Wal-Mart vs. Mom and Pop

Wal-Mart vs. Mom and Pop May 10, 2008

One of the most common criticisms of Wal-Mart is that it drives small “Mom and Pop” businesses out of business, because they can’t afford to compete with the larger store’s prices and selection. If true, this would be a mark against the company (though whether this downside would be more than compensated by, say, the store’s lower prices and wider selection is a different matter). But is it true?

According to a recent article in Regulation by West Virginia University profs Andrea Dean and Russell Sobel, the answer is: not really. Dean and Sobel compared the number of small businesses in operation to the number of Wal-Marts both by state and over time. What they found was that while the presence of Wal-Mart in a community did affect the types of small businesses likely to be present in that community, it didn’t reduce the number of small businesses in the community overall. In other words, communities with a Wal-Mart tended to have fewer small businesses that were direct competitors with Wal-Mart (for obvious reasons), but they also tended to have more small businesses that weren’t direct competitors.

This isn’t terribly surprising. If people can buy there food and clothing at Wal-Mart using a smaller percentage of their income than they could buying from other stores, doing so will free up money that can be spent on other things, creating business opportunities that wouldn’t be there otherwise.

Dean and Sobel’s article can be found here. As with my post on Wal-Mart a few days ago, I don’t mean to suggest that Wal-Mart is perfect, or that it never does anything wrong. My point is merely that, if this study is correct, then one of the more common criticisms of Wal-Mart is not.

(HT: Cafe Hayek)

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  • Katerina

    For the other side of the coin, see Prof. Kenneth Stone’s work:

    IMPACT OF THE WAL-MART PHENOMENON
    ON RURAL COMMUNITIES

  • Blackadder

    I took a look at Prof. Stone’s paper. According to his own data, towns with Wal-Marts did better than towns without Wal-Marts in pretty much every category. How this is supposed to show that Wal-Mart is hurting rural communities is unclear.

  • From the paper Blackadder cites:

    The oft-cited estimates of Wal-Mart’s alleged negative impact on small businesses, such as the Iowa example, are misleading for several reasons. First, many of those estimates, found in a series of applied policy studies, lack formal econometric estimating procedures. The studies simply compare averages for counties with Wal-Mart stores to those without Wal-Mart stores.

    In short what they did was apply previous research to their econometric model to claim the oft-cited figures could possibly be explained by random variation and therefore aren’t significant. They do a bit of subterfuge by including job gains in non-competitors. The example they cite would be an antique store opening after a hardware store closed or a rafting company opening to account for the increased disposable income. That strikes me as data mining.

    Regardless, it fails to address the actual argument Wal-Mart vis-a-vis Mom and Pop: Mom and Pop support the community with a business plan not dependent upon having 300 employees sucking up welfare benefits.

  • I am horrified that a Catholic blog would defend Wal-Mart, one of the great hollower-out of local community and business.

  • digbydolben

    If people can buy there [sic.]food and clothing…

    Sir, have you seen the statistic regarding how much of Walmart’s apparel is JUNKED after six or seven months of use? The “poor” are NOT expending a “smaller percentage of their income” on Walmart’s JUNK; instead, they are being addicted to mindless, reflexive consumerism, which keeps them fairly pacified regarding the disappearance of their jobs, their environment, their healthcare and the like–as their communities are, indeed, being “hollowed out.”

    The quality of Walmart’s merchandise–as well as their abominable customer service–is, sir, of about the the same level AS YOUR ENGLISH!

    American “business practices” are polluting the whole earth with homogenousness, blandness and assembly-line customer relations–perfectly appropriate for a society that knows no courtesy, no community spirit and precious little critical thinking (and therefore no ability to discriminate QUALITY from JUNK!)

  • Policraticus

    Exactly what M.Z. said. The article by Dean and Sobel does nothing to mitigate the criticism Blackadder mentions because it sidesteps it all together. Subtly deceptive analysis.

  • T. Shaw

    Walmart has prescription drugs at extremely low prices. I imagine they’re trying to run locals and Rite-Aid and the other drug chains out of business.

