Facts and Fiction About the "Walmart Effect"

kathryn by Kathryn Hawkins on June 6, 2011
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You’ve just gotten wind that a huge super-center like Walmart is popping up in your neck of the woods. Do the mega-retailer’s huge inventory and dramatically low prices mean that you and other small business owners in your region are doomed to fail? Take a look at some of the facts and fictions surrounding the “Walmart effect” to see how your business might fare in the coming months and years.

Fact: Small businesses in competing industries are likely to suffer.

If you own a hardware store a mile away from a new megastore, chances are you won’t be able to compete with their prices, and you may see business suffer. The statistics can be grim: A recent study found that after a Walmart opened on Chicago’s West Side, 25 percent of local businesses within a four-mile radius closed over the course of the next year. There is hope, however: Customers are willing to pay a premium for quality customer service. Build a loyal following through great service, and you’ll survive the Walmart windstorm.

Fiction: Megastores want local businesses to fail.

Sure, Walmart and others of their ilk want to bring in profits, but they get some pretty bad PR if that means killing the local economy in the process. To that end, Walmart has enacted policies actually designed to help small businesses: In Landover Hills, a DC suburb, the company has donated thousands of dollars to help small businesses advertise, and has offered free seminars and workshops for small business owners. Likewise, Sears Holding, the parent company of Sears and Kmart, recently held a small business competition that doled out grants to Latino small business owners.

Fact: Big-box retailers take money out of the local economy.

Because Walmart and other megachains employ primarily low-wage workers, and have huge multi-national presences, little of the money spent in your local superstore will remain in the local community. A study of the economic impact of local businesses versus large chain stores in New Orleans found that just 16 percent of money spent at the large chain remained in the local community, compared to 32 percent for independent businesses. Educate your consumers about how buying local can help your regional economy, and you may be able to sway them from switching allegiances.

Fiction: All nearby small businesses suffer.

Depending what type of business you own, you may find that having a megastore nearby actually helps to boost sales. If you run a high-end boutique, things could work in your favor: It could be the case that consumers are spending less money on basic staples like food, and as a result have more spare cash to buy high-end nonessentials. A recent study found that while some businesses suffer, nearby shops that offer products not sold at Walmart tend to do well. So if you know that a superstore is coming to town soon, it could be a good time to look at diversifying your inventory and making sure you offer products that are a cut above the superstores’ offerings.

Has a big-box chain store affected your small business? Share your experience in the comments.

kathryn

Kathryn Hawkins is a business writer for Intuit and is passionate about solving small business problems.

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