The economic and social impact of Big Box retailers: discussion.

In the early 1950s, downtown "morn and pop" retail stores faced competitive challenges from national corporate commercial retail firms such as Sears, JC Penny, A&P Supermarkets, etc. These national chains not only changed how America shopped for retail goods but also changed how retail goods were sold.

Now Big Box retailers such as Wal-Mart are challenging not only local "morn and pop" retailers but national corporate retail firms such as Sears, JC Penny, A&P Supermarkets, and others. Just like the corporate retail firms did in the 1950s, Big Box Stores such as Wal-Mart have changed how America shops for commercial products, changed customer expectations of retail prices for these products, and changed the distributional structure of retail trade.

The three papers in this session focus on these questions pertaining to the effects of Big Box Stores such as Wal-Mart on rural economies: (1) How do Wal-Mart Super Centers impact local food store sales?; (2) How do Big-Box Stores such as Wal-Mart impact human resource practices and market competition?; and (3) How does Wal-Mart impact community social capital stocks?

Artz and Stone estimated the impacts of Wal-Mart Super Centers on food store sales in Mississippi. Super Centers are the fastest growing segment of Wal-Mart stores and they impact existing grocery stores. Given the newness of Super Centers, Artz and Stone explicitly investigate the impacts of Super Centers on local food store sales.

The state of Mississippi was chosen because Mississippi taxes all food items which differ from other states. Also food sales of Super Centers in Mississippi are reported as general merchandise. This provides the opportunity to use grocery sales to show the impacts of Super Centers.

Artz and Stone employ difference-indifference estimation strategy. The differencing allows county fixed effects to disappear (Holtz-Eakin, Newey, and Rosen 1988) and allows the estimation of changes in grocery store sales trends potentially caused by Wal-Mart Super Centers. Also Artz and Stone account for the impact of endogeneity of Wal-Mart Super Store openings through instrumental variables.

Results of the Artz and Stone article show that Wal-Mart Super Stores have a negative effect on rural grocery store sales during the first two years. However after two years, the Wal-Mart effect dissipates. Artz and Stone also found that entry of Wal-Mart Super Centers not only brings lower prices from the Super Center but through competition reduces prices of competing stores.

Davis et al. use U.S. Census Bureau Longitudinal Employer Household Dynamics data to determine if introduction of Big Box Stores impact entry and/or exit of internal labor markets (ILMs) and noninternal labor markets (non-ILMs). Also, a Super Market Panel survey was used to study the impact of Wal-Mart on human resource practices.

Findings by Davis et al. show considerable heterogeneity in human resource practices. Even with the influence of Big Box stores on grocery store operations and human resource procedures, human resource practices of existing grocery stores change very slowly. Local labor markets are impacted more by entry and exit of firms rather than policies and practices of existing firms. What is unclear is the competitive pressures on existing grocery stores whose human resource policies do not change in the face of entry of Big Box Stores such as Wal-Mart.

Goetz and Rupasingha investigate the impacts of Big Box Stores such as Wal-Mart not from changes in local commercial retail sector structure but impacts to local social and civic capital. Goetz and Rupasingha indicate from a sociological viewpoint, the location of Big Box Stores such as Wal-Mart sometimes yields a loss in local leadership class. Results from Goetz and Rupasingha suggested that Wal-Mart does reduce overall social capital. This loss may be small but is statistically significant.

If results of Basker (2005) are included where entry of Wal-Mart caused four small businesses to close within five years, the impact to social and civic capital are evident. Research by Goetz and Rupasingha suggested that community leaders should be cautious in giving location incentives to Big Box Stores such as Wal-Mart given its potential erosion of local social and civic capital. However local municipalities realizing the impacts of unfunded community service mandates from devolution and reduced public support for property taxes may find the only avenue available for increased local revenues are sales taxes. Therefore local governments may have to balance loss of social and civic capital with potential source of increased sales tax revenue.

These three studies add to the on-going research of Big Box Stores such as Wal-Mart and their impacts on rural economies. As economist, a broad spectrum is required in estimating social welfare of Big Box Stores. Not only are there costs as shown in these three papers but positive impacts of Big Box Stores need to be included. In previous studies of rural commercial sector in Washington and Wyoming (Barkley and Rogers 1992; Bradley and Rhodd 1989), rural commercial product prices were found to be higher than metropolitan commercial product prices. Big Box Stores bring lower commercial product prices to rural consumers which for the rural poor is a positive attribute. Additionally, rural consumers often find limited commercial sector selection (Barkley and Rogers 1992; Bradley and Rhodd 1989). Big Box Stores such as Wal-Mart not only offer lower consumer product prices but also more consumer product variety.

Results of these papers indicate trade-offs between Big Box stores such as Wal-Mart as to competition with existing commercial sector stores, lower commercial sector prices, lower wages, and expanded commercial sector goods and services availability. Local governments need to weigh the options of expanded retail taxable sales with increased social costs caused by lower commercial sector employee wages and employee benefits. Unintended consequences need to be evaluated by local economic development practitioners before granting tax abatements to Big Box Stores such as Wal-Mart.

References

Holtz-Eakin, D., W. Newey, and H. Rosen. 1988. "Estimating Vector Autoregression with Panel Data." Econometrica 56:1271-395.

Barkley, P.W., and D.M. Rogers. 1992. "Cost and Availability of Selected Consumer Goods and Services in Rural Washington Towns." Community Economics Series, Western Rural Development Center, Oregon State University, WRDC-39.

Basker, E. 2005. "'Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion." Review of Economics and Statistics 87: 174-83.

Bradley, E.B., and J.D. Rhodd. 1989. "Cost and Availability of Consumer Goods and Services." University of Wyoming Cooperative Extension Bulletin B-922, University of Wyoming.