INDEX - ECONOMICwww.islandbreath.org ID# 0506-08b
SUBJECT: WAL-MARTING AMERICA
SOURCE: KEN & JANE TAYLOR email@example.com
POSTED: 5 August 2005 - 9:00am HST
Big-Box Economic Impact Studies
published on www.HometownAdvantage.org
Below are summaries and links to key studies that examine the impact of Wal-Mart and other large retail chains and, in some cases, the benefits of locally owned businesses. For ease of use, we've organized these studies into the following categories (though they do not all fit neatly into one category):
1. CITY COSTS
These studies compare the municipal tax benefits of big-box development with the cost of providing these stores with city services, such as road maintenance, police and fire—finding that cities do not always come out ahead.
Institute for Local Self-Reliance
1313 5th St SE Minneapolis, MN 55414
Understanding the Fiscal Impacts of Land Use in Ohio
by Randall Gross, Development Economics, August 2004
This report reviews and summarizes the findings of fiscal impact studies conducted in eight central Ohio communities between 1997 and 2003. In seven of the eight communities, retail development created a drain on municipal budgets (i.e., it required more in public services, such as road maintenance and police, than it generated in tax revenue). On average, retail buildings produced a net annual loss of $0.44 per square foot. "The concept that growth is always good for a community does not seem to correlate with the findings from various fiscal analyses conducted throughout central Ohio," the report concludes. It cautions cities not to be taken in by the promise of high tax revenue from a new development without also considering the additional costs of providing services. Unlike retail, office and industrial development, as well as some types of residential, produced a net tax benefit.
Fiscal Impact Analysis of Residential & Nonresidential Land Use Prototypes
by Tischler & Associates, July 2002
Big box retail, shopping centers, and fast-food restaurants cost taxpayers in Barnstable, Massachusetts, more than they produce in revenue, according to this analysis. The study compares the tax revenue generated by different kinds of residential and commercial development with the actual cost of providing public services for each land use. The study found that big box retail generates a net annual deficit of $468 per 1,000 square feet. Shopping centers likewise produce an annual drain of $314 per 1,000 square feet. By far the most costly are fast-food restaurants, which have a net annual cost of $5,168 per 1,000 square feet. In contrast, the study found that specialty retail, a category that includes small-scale Main Street businesses, has a positive impact on pubic revenue (i.e., it generates more tax revenue than it costs to service). Specialty retail produces a net annual return of $326 per 1,000 square feet. Other commercial land uses that are revenue winners include business parks, offices, and hotels. The two main factors behind the higher costs for big box stores, shopping centers, and fast-food outlets, compared to specialty retail shops, are higher road maintenance costs (due to a much greater number of car trips per 1,000 square feet) and greater demand for public safety services.
Understanding the Tax Base Consequences of Local Economic Development Programs
by RKG Associates, 2001
The city of Concord, New Hampshire provides an example of what can happen when a community allows massive commercial growth while failing to protect its existing economic assets. Over the last 12 years, Concord added 2.8 million square feet of new commercial and industrial development. Yet tax revenue has actually declined by 19 percent. To make up for lost revenue, the town now has one of the highest property tax rates in the state. This study by RKG Associates, an independent economic consulting firm, found that there were several reasons for the declining tax base. One was that new retail development, primarily big box stores, had harmed local businesses. Property values, and subsequently tax revenue, in the older shopping areas had declined sharply.Another factor was that the new development had eroded the value of residential property, probably due in part to increased traffic and noise. The end result was that the city actually experienced a declining tax base despite all of the new growth.
2. STATE COSTS
Because many of their employees do not earn enough to make ends meet, states are reporting high costs associated with providing healthcare (Medicaid) and other public assistance to big-box employees. In addition to the following studies, see Good Jobs First's web page www.goodjobsfirst.org detailing states that have disclosed how much they are spending on providing health insurance for employees of Wal-Mart, Home Depot, Target, and other big-box retailers.
