Esteban Rossi-Hansberg, Pierre-Daniel Sarte, and Nicholas Trachter write,
When Walmart enters, the total number of establishments in the ZIP code increases, though by less than one-to-one (about 3/4). In other words, Walmart generates some exit, but the net result of opening a Walmart store is a greater number of competitors in the market for at least seven years after entry. This case is paradigmatic, but there are many others across all major sectors. For example, the expansion of Cemex, the top firm by sales in 2014 in the ready-mixed concrete industry, led to a similar decline in local concentration and an expansion in the local number of establishments in the industry.
I found this surprising. I always thought that the national giants, especially Walmart, were driving lots of Mom-and-Pop stores out of business.
But if you follow the link and read carefully, the authors look at Walmart in the discount department store business. Maybe they don’t drive out of business a lot of discount department stores, but they do drive out of business some mom-and-pops. Or maybe the mom-and-pops disappeared well before Walmart came along.
Wal-Mart and other giant national retailers were always harder on regional retailers (and each other) than they were on mom and pops. They came in and basically did what the regionals had been doing, but did it more efficiently. Mom and pop retailers were also hurt by the national giants but not as much because they always were in a much more different niche.
Counting every mom and pop in the “number of competitors” category can be misleading because many are rather insignificant competitors. Many are more like hobbies than profit maximizing businesses and many have owners who work for compensation so low they would never accept it from someone else.
Start with the assumption that WalMart stores are efficient, they increase the total number and variety of goods available from the entire retail channel.
If your total retail channel is finite (streets still basically clog), then it must be that the arrangement of retail outlets changed and a more sophisticated analysis is needed. In fact, I would expect a rebuilding of the retail outlets, to specialize and rescale. I would nee Mattress Outlets spring up, but fewer proprietary furniture stores. More fast food take out, less mom and pop restaurants.
If you’d like the real explanation for these results, I suggest picking up a good management textbook and looking up Cost Leadership versus Product Differentiation under the general heading of Competitive Strategies.
You see, anyone can compete successfully with Walmart. I just wouldn’t recommend anyone attempt to compete with Walmart using Walmart’s competitive strategy (Cost Leadership). Walmart has made cost leadership a science.
In the small town in which I once lived, the nationally successful big boxes, combined with the internet (i.e., Amazon) killed a lot of small Mom-and-Pops which were genuinely competing in the same niche, that is, selling similar, cheap, mass-market products, but at higher prices. They also slowly killed the medium-box, shipping mall anchor, department stores like Sears and JCPenny.
The response was a lot of new, small-ish, sometimes ‘quirky’, but higher end or maybe ‘semi-mass’ specialty stores, some of which I suppose could sometimes fairly be called “Mom-and-Pop”, which charged substantially higher prices, but for different classes and grades of product. Maybe someone would never thing of getting a new purse from Walmart, and might be reluctant to get it online, but will buy it from one of these niche stores. However, they would still go to Walmart or Target for, say, Oreos, diapers, and kitty litter.
So Walmart and the rest coming in to a town was indeed highly disruptive (and even somewhat devastating) to the local retail ecology, but the equilibrium eventually adjusted to include new small players serving these niches which Walmart can’t capture, in the very nature of the the reputation for the ‘kind’ of place Walmart is.
Still, the extent of the market for these new small stores seems to correlate with the general affluence of the community, which makes me suspect certain methodological problems with selection of places to study and correcting for that. I have little doubt that in some non-affluent or declining small-town communities, that the extent of this new alternative market was pretty much nill except for maybe dollar stores and convenience stores.
Good observation. Yes, in suburban Sacramento where I grew up it’s lots of shuttered storefronts, empty buildings and the occasional Halloween Spirit Store compared to the booming 90s.
There’s no minimizing how much worse it all LOOKS, but that’s all you can say about it. Whether consumers feel shafted is another question. I suspect they don’t. Online plus Fry’s and Walmart will get the job done.
The bay area, where I’m at now, is different. That’s where you find the boutique stores, pop-up shops and small record stores (which do well in an area with lots of single men making tech money).
I wonder where stores are relative to Walmart? Do they tend to cluster around Walmart in places where Walmart increases the number of establishments in the area? Because this may be a network effect type situation. People like to do all their shopping in one area but no part of town meets that desire. Walmart comes in, and now Walmart itself becomes the main ‘shopping district’ and other businesses find they can make a profit by selling to all the people who didn’t find exactly what they want at Walmart, and it becomes an actual shopping district, and everything being clustered together makes shopping enough easier that there’s not only a net increase in the total number of transactions, but maybe even in the total non-Walmart transactions.
Can someone explain what this means? When a Walmart enters, does the net number of non-Walmart stores increase or decrease and by how much? I’m not sure what the 3/4 refers to, and I’m not sure why they say that Walmart “generates some exit”.
existing stores plus Walmart on average = pre-existing stores + 3/4 store. I interpret this as follows: suppose Walmart enters four zip codes. In three of them, nothing happens to the number of pre-existing stores. In the fourth, one pre-existing score disappears. Counting Walmart, there is a net gain of one store in three out of four zip codes, for an average of 3/4 store gain.
Looking at the countries with which I am familiar that have relatively thriving mom and pop sectors (Australia, Brazil, New Zealand) I am struck by some common shared attributes. First, unlike in the cosmopolitan USA, citizens of these nations for the most part are happy to identify themselves by their nationality and have a pronounced affection for those who share their citizenship. One does not see the sort of righteous indifference so characteristic of the USA. There are points of national pride and commonality that unite the population in common bonds. One does not get the impression that civil genocide is being actively contemplated.
Second, all three have prosperous agricultural sectors that have not been bought out by multinationals to the extent that has occurred in the USA.
Third, domestic industry in each is not penalized as it is in the USA. The presence of a VAT that applies across the board to both imported goods as well as domestic production. Their intellectual class sounds more like intellectuals than spokespersons for the People’s Republic of China Chamber of Commerce.
Australia and New Zealand do not have Walmart but I would be hard pressed to find any way in which anyone there is particularly disadvanted by this. High minimum wages tends to raise the level of aspiration and productivity demanded of the population so you just don’t find large components of the population who would willingly take on Walmart type work. This is also apparent in the how restaurant service works in these countries. You don’t see the menial subserviance that is so highly prized in the US. Customers are responsible for helping themselves and there is very little tipping.
Brazil, of course, is much poorer overall than Brazil and New Zealand, and perhaps for that reason Walmart made its ill fated attempt to penetrate the retail market here. Brazilians don’t have very much of a minimum wage, only about $250 per month, but their welfare is protected by an excellent free health care system that has strong elements of local control. Mom and pops thrive because they can compete effectively with the big box stores. A VAT does not offer Chinese exporters competitive advantage. The Walmart I vistited was mostly empty of shoppers and selection was limited. There generally were domestically produced goods and there was not the tour of communist ***-t holes that shelves in US stores typically offer. Brazilians have a modern system of government and they have demonstrated their willingness to advance their own national interest. Amazon is a negligible presence. Although Brazil has a long way to go with respect to subsidiarity, I would not be surprised to see it reverse places with the US on the Human Development Index in the next 30 years.
Born in 1970 in city suburbs almost all my life there always been a limited number of Mom and Pa stores my whole life. Kmart and other chain stores were dominating by 1980 so choosing 1990 seems a lot of aelf selection bias as the chains were the biggest part of retail by then. So the finding that most Wal Mart stores were being in growing neighborhoods thesimply correlated to population growth where there would be some ma and pa ships opening.