The Wal-Mart Effect: How the World's Most Powerful Company Really Works--and How It's Transforming the American Economy by Charles Fishman

Author:Charles Fishman
Language: eng
Format: mobi
Publisher: Penguin Publishing Group
Published: 2006-01-18T14:00:00+00:00

THE DEAN OF WAL-MART scholars is a professor and economist named Kenneth E. Stone, now retired from Iowa State University’s extension service. Back in 1988, when Wal-Mart was one fourteenth the size it is now, a mere $21 billion in sales, Stone authored the study “The Effect of Wal-Mart Stores on Businesses in Host Towns and Surrounding Towns in Iowa.” The typescript of that paper is available for downloading at Stone’s Web site—it actually appears to have been typed on a typewriter. When Stone set out to systematically analyze the impact of Wal-Mart on Iowa’s small towns, no one had undertaken anything like such a study before. Stone was simply doing his job as an extension economist at Iowa State.

“This study was made in response to a number of calls from chambers of commerce and business people concerning the likely effects of proposed Wal-Mart stores on their businesses,” he writes on the opening page. “In no way is this an attempt to berate the Wal-Mart company; its stellar national reputation speaks for itself.” That caveat wasn’t all that important for this first study, but it would turn out to be prescient.

In the 1988 study, Stone looked at a total of fifty-five Iowa towns with populations between five thousand and thirty thousand. Ten had Wal-Mart stores, and forty-five did not. Although Stone looked at only the first three years of impact of a Wal-Mart’s arrival (Wal-Mart only opened its first Iowa store in 1983), the basic outline of the Wal-Mart effect was clear. In towns with a Wal-Mart, sales of general merchandise leaped dramatically compared to the state average, up 55 percent per capita after three years. In the forty-five small towns within twenty miles of a Wal-Mart, total sales dropped 13 percent after three years, nearly double the decline for similar Iowa towns that weren’t near a Wal-Mart.

But even in the towns with Wal-Mart stores driving dramatic increases in the retail trade, there were losers. Grocery stores lost 5 percent of their sales after three years; specialty stores—drugstores, clothing stores, toy stores, and the like—lost 12 percent of their sales after three years. Even service businesses in Wal-Mart towns lost business—down 13 percent after three years. Here Stone gingerly offered a fascinating bit of speculative insight: “It is a mystery as to why service type businesses lost sales after Wal-Mart stores opened in their towns. Conventional wisdom would suggest that these types of businesses should have benefited from the customer ‘spillover effect.’ One possible explanation is that there may be a perception by many that it is more economical to purchase certain new items at Wal-Mart, rather than having old ones repaired.”

What made Stone’s study possible is that Iowa provided detailed sales tax data for all its 856 towns and cities, by retail category. Stone was able to use that data to calculate retail sales for the towns he studied, by category, and control for changes in population or retail trends. His study, he points out in a single sentence, “does not prove causation.

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