    We stop at a PA Wally World (big Walmart store with inexpensive beef jerky, Doritos, and pork rinds!!) each year on our way to Canada to fish for bass.

    Aside from bulk mail order, I find the best prices for ammunition (non-FMJ) at Walmart.

    “Praise the Lord and pass the amunition!”

    Sorry, Caryl and Digby!

  • Blackadder

    Mr. Forrest,

    Did you actually read the paper in question beyond the first page or two? If so, then I find your criticism hard to fathom, as your description of the methodology the paper uses is inaccurate. The paper doesn’t rely on the data from previous studies but on Census Bureau data, and they look at all small businesses, not just things like antique shops (they give an antique shop as an example of the type of business Wal-Marts might help, but it’s not like their study is limited to such shops). I can understand being skeptical of econometric studies generally, but I don’t see why the Dean and Sobel study warrants any special distrust (and if it does, you can always look at the study Katerina cited, which shows towns in Iowa with Wal-Marts doing better than towns without Wal-Marts in just about every retail category).

    It is true, as you suggest, that a lot of Wal-Mart employees receive government assistance. I don’t know what percentage of employees working at “Mom and Pop” small businesses receive government assistance, but given that the wages in such shops are typically lower than at Wal-Mart and usually don’t include any benefits, if the rate of small business employees receiving government assistance isn’t higher than for Wal-Mart, it can only be because they wages in such businesses are so low, almost no one but teenagers are willing to work there.

  • Blackadder

    “Sir, have you seen the statistic regarding how much of Walmart’s apparel is JUNKED after six or seven months of use?”

    No, I haven’t. Please provide it for me with accompanying citation.

    I should note that I am, as we speak, wearing a jacket I bought at Wal-Mart two years ago which, strangely, has yet to disintegrate into nothingness (or maybe it has, and I haven’t noticed because I’ve been stupefied by whatever mind control device Wal-Mart apparently uses on its customers that makes them unable to judge the quality of merchandise they sell).

  • digbydolben

    On why we need to boycott Walmart:

    http://www.richardsramblings.com/2004/12/20/boycott-wal-mart/

    Walmart comes dead last in a survey of consumer satisfaction:

    http://www.forbes.com/business/2007/02/19/consumer-satisfaction-survey-biz-cx_tvr_0220consumer.html

    Video about “The High Cost of Low Prices”:

    http://www.amazon.com/gp/product/B000BTH4K4/ref=pd_cp_b_3?pf_rd_p=317711001&pf_rd_s=center-41&pf_rd_t=201&pf_rd_i=1580086683&pf_rd_m=ATVPDKIKX0DER&pf_rd_r=139K9ZWATHAQM1N6SANS

    A “balanced and competent analysis” of the destructiveness of Walmart:

    http://www.amazon.com/United-States-Wal-Mart-John-Dicker/dp/B000HIV0GS/ref=pd_sim_b_title_2

    And the classic indictment of Walmart:

    http://www.amazon.com/How-Walmart-Destroying-America-World/dp/1580086683/ref=sr_1_1?ie=UTF8&s=books&qid=1210523712&sr=1-1

    (Most of these works have PAGES AND PAGES–or MINUTES AND MINUTES–about the poor quality of Walmart merchandise. You might want to check them out. Students of mine laugh at my “old-fashioned” clothes, but when they ask me how old some of my sweaters, jackets and trousers are, and I tell them they’re 15 or 20 years old, their eyes bug out of their heads. The reason? They and their parents buy ALL their apparel, ALL their luggage, ALL their household appliances at Walmart, and they have to replace this junk every two or three years. The idea that something SHOULD be of fine enough quality to last ten or fifteen years is totally alien to them–and probably to you, too, in your Walmart jacket! What NONE of you understand is that you’re actually LOSING money, in the long run, if your purchases have no durability.)

  • Magdalena

    I am not happy about the Walmartification of America, either, but I think the students might simply have been shocked by how long you’ve held on to some of the clothes… I shop locally, at mom and pop places, and I replace most of my wardrobe probably every five to eight years. The stuff doesn’t fit anymore, there’s no more room for it, it’s embarrassingly out of fashion, etc. I think I might have a coat somewhere that is 15 years old.

