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Home » News » Walmart: Is it bad for society? The “Walmart Effect” explained

Walmart: Is it bad for society? The “Walmart Effect” explained

As millions of Americans battle inflation, where they shop matters. Walmart offers almost everything to people, but is really beneficial society and small communities to open new stores?

Walmart store where community members pay lower prices but see damage to their local economy due to lower wages.

There are hundreds of options for Americans to shop at both nationally and regionally.

While stores like Wegmans or Kroger tend to be more of a regional store depending on the state, there are other retailers that have taken the nation by storm.

Dollar General has been popping up in low income communities, where the drive to purchase basic products could be miles away.

As for Walmart, they tend to be in the same type of locations.

Often times, when a Walmart opens it has everything people need, causing a burden on small businesses that sell the same types of products at a higher cost in order to make a living.

It costs small communities more than just money when opening a new local Walmart

According to an article published by Business News Daily, opening a new Walmart could be both good and bad for the overall United States economy.

For small town economies, it’s bad for small businesses.

What Walmart does in comparison to what a small business does is not the same.

Walmart sells items at lower costs to consumers which can be good for the individual.

These sales in turn harm the small businesses around the same community.

Small businesses can create employment and growth opportunities as well as being innovative, unlike Walmart.

The major retailer has its benefits when moving to small communities

First, if businesses open closer to or in the same area as the local Walmart, they’re likely to see more foot traffic thanks to the people already there to shop.

Similarly to what Dollar General has been doing, Walmart stores placed in a rural area with little access to shopping choices do not require residents to travel as far to buy basic groceries and hygiene products.

Finally, the prices are significantly lower than they would be at privately owned businesses.

This is good for the customer.

Unfortunately, the retailer has its negative effects on the local economy as well

Walmart pays their employees low wages, which means all the jobs the company supplies to the community aren’t as great as some may think.

By paying a large number of people from the community a lower wage, that’s putting less money back into the local economy.

Walmart is historically known for paying their employees low wages, yet is the largest private sector employer in the United States.

If an economy is already doing well, when the big box store shows up it will lower sales at local businesses and create an unnecessary shift.

The true impact on a community’s economy from a Walmart moving in

In 2012, the Puget Sound Sage did a study on how a new Walmart would impact the neighborhood.

Data found that there would be a total net loss of $13 million in economic output and $14 million in lost wages for a 20 year span of a store being open.

The study was done on a Walmart location that planned to take over a 40,000 square foot building that housed a former grocery store called Skyway.

It looked at the redistribution of consumer sales if a Walmart moved in there.

Studies found that the way people shop would drastically change, moving $25.38 million dollars each year away from already existing retailers to the new Walmart.

This was figured out by looking at 2010 consumers spending on groceries in the Southern Seattle area.

The shifting of where people spend their money would also drop total payroll in the grocery store sector for that area by $655,000 per year.

That amount rises when direct and indirect impacts are considered.

One of the positives found during this analysis was that construction and renovation of the former Skyway created an economic output of $2,67 million dollars.

In addition, the cost of labor was $1.2 million dollars.

This amount was not enough to offset the long term financial damages Walmart would be doing financially to the community.

The analysis showed that overall, a Walmart moving to the local community would cause far more financial harm than good.

What is the actual impact of Walmart and the local labor market?

A study published in the Journal of Urban Economics in 2007 analyzed what the actual impact of a Walmart opening would be on local labor markets.

The study looked at the pattern of where stores opened and when, starting with some of the first store openings in Arkansas.

Evidence showed that stores opening reduced employment at the county level by around 150 workers.

This suggests that Walmart’s opening replaces 1.4 retail workers for every one Walmart worker.

That’s a 2.7% reduction in retail employment on average.

Payroll declines at the county level by about $1.4 million, or 1.5% annually.

The Walmart Effect

According to Investopedia, the Walmart Effect is a term that explains the economic impact that local businesses experience when a Walmart opens in their area.

Walmart has been found to force small businesses to close.

When other businesses close, many people end up working at Walmart, and taking lower wages overall.

The Walmart Effect isn’t only negative, but has positive effects as well.

It can both curb the rate of inflation locally and keep employee productivity high.

Consumers can save a lot of money shopping at a local Walmart compared to a small business.

Negative impacts include suppliers being forced to lower their sale price for Walmart. This effectively forces them to make their items at a cheaper cost.

Due to the size of the company, they get to dictate what they pay to wholesalers. Other companies do not.

Walmart owns over 4,700 stores nationally as well as around 600 Sam’s Club locations.

The Walmart Effect doesn’t only impact Walmart, small businesses, wholesalers, and consumers. It comes full circle to impact the local community.

Members of the local community can purchase items at a cheaper rate. However, they’re the same people that are part of a community that sees a lower economic output in wages.

Walmart has its positive impacts by saving people money. Unfortunately, it comes at a cost of economically damaging those same people’s local community.

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