The “Wal-Mart Phenomenon” –

Charting the Effect of Wal-Mart on Rural America

A Long Range Iowa Study

In a study looking at the impact of Wal-Mart on rural Iowa, over more than a ten year period, Iowa State University professor, Dr. Kenneth E. Stone, came up with some unhappy statistics for towns without a Wal-Mart. Even towns with a Wal-Mart see small businesses suffer when a larger store locates nearby.

The big store trend he calls the “Wal-Mart Phenomenon” includes the effect of not just Wal-Mart, but the symbiotic big box stores that locate around it: Target, Lowes, Home Depot, etc Some of these, Home Depot, Staples, Toys R Us, he calls “category killers’ since they offer such depth in merchandise that general stores cannot compete with the selection.

Stone found that some small towns lose up to 47% of their retail

trade after ten years of a Wal-Mart store nearby.

Stone looked at 34 towns in Iowa that had Wal-Mart stores for at least ten years. He compared the retail performance in these towns to 15 towns of the same population group that did not have Wal-Mart stores. Because of their size, all of the towns surveyed had some sort of regional discount store. A few had older, smaller K-Mart stores.

Towns without a Wal-Mart saw a 34% decline in retail trade over ten years. That works out to one in three businesses disappearing. The decline was not just limited to retail sales either. Other businesses also saw declines. In fact, no category of sales improved for towns without a Wal-Mart over the course of the study.

Even when Wal-Mart isn’t directly selling to a market, other businesses suffer. For example, while there are small food service areas in Wal-Mart, no one goes to Wal-Mart to eat. When driving from one’s hometown without a Wal-Mart to a town with one, the tendency, Stone found, is to eat in the town with the Wal-Mart. That hurts restaurants in small towns. 

Over ten years, towns without Wal-Mart continued to have 9% less in sales than the rest of the state. Other businesses, like home furniture stores, including appliance stores, drapery stores, etc., saw a yearly decline as high as 32%. Building supply stores saw up to 25% changes in sales. Losses pile up year by year- a 9% yearly reduction in sales means that the business is longer sustainable.

For businesses that sell the same products as Wal-Mart, losses exist both in Wal-Mart towns and non Wal-Mart towns. Clothing stores are especially hard hit. (See apparel chart at left). Others, like sporting goods, jewelry, card and gifts, druggists, florists, all go head to head with Wal-Mart. Sales decline up to 17% by the tenth year in Wal-Mart towns. For non Wal-Mart towns, sales wind up 28% below the pre-Wal-Mart level of ten years before.

Stone says, “Compared to the year before the Wal-Mart store opened, it seems obvious that residents are leaving town to shop either in the Wal-Mart towns or larger trade centers” 

In total sales, between 1983 and 1996, sales declined in small towns whether or not they had a Wal-Mart.

• For towns with a population of 2,500-5,000, the decline was 17.2%
• For towns with populations of 1,000 – 2,500, the decline was 29.2%
• For towns with populations of 500-1,000, the decline was 46.5%
• For towns of fewer than 500, the decline was 40%
• And for rural areas, the decline was 61.4%

The non Wal-Mart towns suffered a worse fate than the Wal-Mart towns as their total sales continually decreased over the ten year period, ultimately ending 15% lower than at their pre-Wal-Mart level.

“Small Town Losses. It is clear that among the mid-size towns discussed above, the Wal-Mart towns fared somewhat better than the non-Wal-Mart towns. But what was the impact of the mass merchandiser stores on the hundreds of towns with populations of less than 5,000?  The chart below shows the percent change in sales in these towns from 1983 (the first year Wal-Mart stores opened in Iowa) through 1996.”

It becomes clear that towns of under 5,000 bear the brunt of the discount mass merchandisers. In most cases, these towns do not have the critical mass of retail stores needed to keep customers home to shop, once newer and larger stores locate nearby.

Public Policy Implications. Stone believes that attempts to keep mass merchandisers out are counterproductive and ineffective.

When Vermont attempted to keep Wal-Mart out to protect its small merchants, Wal-Mart simply located across the state line in New Hampshire. Vermont saw business sucked away across the state line.

Municipalities that legislated big boxes out of town were bypassed. Looking at the statistics between Wal-Mart towns and non Wal-Mart towns, the results were unhappily predictable.  However, Stone points out that in some instances, preservation minded citizens ran up against government officials encouraging the big boxes for economic growth and an increased tax base. Stone points out:

 “Quite often they look at the short term benefits of more employment, and increased tax base. But in the long term, the situation often results in the loss of local business, which reduces employment and tax base. In more and more cases, local officials are actively recruiting the mass merchandisers to their communities and offering attractive incentives. Representatives from the outlying smaller towns have the least representation in this decision making process and consequently they suffer the greatest losses.

Rural communities have been losing retail sales to larger communities since the Sears catalog came out. However, the leakage of retail trade from small towns has accelerated in the last two decades with the rapid proliferation of discount mass merchandisers in the larger towns and cities. Studies in Iowa have shown that towns with populations below 5,000 have lost nearly half their retail trade.”

There are multiple implications here for West Kentucky. There are many towns that are nowhere near populations of 5,000 that are in serious risk of fading into memory. For our aging population, driving to the big box store will become increasing difficult. If big boxes stores offer generally minimum wages and no benefits, what strain will that put on community resources to care for their employees?

Other articles in this series will bring the questions and some answers closer to home.

To read the complete study, go to http://www.seta.iastate.edu/retail/publications/10_yr_study.pdf