Walmart effect might be overstated

Tuesday, June 5th, 2012 By

Walmart

The "Walmart effect" on small businesses and real estate values might be overstated. Image from Wikimedia Commons.

Many people shop at Walmart, the chain known for near-rock bottom prices and huge stores, though many believe a new one is the harbinger of doom. However, the “Walmart effect” on things like small businesses and real estate values may be somewhat overblown.

Bringer of low prices and doom

Much has been made of the “Walmart effect.” The idea goes that when a new Walmart, Supercenter or otherwise, is built and opened in a given area, small businesses can’t compete and are driven out of existence. Then, because of less money going into the surrounding community, less high-end retail shops being able to thrive and so forth, real estate values go down with them.

However, it isn’t always the case. A good amount of research suggests the effects of a new Walmart are not as dramatic as one might think.

Depends on the small business

One of the most constant criticisms of Walmart, besides attracting more of the infamous “People of Walmart” type, is that it kills small businesses. There is some basis in fact; according to the New York Daily News, a study by Loyola University, among others, found that after a Walmart opened in Chicago’s West Side neighborhood, 82 local stores had shuttered.

However, it isn’t that simple. According to CBS, a 2009 paper in Economic Geography, an economics journal, looked at data from 1980 to 2004, studying long-term trends in small businesses for three years before Walmart appeared in various areas in Florida. The study found that while some businesses closed, others stayed open and thrived, even when located in close proximity to Walmart. Those stores at the least risk of closing sold products that Walmart doesn’t stock. For instance, a boutique antiques store won’t have to worry.

A similar study appeared in 2008 in Economic Inquiry, another academic economics journal, according to U.S. News and World Report, by two economics professors from West Virginia University. That study found, likewise, that competing businesses in many areas, small discount retailers, are often driven out of business. It is usually because they charge more than Walmart and discount customers want a bigger discount. However, increases were often noted in the total number of small businesses that opened in areas with a Walmart, many of which sold things Walmart does not.

Home values actually rise

Some people have warned against new Walmart stores because of a “Walmart effect” on home prices. However, according to Time magazine, a study published the National Bureau of Economics Research found the opposite was true. Home values in areas around 159 new Walmart stores across the country were found to have risen after the new store was built in the period between 2001 and 2006. Homes within one-half of a mile increased in value by 2 to 3 percent. Homes half a mile to one mile from the new store increased in value by 1 to 2 percent.

Sources

Time

CBS

US News and World Report

New York Daily News: http://articles.nydailynews.com/2011-05-04/local/29523684_1_small-businesses-david-neumark-city-stores

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