The impact of big-box retailers on communities, jobs, crime, wages and more: Research roundup
Tags: December 16, 2015| Last updated:
Last updated: December 16, 2015
Year zero in the history of U.S. big-box stores was 1962: In that one year, the first Walmart, Target and Kmart stores opened. While the firms’ origins varied, their common focus was on deep discounts and suburban locations. Shoppers would arrive by car, not foot, so what mattered was highway access, acres of parking and massive scale.
In the five decades since, the American retail landscape and built environment have been profoundly altered. At the end of 2015, Wal-Mart had 4,614 stores and Supercenters in the United States, while Target operated 1,805 stores and Best Buy had 1,050. Then there are smaller chains — still huge by any measure — as well as “category killers” and all the diverse residents of the shopping-mall ecosystem. While some big-box retailers have stumbled in recent years, the rise of Internet commerce and the increasing appeal of cities has helped them remain a powerful force: Wal-Mart alone is estimated to employ approximately 1 percent of the American workforce and reported nearly $486 billion in revenue for fiscal year 2015.
All that retail and economic muscle hasn’t come without significant controversy. A 2008 study from the Massachusetts Institute of Technology indicates that Wal-Mart’s rapid expansion in the 1980s and 1990s was responsible for 40 percent to 50 percent of the decline in the number of small discount stores. According to 2014 research in Social Science Quarterly, a similar effect continues: On average, within 15 months of a new Wal-Mart store’s opening, as many as 14 existing retail establishments close. Other research has found that the arrival of Wal-Mart stores was associated with increased obesity of area residents, higher crime rates relative to communities that were not by stores, lower overall employment at the county level, and lower per-acre tax revenues than mixed-use development.
Despite such well-documented effects, big-box retailers are often courted by cities and regions, as suggested by a 2014 paper from the Harvard Kennedy School. A 2011 report by a Missouri metropolitan planning organization found that over 20 years, more than $5.8 billion had been given to private developers in the St. Louis region, with a substantial portion going to retail-oriented projects. And because big-box stores dominate the malls in which they operate, subsidies continue long after opening day: A study of more than 2,500 stores found that 73 percent of mall anchors paid no rent. Instead, mall owners use their presence to attract smaller retailers that pay elevated rates in the hope of benefiting from the big stores. Some research suggests that small retailers in such malls indeed see more patrons, and municipalities that do attract big box stores can see increased tax revenue, although there may be revenue lost when smaller businesses fail.
Still, a 2014 study from researchers at Stanford and the University of Michigan finds positive effects for wages, relative to pay levels traditionally available through small stores and firms: Indeed, the “spread of these chains has been accompanied by higher wages. Large chains and large establishments pay considerably more than small mom-and-pop establishments. Moreover, large firms and large establishments give access to managerial ranks and hierarchy, and manage rs, most of whom are first-line supervisors, are a large fraction of the retail la bor force, and earn about 20 percent more than other workers.”
Given the outsized role that chain retailers play in the U.S. economy, media coverage often focuses on business issues, such as the wave of closures hitting J.C. Penney and other firms, or the rise of “small-box” urban stores. Walmart’s overseas operations get a lot of attention, including its pledge to sell more U.S.-made goods, or an investigation into its use of bribery in Mexico. Workplace issues are also important, such as why openings at the company often attract hundreds of applicants and the company’s February 2015 announcement that it would raise the entry wage to at least $10 an hour by February 2016.
For state and local reporters, particularly those on a municipal beat, the challenge comes in understanding the positive and negative effects that the potential arrival or departure of a big-box retailer can have. For example, if politicians propose tax-increment financing or other tax-based incentives for a retail project, is that an appropriate use of public funds? What are the potential effects — long and short term — on other retailers and employers in the area? Could an expansion of low-wage jobs increase use of taxpayer-funded assistance programs?
Below are a series of studies that shed light on the effects of big-box retailers on other businesses, employment, wages, crime and health. Beat reporters also can find industry statistics and related resources from organizations such as the National Retail Federation, Retail Industry Leaders Association and the International Council of Shopping Centers.
“The Evolution of National Retail Chains: How We Got Here”
Foster, Lucia; Haltiwanger, John; Klimek, Shawn D.; Krizan; C.J.; Ohlmacher, Scott. U.S. Census Bureau Center for Economic Studies paper, March 2015.
