Wal-Mart Uber Alles

American Demographics, Oct 1, 2003 by Matthew Grimm

Byline: Matthew Grimm

Star Trek II: The Wrath of Khan introduced the Genesis Device, a mechanism conceived to "terraform" lifeless planets. In the wrong hands, if used on those where life already existed, it posed world-shaking destructive power. Here on Earth, a certain Bentonville, Ark., retailer wields a similar transmutative power. Although the evil Khan doesn't have hold of it, many see it as just as dangerous a double-edged sword hanging over our economy.

Wal-Mart is America's favorite store and, among detractors, its most reviled corporation. It is the new downtown, staffed with smiling faces and stocked with items at the best prices. Critics, meanwhile, allege it's a labor nightmare, bilking workers of due overtime pay, firing employees for discussing unionization, discriminating against female staffers and paving over America's small business foundations. Wal-Mart creates 1 in every 20 new jobs in the U.S. and opens a new outlet about every 42 hours, and, by one estimate, sees organized citizen opposition to 1 in 3 proposed new stores. A $244 billion business employing 1.3 million people, operating 3,000-plus stores in the U.S. and a thousand abroad, now accounting for $1 in every $5 spent on groceries, named by Fortune the corporate community's "most admired" company early this year - the Earth has never seen an entity of such leviathan proportions that it can reshape our economic landscape at will.

The company has undertaken its first market research program, presumably to come to grips with proliferating pockets of resistance, which have fought hundreds of proposed stores nationwide. Testimonial TV spots have addressed some of the points on its detractors' litany, including one featuring a female district manager discussing how being part of the Wal-Mart family helps her take care of her own - seemingly an answer to a pending class-action gender discrimination suit filed in California. Wal-Mart declined to comment for this story, but the company is hard-pressed to address the real crux of the anti-Wal-Mart movement. That is, the business practices that have made it so admired are unraveling the fabric of an already ravaged economy.

It may seem like much ado about something seemingly innocuous: a general merchandise store, whose popularity is decided by 138 million American shoppers, not to mention city fathers eager to rezone Wal-Mart into their outskirts. Then there's Al Norman, founder of Sprawl-Busters, based in Greenfield, Mass., who has tracked nearly 200 municipalities that have successfully fended off mega retail development. Since spearheading a fight to keep Wal-Mart out of Greenfield, he has seen a snowballing effect, as many as three to four calls a day, of grass roots groups seeking his counsel.

"Most municipal administrators are lay people, they just think that getting a Wal-Mart is sort of a retail equivalent of shaking hands with Elvis," Norman says. "They can't distinguish between industrial development, which by-and-large is added value, versus retail development, which adds no value. The developer comes to town and pays for all studies to convince the town that they're from Lake Woebegon. But independent impact studies would completely turn development in this country on its head."

A growing body of economic impact research contradicts the developers' rosy win-win scenarios. Kenneth Stone, an economics professor at Iowa State University, has tallied 53 types of businesses with which Wal-Mart competes, and has tracked a startling swath of destruction.

Stone pioneered research on the Wal-Mart factor in Iowa cities with populations of 5,000 to 40,000, tracking sales from as early as 1983, and more recently examined the Supercenter onslaught in Mississipi. In his 1997 study, "Impact of the Wal-Mart Phenomenon on Rural Communites," Stone found that between 1983 and 1996, the average Iowan spent 42 percent more in "department stores," (qualified as "primarily" mass merchants) than in 1983. In men's clothing stores alone, consumer spending eroded by 59 percent in the same period, resulting in the shuttering of 60 percent of these businesses. And, though host communities did see some general growth in transactions overall in the years after Wal-Mart's arrival, 10 years later, host towns lost an average of 4 percent of total sales, some towns of less than 5,000 losing half their retail trade. And, due to the magnet effect of Wal-Mart, sales transactions in neighboring towns declined 15 percent.

"Obviously there's a zero-sum game involved here," says Stone. "If you plop down a 200,000 square foot Supercenter someplace like Ankeny, Iowa (population 27,000), and are expecting your average $75- to $80 million a year in sales, that money doesn't come out of thin air. It comes from somewhere else."

Wal-Mart proponents invariably cite the "democracy of the marketplace," that a company that serves customers better deserves their business more. The logic might work were all things equal, but they're not. One hitch often glossed over is that many municipal administrations are so gung-ho for "economic development" that they defer local taxes and disproportionately subsidize new projects as opposed to reinvesting in existing businesses and infrastructure, according to an exhaustive analysis of "mega retail" chains by Edward Shils, professor emeritus at the University of Pennsylvania's Wharton School.