Wal-Mart Helps, Doesn’t Hurt, Local Mom and Pop Stores

Published October 8, 2008

Media people, union officials, owners of small stores, politicians, and many others routinely criticize Wal-Mart for nearly as many reasons as there are suppliers unloading their wares at the retail giant.

But a new report by West Virginia University economics professor Russell Sobel refutes one of the biggest gripes about Wal-Mart—that it drives mom-and-pop establishments out of business and causes people to lose their jobs.

“Has Wal-Mart Buried Mom and Pop? The Impact of Wal-Mart on Self Employment and Small Establishments in the United States” follows on Sobel’s previous work with budding entrepreneurs.

“I would be helping students starting small businesses, and I would hear some of them complaining about how Wal-Mart is eliminating opportunities for entrepreneurs,” Sobel said. “And I realized that nobody’s ever really looked at the aggregate impact of Wal-Mart, specifically on small businesses.”

Two Sides of Coin

Most research offered by Wal-Mart’s critics looks only at one side of the equation while ignoring the other, Sobel said.

A report released by Wal-Mart Watch (an anti-Wal-Mart group) in 2005, for example, claimed the company’s expansion in Iowa was solely responsible for closing 1,581 mom-and-pop stores. Sobel says that claim would indicate a failure of 11.3 percent of all Iowa businesses and the collapse of almost 30 percent of all small businesses in the state.

At the root of such exaggerated reports is deficient economic research and a refusal to acknowledge the positive benefits along with the changes wrought by an economy in flux, Sobel said.

When the whole story is told, “Wal-Mart, unequivocally, had no effect on the total number of small businesses and the small-business sector—no matter how you look at it,” Sobel said.

More Small Businesses

According to Sobel’s report, released this spring, since 1985 the number of small establishments—those with fewer than 10 employees—”remains practically unchanged,” while self-employment actually rose 50 percent between 1969, when there were only a few Wal-Mart stores, to 2001, when more than 2,500 were doing business.

While the average self-employment rate was nearly a percentage point lower in the five states with the highest number of Wal-Mart stores per capita in 2000, the number of small businesses is actually larger than in the five states with the fewest Wal-Marts.

The average number of businesses with five to nine employees per 100,000 residents in the five states with the highest number of Wal-Marts was 115, and was only 89 in the five states with the lowest number of stores.

In Arkansas, where Sam Walton created Wal-Mart, mom-and-pop businesses are thriving. There are 221 firms  with one to four employees and 3.1 Wal-Marts per 100,000 residents.

In New York, which has only .08 Wal-Marts per 100,000 residents—the lowest in the nation—there are nearly the same number of firms (220) with the same number of employees, and actually fewer firms with five to nine workers (83) than in Arkansas, where there are 124 firms with five to nine workers per 100,000 residents.

If anything, Sobel’s work shows Wal-Mart is having a positive impact on the small-business sector.

Growth Elsewhere

The report does not deny some directly competing businesses will close when Wal-Mart comes to town, but opponents tend to focus on those firms without factoring in the growth that occurs in other sectors.

Sobel points to Morgantown, West Virginia as an example.

“When Wal-Mart came to Morgantown a few years ago, some downtown retailers—those competing directly with Wal-Mart’s product lines—closed down,” Sobel said. “But within a few years, new businesses had moved in that offered services and products, their own niches, that couldn’t be found at Wal-Mart.”

One of those businesses—Madeleine’s restaurant—was able to move into a former clothing store, which offered expanded space and an opportunity to grow the business. The firm even earned the “Main Street Morgantown Best Business Relocation” award.

“A lot of our businesses just aren’t affected by Wal-Mart,” said Barbara Watkins, Main Street Morgantown’s assistant director. “Our downtown is thriving, with a variety of businesses, with a number of specialty shops.”

When a Hallmark card shop went out of business, an attorney’s office moved in. Where compact discs used to be sold, a coffee shop is pouring lots of java. A popular destination for kids is Pinocchio’s Books and Toys, which has a large selection of specialty toys and books and costumes not found on Wal-Mart’s shelves. The store even offers balloon deliveries for parties—also beyond Wal-Mart’s purview.

Jim Waters ([email protected]) is director of policy and communications at the Bluegrass Institute for Public Policy Solutions in Bowling Green, Kentucky.

For more information …

“Has Wal-Mart Buried Mom and Pop? The Impact of Wal-Mart on Self Employment and Small Establishments in the United States”: http://www.heartland.org/article.html?articleId=23642