The effect of Walmart on small businesses

September 18, 2012 at 9:56 am 1 comment

Does Walmart help or hurt a local economy? That’s the question that University of Illinois Chicago economists have set out to answer in a recently published study in the journal, Economic Development Quarterly. Looking specifically at an urban context, in Chicago, they found that once a Walmart opens, the small businesses nearby tend to close down. The study examined the Austin neighborhood of Chicago, from 2006 just before the Walmart opened, to 2008. In that time, 82 of the 306 businesses in the surrounding area shut their doors.

The closer to the Walmart, the more likely that the business would close down. The probability of closure fell about 6 percent per mile radiating out of the Walmart location. For those closest, between 35 and 60 percent of the small  businesses closed. The type of business also made a difference– drug stores and toy stores were hit the hardest. In addition, the study found that sales tax revenues for the surrounding zip codes dropped during this time period.

Debates about the pros and cons of Walmart tend to be heated, particularly in urban contexts such as Chicago and New York City. Walmart says that it’s own study found that their stores actually generate economic development and create jobs.  Whatever the case, these findings are a reminder that the impact of any large development– particularly the kind of big box retail that Walmart represents– will have significant impacts on the surrounding areas. It is important, therefore, to keep in mind the ultimate economic development goals of a city or town. If developing a diverse business core, with big and small businesses, then a Walmart might not be the best economic development strategy for a community, particularly in the long run. If so  many of the businesses in the area close down, what would happen if the Walmart were to one day close down too?  As one of the authors of the study says, “You may have reasons to want Walmart and you may have reasons not to want Walmart, but economic development is not one of those reasons. And yet that’s been, in many cases, the primary argument for bringing Walmart to the city.”

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Entry filed under: Economic Development, Economy, Small Business. Tags: , .

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