Hidden Cost of Wal-Mart Jobs
by UC Berkeley's Institute for Industrial Relations, August 2004
California taxpayers are spending $86 million a year providing healthcare and other public assistance to the state's 44,000 Wal-Mart employees, according to this study. The average Wal-Mart worker requires $730 in taxpayer-funded healthcare and $1,222 in other forms of assistance, such as food stamps and subsidized housing. Even compared to other retailers, Wal-Mart imposes an especially large burden on taxpayers. Wal-Mart workers earn 31 percent less than the average for workers at large retail companies and require 39 percent more in public assistance. The study estimates that if competing supermarkets and other large retailers adopt Wal-Mart's wage and benefit levels, it will cost California's taxpayers an additional $410 million a year in public assistance.
Everyday Low Wages:
The Hidden Price We All Pay for Wal-Mart
by House Committee on Education & the Workforce, February 2004
Although this study uses different methodology than the one above, it arrives at the same conclusion: Wal-Mart's low wages and meager benefits are costing taxpayers. The average Wal-Mart employee requires $2,100 per year in public assistance, including Section 8 housing vouchers, reduced-cost lunches for dependent children, health care programs, and tax credits for the working poor.
3. ECONOMIC IMPACT
The following studies have found that locally owned stores generate much greater benefits for the local economy than national chains.
The Andersonville Study of Retail Economics
by Civic Economics, October 2004
This compelling study, commissioned by the Andersonville Development Corporation, finds that locally owned businesses generate 70 percent more local economic impact per square foot than chain stores. The study's authors, Dan Houston and Matt Cunningham of Civic Economics, analyzed ten locally owned restaurants, retail stores, and service providers in the Andersonville neighborhood on Chicago's north side and compared them with ten national chains competing in the same categories. They found that spending $100 at one of the neighborhood's independent businesses creates $68 in additional local economic activity, while spending $100 at a chain produces only $43 worth of local impact. They also found that the local businesses generated slightly more sales per square foot compared to the chains ($263 versus $243). Because chains funnel more of this revenue out of the local economy, the study concluded that, for every square foot of space occupied by a chain, the local economic impact is $105, compared to $179 for every square foot occupied by an independent business.
The Economic Impact on Locally Owned Businesses:
A Case Study in Midcoast Maine
by the Institute for Local Self-Reliance, September 2003
Three times as much money stays in the local economy when you buy goods and services from locally owned businesses instead of large chain stores, according to this analysis, which tracked the revenue and expenditures of eight locally owned businesses in Midcoast Maine. The survey found that the businesses, with had combined sales of $5.7 million in 2002, spent 44.6 percent of their revenue within the surrounding two counties. Another 8.7 percent was spent elsewhere in the state of Maine. The four largest components of this local spending were: wages and benefits paid to local employees; goods and services purchased from other local businesses; profits that accrued to local owners; and taxes paid to local and state government. Using a variety of sources, the analysis estimates that a national big box retailer operating in Midcoast Maine returns just 14.1 percent of its revenue to the local economy, mostly in the form of payroll. The rest leaves the state, flowing to out-of-state suppliers or back to corporate headquarters. The survey also found that the local businesses contributed more to charity than national chains.
Economic Impact Analysis: A Case Study
by Civic Economics , December 2002
This study examines the local economic impact of two locally owned businesses in Austin, Texas---Waterloo Records and Book People---and compares this with the economic return the community would receive from a Borders Books store. The study finds that spending $100 at Borders creates $13 worth of local economic activity, while spending $100 at the local stores generates $45 in local economic activity. The difference is attributed to three factors: a higher local payroll at the independent stores (because, unlike Borders, none of their operations are carried out a an out-of-town headquarters office); the local stores purchased more goods and services locally; and the local stores retained a much larger share of their profits within the local economy.