Abstract: “The growth and dominance of large, national chains is a ubiquitous feature of the U.S. retail sector. The recent literature has documented the rise of these chains and the contribution of this structural change to productivity growth in the retail trade sector. Recent studies have also shown that the establishments of large, national chains are both more productive and more stable than the establishments of single-unit firms they are displacing. We build on this literature by following the paths of retail firms and establishments from 1977 to 2007 using establishment- and firm-level data from the Census of Retail Trade and the Longitudinal Business Database. We dissect the shift towards large, national chains on several margins. We explore the differences in entry and exit as well as job creation and destruction patterns at the establishment and firm level. We find that over this period there are consistently high rates of entry and job creation by the establishments of single-unit firms and large, national firms, but net growth is much higher for the large, national firms. Underlying this difference is far lower exit and job destruction rates of establishments from national chains. Thus, the story of the increased dominance of national chains is not so much due to a declining entry rate of new single-unit firms but rather the much greater stability of the new establishments belonging to national chains relative to their single-unit counterparts. Given the increasing dominant role of these chains, we dissect the paths to success of national chains, including an analysis of four key industries in retail trade. We find dramatically different patterns across industries. In General Merchandise, the rise in national chains is dominated by slow but gradual growth of firms into national chain status. In contrast, in Apparel, which has become much more dominated by national chains in recent years, firms that quickly became national chains play a much greater role.”
Brianna Cardiff-Hicks; Francine Lafontaine; Kathryn Shaw. NBER working paper, July 2014.
Abstract: “With malls, franchise strips and big-box retailers increasingly dotting the landscape, there is concern that middle-class jobs in manufacturing in the U.S. are being replaced by minimum wage jobs in retail. Retail jobs have spread, while manufacturing jobs have shrunk in number. In this paper, we characterize the wages that have accompanied the growth in retail. We show that wage rates in the retail sector rise markedly with firm size and with establishment size. These increases are halved when we control for worker fixed effects, suggesting that there is sorting of better workers into larger firms. Also, higher ability workers get promoted to the position of manager, which is associated with higher pay. We conclude that the growth in modern retail, characterized by larger chains of larger establishments with more levels of hierarchy, is raising wage rates relative to traditional mom-and-pop retail stores.”
Ficano, Carlena Cochi. Social Science Quarterly, March 2013, Vol. 94, Issue 1, 263-291. doi: 10.1111/j.1540-6237.2012.00857.x.
Abstract: “This analysis examines separately the establishment, birth and death rate implications of Wal-Mart’s entry into a community as a means of reconciling the inconsistency between sizable documented poverty effects and more limited employment and payroll changes from Wal-Mart. I estimate instrumented county and year fixed effects regressions of county establishment birth rate and establishment death rate on the predicted number of Wal-Mart stores and years of operation in a county for the retail sector, the aggregate local economy, and the manufacturing sector, where the latter serves as a falsification test. I find that within 15 months of a new Wal-Mart store entry, between 4.4 and 14.2 existing retail establishments close while at most 3.5 new retail establishments open. The article provides new and strong evidence that, through its effect on establishment births and deaths, Wal-Mart’s expansion has had a larger impact on the employment situations of those working in retail than net employment and payroll numbers would indicate.”
“The Impact of an Urban WalMart Store on Area Businesses: The Chicago Case”
Merriman, David; Persky, Joseph; Davis, Julie; Baiman, Ron. Econonomic Development Quarterly, November 2012, Vol. 26, No. 4, 321-333. doi: 10.1177/0891242412457985.
Abstract: “This study, the first on the impact of a WalMart in a large city, draws on three annual surveys of enterprises within a four-mile radius of a new Chicago WalMart. It shows that the probability of going out of business was significantly higher for establishments close to that store. This probability fell off at a rate of 6% per mile in all directions. Using this relationship, we estimate that WalMart’s opening resulted in the loss of approximately 300 full-time equivalent jobs in nearby neighborhoods. This loss about equals WalMart’s own employment in the area. Our analysis of separate data on sales tax receipts shows that after its opening there was no net increase in retail sales in WalMart’s own and surrounding zip codes. Overall, these results support the contention that large-city WalMarts, like those in small towns, absorb retail sales from nearby stores without significantly expanding the market.”
