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What It Really Costs When Walmart Comes to Town

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  • Walmart is not as good for U.S. cities as the company would like everyone to believe.
  • Walmart takes money away from communities instead of bringing it in.
  • Walmart has not always practiced business with integrity.

After The New York Times reported that Walmart pleaded guilty to a series of bribes for over a decade, research continues to reveal exactly how much the retail giant costs a community when it comes to town.

An analysis conducted by Puget Sound Sage, a nonprofit public policy organization that looks at regional economic issues, asserts that each new Walmart store decreases the local community's economic output over 20 years by an estimated $13 million. The research also discovered that each Walmart store costs the community an additional $14 million in lost wages over the next 20 years. 

"We know now the true economic impact a Walmart store has on a neighborhood when it moves in," said Christopher Fowler, who conducted the research for Puget Sound Sage. "The research shows that the negative impact is due to the use of the Walmart business model. A new 'generic' grocery store does not equal economic harm, but a new Walmart does.

"When Walmart comes to town, it is going to reallocate sales, and its impact is going to be a function of the difference between what is currently being paid in wages at the existing stores and what Walmart pays," Fowler added.

That redistribution of sales is estimated at $25 million annually, according to the research. This means that nearly $660,000 in wages are lost per year.   

On the flip side, Walmart does tend to bring other businesses to an area once the store moves into the space, and the store's low prices also attract consumers from local areas. When consumers are in the area, they are more likely to spend money in the surrounding businesses as well. So, a Walmart store can bring in people who might not otherwise travel to that area and shop.

While there are many positive and negative impacts that Walmart has on the economy, it is no secret that the retail giant provides products to U.S. consumers at a low cost. A so-called Walmart economy allows workers to buy the products they need without having to rely on higher-cost products. Products at a reduced price give millions of people many benefits. When consumers spend less on essentials such as household items, they can put that money back into the economy by spending it on nonessential things, such as a dinner out or a movie.

"Walmart may say they help people 'Live Better,'" said David West, executive director of Puget Sound Sage. "But this study shows that communities will be much worse off, with lower wages and less money in the community, after a Walmart opens."

The losses are tied mainly to the low wages Walmart pays its employees.

"These impacts stem from the low wages Walmart pays to its hourly associates compared to the wages earned by comparable employees of existing retail grocery stores," the researchers said. "The difference in wages, which we estimate to be at least $3 per hour, has the capacity to impact not only the workers themselves but also the people from whom they purchase goods and services."

But there's one important caveat to this research: It applies only to areas where consumer demand for products is already being met. In areas where demand is not being met, however, there is a benefit of having a Walmart: It makes more products available to consumers, Fowler said.

"Walmart is able to offer lower prices than other small retailers, and we would expect that to have an additional effect with both costs and benefits," Fowler said. "In some rural areas, it can be argued that Walmart is fulfilling unmet demands. The number of places in the country where people are currently unable to purchase groceries is limited, though."

In the recent scandal, in which Walmart has pleaded guilty, individuals acting on behalf of Walmart are accused of being involved in bribing local officials to gain access to their regions for Walmart stores, and the parent company knew about it and covered it up. Those acting for Walmart bribed local officials to ensure necessary permits were obtained quickly so the stores could open.

Business News Daily Editor

Business News Daily was founded in 2010 as a resource for small business owners at all stages of their entrepreneurial journey. Our site is focused exclusively on giving small business advice, tutorials and insider insights. Business News Daily is owned by Business.com.

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