Posted on 02/18/2005 9:20:29 PM PST by Tolerance Sucks Rocks
Thinking Outside The “Big Box”
Brief Analysis
No. 501
Friday, Frebruary 18, 2005
by Pamela Villarreal
Neighborhoods, city councils and the media are debating whether to welcome or discourage big-box retailers. While Wal-Mart comes to mind, big-box retailers are defined as any free-standing store greater than 50,000 square feet, and most big-box stores now range in size from 90,000 to 200,000 square feet. Critics claim that large retailers crowd out mom-and-pop competitors and replace them with windowless warehouses filled with minimum wage workers. Big-box retailers promise economic benefits such as sales tax revenues, jobs, competitive wages and low prices. But do they deliver? Empirical evidence shows that they have provided numerous benefits.
The Development of Big-Box Stores. Over the past 50 years, increasing mobility has made it possible for people to shop greater distances from where they live or work. The increased competition for customers necessitated larger stores. David Boyd of Denison University argues that changing regulations also facilitated the spread of large retailers. Until the federal Consumer Goods Pricing Act of 1975, manufacturers could establish minimum prices at which their products must be sold by retailers. Such resale price maintenance severely limited price competition. The current law, however, allows mass merchandisers to provide manufacturers’ products at a lower price.
Big-Box Benefit: Increased Local Sales. Kenneth Stone of Iowa State University found that retail sales dollars from adjacent counties are lost to counties with big-box stores. In a study on the impact of Menards home improvement stores on Iowa counties, Stone concluded:
Stone also found the effect of Wal-Mart supercenters in Mississippi was similar. Furthermore, he discovered that some stores not in direct competition with Wal-Mart, such as high-end furniture stores, experienced greater sales due to the increase in shoppers attracted to the nearby Wal-Mart.
Big-Box Benefit: More Jobs. Critics assume that the greater competitive edge of big-box retailers comes from their ability to hire fewer workers and pay them less. However, empirical evidence has not found this to be true.
The West Virginia study also revealed that Wal-Mart host counties experienced an average net increase of five new retail firms. Researchers refer to this as the “travel substitution effect”: shoppers who previously drove to larger urban areas now have the incentive to shop in their own town, prompting new firms to cluster around big boxes.
Big-Box Benefit: Increased Productivity. Nationwide, big-box retailers have increased labor productivity, as measured by retail sales per employee:
Since Wal-Mart began the push toward efficient distribution, other stores have copied its practices. Big-box retailers have an efficiency advantage: larger stores can house a greater selection of goods, encouraging more purchases by consumers and more sales per square foot, which enables them to reap economies of scale.
Big-Box Benefit: Lower Prices. Although big-box stores create a highly competitive environment that can crowd out smaller stores, they also reduce prices. Analyzing 102 urban, suburban and rural areas nationwide (with and without Wal-Mart supercenters), a study from the University of Texas at Dallas recently found the presence of a supercenter was associated with a 1.36 point decline in the Consumer Price Index (CPI) for groceries, even when controlling for local differences in the cost-of-living.
Moreover, a recent study from the National Bureau of Economic Research reveals the CPI does not completely reflect price changes when big-box stores such as Wal-Mart replace other stores. In other words, if a new Wal-Mart replaces a competitor, the Bureau of Labor Statistics survey is not adjusted to reflect the lower prices of the new store. This phenomenon is known as “consumer substitution bias” in the CPI. It results in an overstatement of the grocery inflation rate by about 15 percent annually.
The evidence that big-box retailers bring lower prices is not surprising. The cost of re-stocking goods is lower in large stores that use advanced technology, such as optical scanners, in their distribution systems. They pass these cost savings on to consumers.
Conclusion. Undoubtedly, as retail evolves and reduces market inefficiencies, small retailers will be affected. But evolving industries are nothing new; transportation, health care and other industries look far different than they did even a few decades ago. The efficiencies and market benefits brought by big box retailers should not be ignored in community debate.
PING!
If stores like Wal-Mart are so deadly to nearby businesses, why do so many of them have lots of other stores so close by?
The stores exist because people want them to exist. That is where lefties and otherwise well meaning conservatives get mixed up. Walmart and other box stores would not be around if it weren't for the consumer wanting them around, plain and simple. It is businessmen and women that are explaioting this desire, it is capitalism. All the anger is misplaced, if people want to blame someone they should blame society and try to change it. Don't blame capitalism. Sure the stores aren't perfect, but no business is perfect.
No fair using logic to point out the anti-capitalist false claim! Watch it, or you're gonna get a time out!
Amazing concept, and yet somehow brains infected with liberal mind disease just don't understand it. People somehow think it's reasonable to complain that a business does something they don't like (such as allowing customers to smoke) even if they would have no intention of patronizing the business even if it ran things their way. To the extent that there is a market for things like non-smoking restaurants, they'll exist. To the extent that smokers provide a larger customer base than non-smokers, bars that cater to smokers will outnumber those that cater to non-smokers.
Amazing concepts.
I don't do the big box stores..or malls. I have a neigbborhood family owned hardware store that has more selection for instance but slightly higher prices, with more products of US origin. For the selection, easy and fast in and out, great customer service..I will ALWAYS pay more.
To spend 30 minutes in a big box to find one item and wait in a long line is ridiculous.
To spend 30 minutes in a big box to find one item and wait in a long line is ridiculous.
Yup. To the customer who values selection, service, and time more than money, a good smaller store will be more useful. To customers who value price and don't mind the extra time, the big box will be more useful. Different stores for people with different needs.
I use the smaller stores when they have what I need. But its damn nice having that Home Depot when Ace doesnt have what I want/need. Liberals are stupid.
Well said, especially the part about "well meaning conservatives get mixed up."
There are lots of those type of conservatives at this forum on a broad range of topics.
Somehow, "well meaning conservatives" lose sight of liberty and capitalism when it does not suit their agenda.
Why did I think that the "Big Box" was going to turn out to be Barbara Boxer?
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