4. EXISTING BUSINESSES AND JOBS
These studies look at how the arrival of a big-box retailer displaces sales at existing
businesses, which must then downsize or close. This results in job losses and declining tax revenue, which some of these studies quantify.
Job Creation or Destruction?
Labor-Market Effects of Wal-Mart Expansion
by Emek Basker, Univ of Missouri, Review of Economics & Statistics, February 2005
Often cited and typically misrepresented by Wal-Mart supporters, this study examines the impact of the arrival of a Wal-Mart store on retail and wholesale employment. It looks at 1,749 counties that added a Wal-Mart between 1977 and 1998. It finds that Wal-Mart's arrival boosts retail employment by 100 jobs in the first year—far less than the 200-400 jobs the company says its stores create, because its arrival causes existing retailers to downsize and lay-off employees. Over the next four years, there is a loss of 40-60 additional retail jobs as more competing retailers downsize and close. The study also finds that Wal-Mart's arrival leads to a decline of approximately 20 local wholesale jobs in the first five years, and an additional 10 wholesale jobs over the long run (six or more years after Wal-Mart's arrival). (Wal-Mart handles its own distribution and does not rely on wholesalers). This works out to a net gain of just 10-30 retail and wholesale jobs, and the study does not examine whether these jobs are part-time or whether they pay more or less than the jobs eliminated by Wal-Mart. The study also found that, within five years of Wal-Mart's arrival, the counties had lost an average of four small retail businesses, one midsized store, and one large store. It does not estimate declines in revenue to retailers that survive. Basker looked at the effect of Wal-Mart on retail employment in neighboring communities, but found that the confidence intervals were too large (meaning the results showed wide variation) to draw any conclusion about Wal-Mart's impact. (Her initial working paper, published in 2002, reported an average decline of 30 retail jobs in surrounding communities, but, after correcting an error, she determined the confidence intervals were too large to produce a precise result.)
Final Report on Research for Big Box Retail Ordinance
prepared for the Los Angeles City Council by Rodino Associates, October 2003
This study concludes that big box stores would harm low-income neighborhoods in Los Angeles by reducing competition, creating blight, lowering wages, and forcing new costs onto taxpayers. By pricing groceries as "loss leaders" and using higher margin non-grocery items to make up the difference, supercenters often force existing supermarkets out of business. Because grocery stores anchor many neighborhood business districts and shopping centers, their closure would harm other retailers and lead to vacancies in areas that are only now beginning to recover from years of economic decline. The report also finds that supercenters would negatively impact job opportunities by replacing union-wage supermarket jobs with a smaller number of lower-paying jobs. Fewer workers would have health care benefits, further burdening public hospitals and health care programs.
The Fiscal and Economic Impact of a Proposed Shopping Center Project on the City of Leominster
by Dr. Thomas Muller, August 2003
This study examines the likely impact of a proposed 510,000-square-foot shopping center, which would include a Wal-Mart supercenter, a Lowe's, a department store such as Kohl's, and four chain restaurants. The study finds that the city already has more retail than residents can support. The proposed shopping center would dramatically worsen the situation. Its projected annual revenue of $185 million is equivalent to 77 percent of the local market's current sales in building materials, groceries, and general merchandise. Since neither population nor incomes are growing, sales at the new shopping center would come entirely at the expense of existing businesses. Competing stores within a 5-6 mile radius would lose $104 million in revenue. Those 5-6 miles further out would lose $72 million. Because of the impact on existing businesses, the 869 jobs created by the center will be offset by about the same number of job losses. After accounting for the cost of providing city services to the new development and declining property tax revenue from existing businesses, the study concludes that the project would produce only $51,000 in additional revenue, about $3 annually for each of Leominster's 17,000 households.
