In communities around the country, people have protested new Wal-Mart stores, arguing that the big box retailer hurts small businesses and downtown commerce. But a new study by a West Virginia University Economics professor says Wal-Mart’s affect on small businesses isn’t as bad as it’s been portrayed.
Russell Sobel acknowledges that when Wal-Mart comes to town, “Mom and Pop” stores that sell similar merchandise are often squeezed out of the market, but he said these empty storefronts make room for other types of small businesses. In economic terms, Sobel said this is an example of “creative destruction.”
“New things come up and old things go by the wayside,” Sobel said. “You know, some of the best examples from history are the automobile replacing the horse and buggy. You know tens of thousands of people all across America lost their jobs in the horse and buggy industry. In every town in America there were people who made the wagon wheels, people who made the wagons, who made the metal strips that could around the wagon wheels. That whole industry went by the wayside when we introduced the automobile.”
Sobel used to direct WVU’s Entrepreneurship Center. He helped students and people from the community who wanted to open their own business. Sobel said Wal-Mart was always a controversial topic. He routinely heard the concern that Wal-Mart hurts small business, so that’s what his research zoned in on. He reviewed U.S. data on self-employment and businesses that employ fewer than ten people, and he compared the numbers in places where Wal-marts exist and where they don’t.
“We tortured that data everyway possible, and the answer is zero. There’s just no effect,” said Sobel. “It doesn’t help it, it doesn’t hurt it, and there’s just as many small businesses around with Wal-Marts around as without ‘em. Now clearly there’s some reshuffling that goes on. Some small businesses fail, and certain sectors that are directly competing with Wal-mart, but then they’re refilled by other small businesses and other sectors, so just the net wash is zero.”
Sobel didn’t have to look beyond his own hometown to see this reshuffling take place.
“When Wal-Mart came to town, we lost a lot of stuff in downtown Morgantown; things shut down, but by five years later, stuff had opened up in their place. We got antique stores, and a couple fancy restaurants, and some coffee shops, and a law office,” Sobel said.
It could be argued that those establishments don’t fill the need that the now gone hardware store and office supply store did, but Sobel’s focus was on the overall impact on small business.
Now Wal-Mart’s interested in his findings. Sobel received a request from someone who works on public relations for Wal-Mart, asking if they could cite his study. Sobel didn’t object; it’s a published study and is public information. Sobel said he was not out to get any endorsements from Wal-Mart, and he did not receive funding for the study from the superstore chain. Ultimately, Sobel said the success of Wal-Mart and demise of some small businesses is in the consumer’s hands.
“Wal-Mart doesn’t really run anybody out of business, it’s consumers that run those stores out of business by choosing to shop at Wal-Mart rather than staying with the small Mom and Pop, and the reason they do it is pretty clear, it’s to save money,” said Sobel.
Sobel co-authored the article with colleague Andrea Dean.
“Has Wal-mart buried Mom and Pop?: The Impact of Wal-mart on Self-Employment and Small Establishments in the U.S.” will appear in a forthcoming issue of the journal, Economic Inquiry.