“Shops and the City: Evidence on Local Externalities and Local Government Policy from Big Box Bankruptcies”
Shoag, Daniel; Stan Veuger. Harvard Kennedy School, Faculty Research Working Paper Series RWP14-019, April 2014.
Abstract: “Large retailers have significant positive spillovers on nearby businesses, and both private and public mechanisms exist to attract them. We estimate these externalities using detailed geographic establishment data and exogenous variation from national chain bankruptcies. We show that local government policy responds to the size of these spillovers. When political boundaries allow local governments to capture more of the gains from these large stores, governments are more likely to provide retail subsidies. However, these public incentives also crowd out private mechanisms that subsidize these stores and internalize their benefits. On net, we find no evidence that government subsidies affect the efficiency of these large retailers’ location choice as measured by the size of the externalities at a given distance, rather than within a certain border.”
“Rolling Back Prices and Raising Crime Rates? The Walmart Effect on Crime in the United States”
Wolfe, Scott E.; Pyrooz, David C. British Journal of Criminology, January 2014. doi: 10.1093/bjc/azt071.
Abstract: “Concentrating on the 1990s, results [of this study] reveal that Wal-Mart is located in United States counties with higher crime rates, net of robust macro-level correlates of crime. Wal-Mart selected into counties primed for the 1990s crime decline, but, after accounting for endogeneity, growth of the company stunted crime declines when compared to matched counties. A Wal-Mart–crime relationship exists. If Wal-Mart did not build in a county, property crime rates fell by an additional 18 units per capita from the 1990s to the 2000s. A marginally statistically significant, yet stable, effect for violent crime was also observed, falling by two units per capita. These findings provide important theoretical implications regarding the influence of specific economic forces on aggregate crime trends and offer important implications for local governments faced with the prospect of Wal-Mart entering their communities.”
“When Walmart Comes to Town: Always Low Housing Prices? Always?”
Pope, Devin G.; Pope, Jaren C. National Bureau of Economic Research, Working Paper No. 18111, May 2012.
Abstract: “Walmart often faces strong local opposition when trying to build a new store. Opponents often claim that Walmart lowers nearby housing prices. In this study we use over one million housing transactions located near 159 Walmarts that opened between 2000 and 2006 to test if the opening of a Walmart does indeed lower housing prices. Using a difference-in-differences specification, our estimates suggest that a new Walmart store actually increases housing prices by between 2 and 3 percent for houses located within 0.5 miles of the store and by 1 to 2 percent for houses located between 0.5 and 1 mile.”
“Walmart and Other Food Retail Chains: Trends and Disparities in the Nutritional Profile of Packaged Food Purchases”
Taillie, Lindsey Smith; Ng, Shu Wen; Popkin, Barry M. American Journal of Preventive Medicine, October 2015. doi: 10.1016/j.amepre.2015.07.015.
Summary: This study looks at the nutritional profile of packaged food purchases (PFPs) from food retail chains. Little is known about the nutritional profile of PFPs from such retailers, which include Walmart, the nation’s largest grocer. The study finds that Walmart’s packaged food purchases in 2000 had a less “favorable” nutritional profile compared to those of other food retail chains. But Walmart purchases’ nutritional profile has improved and was similar to that of other food retail chains in 2013.
“Supersizing Supercenters? The Impact of Walmart Supercenters on Body Mass Index and Obesity”
Courtemanche, Charles; Carden, Art. Journal of Urban Economics, March 2011, Vol. 69, Issue 2, 165-181. doi: 10.1016/j.jue.2010.09.005.
Abstract: “Researchers have linked the rise in obesity to technological progress reducing the opportunity cost of food consumption and increasing the opportunity cost of physical activity. We examine this hypothesis in the context of Walmart Supercenters, whose advancements in retail logistics have translated to substantial reductions in the prices of food and other consumer goods. Using data from the Behavioral Risk Factor Surveillance System matched with Walmart Supercenter entry dates and locations, we examine the effects of Supercenters on body mass index (BMI) and obesity. We account for the endogeneity of Walmart Supercenter locations with an instrumental variables approach that exploits the unique geographical pattern of Supercenter expansion around Walmart’s headquarters in Bentonville, Arkansas. An additional Supercenter per 100,000 residents increases average BMI by 0.24 units and the obesity rate by 2.3% points. These results imply that the proliferation of Walmart Supercenters explains 10.5% of the rise in obesity since the late 1980s, but the resulting increase in medical expenditures offsets only a small portion of consumers’ savings from shopping at Supercenters.”
