A 2012 analysis conducted by Puget Sound Sage, a nonprofit public policy organization that looks at regional economic issues, found that each new Walmart store decreases a 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. Although the Puget Sound Sage study was conducted years ago, research continues to reveal how Walmart affects the economy when it comes to town. For example, Walmart’s lower wage offerings have contributed to a decline in average retail wages in communities where the company is located. This exacerbates income inequality and economic disparity in those areas.
However, Walmart’s presence in local communities has also led to positive outcomes. Since the stores offer lower prices, consumers flock there to stretch their dollars. This was evident, for example, in the second quarter of 2023 when Walmart reported approximately a 6 percent increase in United States comparable sales. The brand touted higher customer traffic and increased spending per visit amidst high inflation. This complex dynamic underscores Walmart’s significant impact on consumer habits and local economies, both positive and negative. Here’s a deeper dive into how Walmart affects the economy.
Did You Know?
Despite Walmart's history of paying employees low wages, it's the largest private-sector employer in the U.S.
What does a ‘Walmart economy’ mean?
It’s no secret that Walmart offers low-cost products to U.S. consumers. A so-called “Walmart economy” allows people to buy the products that they need at reasonable prices without overspending at higher-priced retailers.
Reduced-price products are hugely beneficial to many people. When consumers spend less on essentials, such as household items, they can put that money back into the economy with nonessential expenditures, such as a dinner out or a trip to the movie theater. But the positive effects of the “Walmart economy” also bring a darker side where small businesses pay the price.
FYI
Research continually shows small businesses are good for the local economy, bringing opportunities for innovation, job creation and entrepreneurship.
Advantages and disadvantages of the Walmart effect
Here’s a closer look at the ramifications — both positive and negative — of Walmart coming to town.
Walmart’s positive effects on local economies
Draws in consumers
When a Walmart moves into a retail space, it serves as an anchor store that’s appealing to other businesses trying to choose the right business location. The store’s low prices attract consumers from nearby communities and when consumers are in the area, they’re more likely to spend money at surrounding businesses. Companies that set up shop near a Walmart may draw business from people who might not otherwise be in that area.
Provides convenient resources
Walmart’s extensive logistics network allows the company to serve remote areas effectively, often providing residents access to a broader range of products. This can be particularly important in regions where other retailers are scarce. [Related article: Supply Chain Management: What Small Businesses Need to Know]
As a result, Walmart can be especially beneficial to rural consumers who otherwise might have trouble getting the food and household items they need. It’s convenient to access a wide variety of goods in one place like Walmart and customers don’t have to travel far to buy what they need or order online and wait for shipments.
“In some rural areas, it can be argued that Walmart is fulfilling unmet demands,” said Christopher Fowler, the economic impact expert who conducted the research for Puget Sound Sage, in a press release alongside the study’s publication.
Lowers consumer costs
Walmart often offers lower prices than other businesses, making goods more affordable for consumers. Due to Walmart’s pricing strategies, local retailers can be compelled to lower their prices to remain competitive. Small businesses may also be motivated to analyze the competition to see what they can do to come out on top. This can benefit customers financially if it leads to lower overall prices in the area.
Walmart’s negative effects on local economies
Lowers wages
One of Walmart’s most detrimental effects is lower wages in the local economies it enters.
“Walmart may say they help people ‘live better,’” said David West, the now-former executive director of Puget Sound Sage and current labor and employment consultant at ChangeWorksNW, in the press release. “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, possibly minimum wage. Researchers found that Walmart pays lower wages to its hourly associates than what other local businesses pay comparable workers. [Should you pay your employees hourly or a salary?]
“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 said.
The researchers estimated the redistribution of sales to be $25 million annually. This means nearly $660,000 in wages lost per year.
Tip
Wondering how to determine employee salary to ensure you're paying workers enough? Check outside resources, such as Salary.com, to gain insights on salary and wage trends in your industry and region.
Compromises local economies
When Walmart comes to areas where the demand for goods is already being met, local businesses might see dramatically lower sales when people opt to shop at the retail giant instead. Note that Walmart’s profit margins are lower than that of small local businesses because the company is large enough to withstand it.
“We now know the true economic impact a Walmart store has on a neighborhood when it moves in,” Fowler said. “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.”
Is Walmart bad for America?
With its lower wages for workers and small businesses being squeezed out when Walmart comes to town, there are some strong arguments that Walmart is bad for America — but there are also advantages for consumers. However, while Walmart’s low prices attract many shoppers, there is a growing awareness of the broader economic impact of such savings. Some consumers and community advocates are fighting for changes, including better wages and more support for local businesses. Additionally, there is a need for policies that mitigate the negative impacts of large retailers while harnessing their positive contributions.
So, yes, the “Walmart economy” presents a complex picture. It provides significant benefits for consumers through low prices and convenience, especially in underserved areas. However, it also poses challenges, including wage suppression and harm to local businesses. Addressing these issues requires a balanced approach that considers both the advantages and the drawbacks of Walmart’s presence in local communities.
Amanda Clark and David Mielach contributed to this article.
