Assignment Problem:
Question 1: Do you feel the entry of a Walmart Supercenter in a small trade area (<200,000 population) is positive or negative for the quality of life in that area? Defend your answer after taking a positive or negative position.
Question 2: Which members of a community might typically oppose a Walmart Supercenter? What are their objections? How can Walmart answer these complaints?
Hint: Mom & Pop stores, retailers downtown, etc.
Question 3: Find information on a small town (other than those mentioned) that has fought Walmart. Give a brief description of the history and tell why you believe the town won or lost.
Walmart Supercenters Minicase
Walmart Supercenters have opened in more than 3,000 locations throughout the United States since their inception in 1988. These outlets offer a retail format that have major economic and quality of life impacts on a community. Customer satisfaction, a primary goal of Walmart, is achieved through convenience (one-stop shopping) and low prices. Walmart usually manages to out-compete other generalists, such as Kmart and Target, through effective marketing and aggressive expansion policies. Target has shifted its focus to higher quality products at reasonable prices, while Kmart made a less than successful attempt to compete directly with Walmart by opening its own supercenters, known as Big Kmart (or Big K). Target has also begun to open its own supercenters.
Walmart's margins reflect a competitive advantage, however, and customers keep returning because of the low price. Emergence of a new Walmart Supercenter means many things to smaller trade areas. For example, when a 213,000 square foot Walmart Supercenter with approximately five acres of floor space opened its doors in Fort Collins, Colorado, the store was in addition to a previously existing, but smaller Walmart Supercenter on the other side of Fort Collins.
The city has less than 160,000 residents but is surrounded by several smaller cities and communities that expand the trade area to over 200,000. When it first opened, sales revenues at this store were expected to average $2 million per week, yielding annual sales tax revenues for the city estimated at $2.2 million. The development of the surrounding shopping center was expected to lead to large volumes of traffic. A number of retail stores rent space inside the massive facility, including a fast-food chain, a hair salon, and a portrait studio. The adjacent shopping center includes a Home Depot, a bike shop, a bank, other service providers, and several restaurants.
The effect of a Walmart Supercenter on the local economy is not limited to increased sales tax revenues and business. It also can have negative effects on local retail operations (sometimes referred to as "Mom & Pop" stores) that cannot offer the same low prices and variety as Walmart. Supercenters have driven Walmart to become one of the largest corporations in America. In addition, Walmart is currently the highest volume grocery seller, surpassing chains such as Safeway, Albertson's, and Kroger, which focus specifically on groceries and do not provide the complete product lines found in a Walmart Supercenter. Many people argue that the introduction of such a large retailer causes local businesses to fail. Citizens also sometimes fight against using limited city budgets for infrastructure development, such as roads, traffic lights, and water/sewer lines, to support Walmart's and accompanying sprawling development.
Special interest groups, ranging from environmentalists to older citizens not wishing to see their small-town turn into a metropolis, often oppose the development of a new facility. In some instances, even historic sites have fallen victim to urban sprawl and development. In Davidson County, Tennessee, for example, re-zoning was approved by a business-friendly city council for a Walmart and Lowe's shopping center that destroyed a Native American burial site and a historic civil war site on the Cumberland River. In Russell County, Virginia, a similar controversy emerged over the proposal of a Walmart Supercenter in an industrial site of marginal industrial (coal mining) capacity.
Local residents feared that a precedent might be set allowing other, perhaps more lucrative, industrial sites to become commercial space for large multinational corporations, thus hurting local economic development. Local businesses also feared the competitive advantage a large retailer would have, possibly resulting in a negative effect on the local economy. Over 150 communities in America and Canada have pressured "big-box" retailers such as Walmart into withdrawing plans or have publicly voted to reject their retail development. Citizen groups usually employ a number of delay and avoidance tactics.
These may include lawsuits, protests, pigeonholing of local politicians, and town hall meetings. Most of these citizen-based initiatives fail, however. There have been success stories of small towns preventing construction of Walmart Supercenters. For example, residents of the small town of Old Saybrook, Connecticut, were able to fight off a Walmart Supercenter. To do so, the citizens had to raise sufficient money to hire professional help and legal counsel, organize protests, circulate petitions, and raise awareness of the issue. They were able to convince three local political bodies to block the multinational corporation and have since established a website to help other small communities to follow their successful methods.
In spite of the controversies surrounding their introduction, one Walmart Supercenter may bring more than 450 jobs to an area. Many of these positions are not full-time and they may pay low wages, but a number of the positions are higher-paying store managers, assistant store managers, pharmacists, and the like. This increase in jobs can be good for local economies, as well as national employment figures. In fact, Walmart is the nation's leading employer. While some small businesses may fail, it is often claimed that more jobs are created by the opening of a supercenter. In addition, Walmart often pays higher wages and offers better benefits than a small mom and pop store can pay its employees.
So what effect does Walmart have on smaller towns and smaller companies? In a study of competition and retail structure published in the Journal of Marketing (1999), authors Miller, Reardon, and McCorkle explored the relation of "superstores," such as Walmart and Kmart, to saturation (measured as number of stores per household) of the competitors. They found that as saturation by a generalist (such as Walmart) increased, broad-line specialist (for example, sporting goods, electronics, and furniture stores) saturation did as well. However, the positive effect did not carry over to saturation of limited-line specialist (e.g., "Mom and Pop" stores).
The authors did not test the potential negative effect of generalist saturation on limited-line specialist saturation. Other studies have shown that most shoppers prefer to do their shopping at large discount stores because of the time and money savings, potentially disrupting business on small towns' main streets and downtowns. Some studies show that Walmart's can be good for downtowns, but highly disruptive to surrounding (within a 20 mile radius) communities' downtowns, as customers are likely to drive to another town to do their shopping. These studies indicate a negative trend for other retailers when a Walmart Supercenter emerges in the town. Indeed, many downtowns have become vacant in an attempt to directly compete with Walmart, while some have thrived. The secret of which stores do well in a downtown setting may rely on customer focus and finding a niche. Even though there may be controversy, the growth of Walmart Supercenters is expected to continue at a rapid rate.