“Does Local Firm Ownership Matter?”
Fleming, David A.; Goetz, Stephan J. Economic Development Quarterly, August 2011, Vol. 25, No. 3, 277-281. doi: 10.1177/0891242411407312.
Abstract: “A data set for U.S. counties that includes residence status of firm owners is used to assess whether per-capita density of locally owned businesses affects local economic growth, compared with nonlocal ownership. The database also permits stratification of firms across different employment size categories. Economic growth models that control for other relevant factors reveal a positive relationship between density of locally owned firms and per capita income growth but only for small (10-99 employees) firms, whereas the density of large (more than 500 workers) firms not owned locally has a negative effect. These results provide strong evidence that local ownership matters for economic growth but only in the small size category. Results are robust across rural and urban counties.”
“Mom-and-Pop Meet Big-Box: Complements or Substitutes?”
Haltiwanger, John C.; et al, National Bureau of Economic Research, September 2009, Working Paper No. 15348.
Findings: This study quantifies the effects of the entry and growth of multi-store retailers within the Washington, D.C., metropolitan area. Key findings include: Employment growth and survival of independent stores and smaller chains that operate in the same industry as a big-box chain are negatively affected by the entry and growth of big-box stores. Most of the negative effect is due to smaller stores being forced to close rather than reducing the scale of their operations. The negative effect is greatest for stores that are located within one to five miles of a big-box store. In terms of smaller chain stores in other sectors, the results are mixed. The one positive big-box effect is on smaller chain restaurants.
“What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry”
Jia, Panle. Econometrica, November 2008, Vol. 76, Issue 6, 1263-1316. doi: 10.3982/ECTA6649.
Abstract: “In the past few decades, multistore retailers, especially those with 100 or more stores, have experienced substantial growth. At the same time, there is widely reported public outcry over the impact of these chain stores on other retailers and local communities. This paper develops an empirical model to assess the impact of chain stores on other discount retailers and to quantify the size of the scale economies within a chain. The model has two key features. First, it allows for flexible competition patterns among all players. Second, for chains, it incorporates the scale economies that arise from operating multiple stores in nearby regions. In doing so, the model relaxes the commonly used assumption that entry in different markets is independent. The lattice theory is exploited to solve this complicated entry game among chains and other discount retailers in a large number of markets. It is found that the negative impact of Kmart’s presence on Wal-Mart’s profit was much stronger in 1988 than in 1997, while the opposite is true for the effect of Wal-Mart’s presence on Kmart’s profit. Having a chain store in a market makes roughly 50% of the discount stores unprofitable. Wal-Mart’s expansion from the late 1980s to the late 1990s explains about 40-50% of the net change in the number of small discount stores and 30-40% for all other discount stores. Scale economies were important for Wal-Mart, but less so for Kmart, and the magnitude did not grow proportionately with the chains’ sizes.
“The Effects of Wal-Mart on Local Labor Markets”
Neumark, David; Zhang, Junfu; Ciccarella, Stephen. Journal of Urban Economics, March 2008, Vol. 63, Issue 2, 405-430. doi: 10.1016/j.jue.2007.07.004.
Abstract: “We estimate the effects of Wal-Mart stores on county-level retail employment and earnings, accounting for endogeneity of the location and timing of Wal-Mart openings that most likely biases the evidence against finding adverse effects of Wal-Mart stores…. The employment results indicate that a Wal-Mart store opening reduces county-level retail employment by about 150 workers, implying that each Wal-Mart worker replaces approximately 1.4 retail workers. This represents a 2.7% reduction in average retail employment. The payroll results indicate that Wal-Mart store openings lead to declines in county-level retail earnings of about $1.4 million, or 1.5%. Of course, these effects occurred against a backdrop of rising retail employment, and only imply lower retail employment growth than would have occurred absent the effects of Wal-Mart.”
Keywords: consumer affairs, development, crime, obesity, consumer affairs, research roundup, retail, prices, economic impact, brand performance, minimum wage, Supercenter