The Impact of Big-Box Building Materials Stores on
Host Towns and Surrounding Counties in a Midwestern State
by Kenneth Stone and Georgeanne M. Artz, Iowa State University, 2001
This study examines several Iowa communities where big box building supply stores, such as Menards and Home Depot, have opened in the last decade. Sales of hardware and building supplies in the host community and surrounding counties are tracked over several years to test what the authors call the "zero-sum-game theory," namely that the retail sales gains generated by big box stores are offset by sales losses at existing, often locally owned, retail stores. The results confirm the theory, finding that sales of hardware and building supplies grow in the host communities, but at the expense of sales in smaller towns nearby. Moreover, after a few years, many of the host communities experienced a reversal of fortune: sales of hardware and building supplies declined sharply, often dropping below their initial levels, as more big box stores opened in the surrounding region and saturated the market.
What Happened When Wal-Mart Came to Iowa? A Report on 3 Communities with a Statistical Analysis of 7 Counties
by Thomas Muller & Elizabeth Humstone, National Trust For Historic Preservation, 1996
This study examined the impact of Wal-Mart on several Iowa communities. It found that 84 percent of all sales at the new Wal-Mart stores came at the expense of existing businesses within the same county. Only 16 percent of sales came from outside the county---a finding which refutes the notion that Wal-Mart can act as a magnet drawing customers from a wide area and benefiting other businesses in town. "Although some suggest that the presence of Wal-Mart outside of, but near to, the downtown area results in additional activity downtown, both sales data and traffic data do not show this gain," the study concludes. "None of the nine case studies was experiencing a high enough level of population and income growth to absorb the Wal-Mart store without losses to other businesses." The study documents losses in downtown stores after Wal-Mart opened. "General merchandise stores were most affected," the study notes. "Other types of stores that closed include: automotive stores, hardware stores, drug stores, apparel stores, and sporting goods stores." The supposed tax benefits of Wal-Mart did not materialize either: "Although the local tax base added about $2 million with each Wal-Mart, the decline in retail stores following the opening had a depressing effect on property values in downtowns and on shopping strips, offsetting gains from the Wal-Mart property."
Competing with the Discount Mass Merchandisers
by Kenneth Stone, Iowa State University, 1995
The basic premise of this study and others by Ken Stone is that the retail "pie" is relatively fixed in size (it grows only incrementally as population and incomes grow). Consequently, when a company like Wal-Mart opens a giant store, it invariably captures a substantial slice of the retail pie, leaving smaller portions for existing businesses, which are then forced to downsize or close. This study of Wal-Mart's impact on Iowa towns found that the average superstore cost other merchants in the host town about $12 million a year in sales (as of 1995), while stores in smaller towns nearby also suffered substantial revenue losses. These sales losses resulted in the closure of 7,326 Iowa businesses between 1983 and 1993, including 555 grocery stores, 291 apparel stores, and 298 hardware stores. While towns that gained a Wal-Mart store initially experienced a rise in overall retail sales, after the first two or three years, retail sales began to decline. About one in four towns ending up with a lower level of retail activity than they had prior to Wal-Mart's arrival. Stone attributes this to Wal-Mart's strategy of saturating regions with multiple stores.
5. WAGES & BENEFITS
These studies examine the effect of big-box chains, particularly Wal-Mart, on wages and
benefits for retail employees.
Wal-Mart: An Example of Why Workers Remain Uninsured and Underinsured
by the AFL-CIO, October 2003
Unaffordable premiums, overly strict eligibility requirements, and major gaps in coverage characterize Wal-Mart's health insurance plan, according to this report. The annual premium a full-time Wal-Mart employee must pay for coverage for her and her spouse is $2,672 (with a $350 deductible), which amounts to about 19 percent of her pre-tax earnings. Part-time employees (under 34 hours per week) are only eligible to enroll after two years on the job and even then, coverage is available only for themselves, not their families. Full-time workers are eligible for family coverage after six months. Costly premiums and strict eligibility requirements result in only two in five Wal-Mart employees being covered by the company's health care plan, compared to a national average of 66 percent at large firms. Moreover, unlike nearly all other corporate health insurance plans, Wal-Mart's plan does not cover most basic services, including regular check-ups for adults and children, childhood immunizations, and routine screenings such as prostate exams.
