It ruins inefficient buisinesses. walmart has a strong hold on the merch that they sell. find your niche. find what you can sell instead of what walmart sells. try selling clothes without RFIDs in it perhaps. so a mom and pop shop that had the same exact goods as walmart had to shut its doors, well yeah. this is why we dont try and open gas stations across the street from a shell and try to sell gas for a dollar more a gallon.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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