Gains From Wal-Mart-Style Stores Not So SuperOP-ED Monday, August 29, 2011
The Aug. 8 edition of the Business Journal carried an op-ed (“State Measure Would Box In Local Communities on Growth”) and an article (“Business Rips Bill’s Superstore Impact”) critical of SB 469, a proposal that would require California cities to conduct economic impact studies before approving Wal-Mart-style superstores. Charles Crumpley followed that up with a similarly themed Comment column (“Unstable Chain Reaction”) in the Aug. 15 issue.
Aside from the technicalities of the legislation, the underlying criticism that it would stymie economic growth in California’s communities is based on a misunderstanding of the dynamics of the retail business. The impact of Wal-Mart-style superstores on the businesses in local communities is often just the opposite of what superstore advocates claim.
I authored the superstore impact study in 2003 for the city of Los Angeles and in recognition of this dynamic, I recommended that an economic impact study be required before a Wal-Mart-style superstore was approved. The city structured its regulating ordinance around my recommendations.
In my 2003 study, updated in June 2010 for the city of San Diego, and in dozens of similar studies conducted across the United States and Canada, this dynamic of retail cannibalization is well documented.
The development of superstores in California and in most other regions of the nation raises a complex range of issues concerning the superstores’ costs and benefits, fiscal implications for local communities, governments and land-use policy.
Simply put, in a mature urban market such as Los Angeles, San Diego, Sacramento, etc., a 100,000-square-foot to 200,000-square-foot superstore with a sales volume of $50 million to $100 million per year must take most of its sales from surrounding retailers within its trade area. This is called “cannibalization of retail sales.”
Consumer retail expenditures are dependent on consumer income. Developing a Wal-Mart-style superstore in a mature urban market does not alter consumer incomes and does not alter consumer expenditures. Consumers merely redistribute their expenditures. Superstore gains in sales largely come from the surrounding retailers’ losses. While a portion of sales can be made up from consumers coming into a trade area, i.e., into the city of Los Angeles from outside the city, this is rarely sufficient to satisfy superstore annual sales volume. Regionally, there would be little or no net new retail sales growth, since retailers outside the trade area would correspondingly lose sales volumes.
No ‘net new jobs’
With no “net new expenditures” there are no “net new jobs” created. In fact, a decrease in retail employment may occur since superstores can generate more sales with fewer employees. Jobs at superstores often pay less with lower benefits than corresponding positions at competitive retailers, particularly jobs at unionized supermarkets or retailers paying union-scale wage and benefit packages.