The Impact of Big Box Grocers on Southern California: Jobs, Wages, and Municipal
by Dr. Marlon Boarnet of UC at Irvine and Dr. Randall Crane of the UCLA 1999
The most useful parts of this study deal with Wal-Mart's impact on wages. The study concluded that, as Wal-Mart builds supercenters in southern California, the company will absorb up to 20 percent of the region's grocery market and cut grocery workers' income by up to $1.4 billion annually. Unionized supermarket workers in southern California make the equivalent of $18.25 an hour in wages and benefits, according to the study, while Wal-Mart employees earn just $9.63 per hour. As Wal-Mart expands in the region, it will replace highwage jobs with low-wage jobs. It will probably also force unionized supermarket workers to accept substantial wage and benefit cuts to keep their employers competitive. The combined losses are estimated in the range of $500 million to $1.4 billion. The study also compares health insurance benefits at unionized supermarkets and Wal-Mart, and examines the tax and revenue implications of supercenter development.
6. POVERTY RATES
Counties that have gained Wal-Mart stores have fared worse in terms of family poverty rates, according to this study.
Wal-Mart and County-Wide Poverty
by Stephan Goetz and Hema Swaminathan, Penn State University, October 2004
The presence of a Wal-Mart store hinders a community's ability to move families out of poverty, according to this study. After controlling for other factors that influence poverty rates, the researchers found that those U.S. counties in which new Wal-Mart stores were built between 1987 and 1998 experienced a significantly smaller reduction in their poverty rates than those counties that did not add new Wal-Mart stores. Overall, the portion of families living in poverty nationwide fell from 13.1 to 10.7 percent between 1989 and 1999. Counties that gained one Wal-Mart store showed an 8 percent smaller reduction in the poverty rate compared to the national average, while those that gained two Wal-Mart stores experienced a 16 percent smaller reduction in poverty. The researchers offer several explanations for their findings
This study documents more than $1 billion in local and state development subsidies that have flowed to Wal-Mart.
Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never Ending Growth
by Good Jobs First, August 2004
This study identifies 244 Wal-Mart stores and distribution centers in 35 states that have received state and local development subsidies totaling just over $1 billion. The subsidies took many forms, including property tax rebates, free or reduced-priced land, and funding of site preparation and on-site infrastructure. Tax increment financing (TIF) ranked as one of the most common mechanisms used by local governments to underwrite Wal-Mart's growth. The total value of public giveaways to Wal-Mart is undoubtedly much higher than the $1 billion documented by the report. Obtaining complete data on subsidies is virtually impossible. In most states, local governments and state agencies are not required to report subsidies, and there is no centralized record or database. Good Jobs First relied primarily on the online archives of local newspapers to assemble the list of subsidy deals, the details of which were confirmed by interviews with local officials.
Are chains better for consumers?
Time to Switch Drugstores?
by Consumer Reports, October 2003
"If you're among the 47 percent of Americans who get medicine from drugstore giants such as CVS, Eckerd, and Rite Aid, here's a prescription: Try shopping somewhere else. The best place to start looking is one of the 25,000 independent pharmacies that are making a comeback throughout the U.S." opens this article, which presents the results of a year-long survey of more than 32,000 readers about their drugstore experiences. The survey found that, by "an eye-popping margin," independent drugstores outranked all other pharmacies---including drugstore chains, supermarkets, mass merchandisers (e.g., Wal-Mart), and internet companies---in terms of providing personal attention, offering health services such as in-store screenings, filling prescriptions quickly, supplying hard-to-find drugs, and obtaining out-of-stock medications within 24 hours. Prices at independent pharmacies were lower than at chain pharmacies, but higher than at mass merchandisers and internet companies.