  • digbydolben

    My clothes fit almost perfectly, and I buy almost nothing that’s currently fashionable, so it is NEVER out-dated; it’s sort of a Brit guy’s way of dressing. Very practical, and a few people, especially some rather sensible women, think it’s “elegant.”

    But I HATE shopping for clothes, and so prefer to buy extremely well-made stuff, so I don’t have to do it often.

  • Digbydolben – Could you please start a blog? I sense it would be one I would enjoy reading 🙂

  • RR

    Who buys clothes at mom & pops? I go to mom & pops for dry cleaning, hair cuts, and breakfast. How many people bought their clothes at mom & pops before Wal-Mart moved in?

    The Hanes boxers and socks I bought at Wal-Mart seem to be holding up just fine. The shampoo and other bathroom amenities are the same kind they sell at mom & pops. Same goes for the food condiments.

    A while back there was talk of a Wal-Mart coming into the area. The grocers jeered. The poor cheered. And there was some racial tension between the two groups. Blacks were very angry over small business owners who were resisting Wal-Mart’s encroachment.

    Liberals: Protecting the working rich from the rise of poor coloreds since 1492.

  • digbydolben

    Matt Talbot:

    http://edouardalxandre.livejournal.com/

    (Except that you have to join livejournal to read the personal stuff, b/c most of my journal is “friends only.”)

  • Liberals: Protecting the working rich from the rise of poor coloreds since 1492.

    RR – I think you mean the Republicans, who’ve traditionally protected the rich (who were described by President G.W. Bush in 2004, in his fake Texas accent as “Mah base,”) from demands of workers for a living wage and humane working conditions. Conservatives since the New Deal (I’m including the “boll weevil” Democrats in the South who became Republicans with dispatch when the Democrats passed Civil Rights legislation in the mid-sixties) have always been Unions’ most reliable opponents when it came time to consider card-check legislation, Occupational safety, or anything else that keeps their rich friends from raking in as much loot as possible.

    Republicans: The real elitists.

  • RR

    Matt, yes the poor get dumped on by both sides and conservatives are worse. At least the liberals can plead ignorance of how their protectionist policies hurt the poor. Conservatives just don’t care. They have big things to worry about. Like gay marriage and the Golden Compass.

  • THANKS, digbydolben – maybe I’ll, sign up for a Livejournal account…

  • Here is a novel idea. Rather than have people’s lives excessively controlled by big government, let us assume that large employers have legitimate interests in making a profit and marketing a product. Their (I hope that is the right usage) employees also have legitimate interests in a fair wages and safe working conditions. Rather than clunky, nation-wide, one-size-fits-all bureaucratic regulations on enterprise, why don’t the business owners sit down with their employees — or, should the enterprise be one where management and employees are too numerous to make this practical — let management and employees name representatives of their own choosing. While ensuring that certain management prerogatives remain at their unilateral control, on matter of wages, hours, safety and other working conditions, allow these representatives to come to some mutually agreeable policy. This way we have decisions made at the level closest to the employees and business owners rather than by legislators far way. And each agreement could be made appropriate to the particular business and craft of workers.

    Wait, maybe this has been thought of before. There (or their?) is something in the back of my head about Leo XIII and Sidney Hillman. Let me check this in Wiki, maybe it is not such a novel idea!

  • Say, Katherine – you may just be on to something there. Perhaps we could call the organization that workers name representatives to a “union.”

    But, what if the company threatens to fire any of its workers that join that union, or retaliates in other ways? Help me think of an entity that might prevent them from using such unfair tactics…

    😉

  • Considering the date of this original post, I would hope that most reviewing this would be clear on the many examples of how big box outlets are permanently ruining small local economies, damaging the environment, forcing small businesses to permanently shut down, exploiting and terrorizing their employees (aka associates), bleeding the social infrustructure by advocating their staff to use public funded services (generally reserved for the poorer classes) to make up for any shortfalls from the low wages.

    Documentaries have been presented over the years which show an undeniable side to the detestable nature and effects of such enterprises.