What It Really Costs When Walmart Comes to Town

• Walmart has positive and negative effects on the U.S. economy, but a "Walmart economy" negatively impacts small businesses.
• After a Walmart opens, communities tend to see lower wages and less money locally. 
• Walmart has not always practiced business with integrity.
• This article is for anyone seeking more information about how Walmart affects small businesses and the overall economy.

An analysis conducted by Puget Sound Sage in 2012, a nonprofit public policy organization that looks at regional economic issues, asserts that each new Walmart store decreases the 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. 

Though the Puget Sound Sage study was conducted years ago, research continues to reveal how Walmart affects the economy when it comes to town. The New York Times reported in 2019 that Walmart pleaded guilty to a series of bribes spanning more than a decade. In the case, individuals acting on behalf of Walmart were accused of bribing local officials to gain access to their regions for Walmart stores and obtain the necessary permits quickly. 

Here's a deeper dive into how Walmart affects the economy and the small businesses pushed aside in its wake. 

What does a 'Walmart economy' mean?

Walmart impacts the economy in positive and negative ways. It's no secret that the retail giant offers low-cost products to U.S. consumers. A so-called "Walmart economy" allows people to buy the products 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 movie. But a Walmart economy has a darker side where small businesses pay the price.

Did you know? Researchers say that small business is good for the economy, with 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  

When a Walmart moves into a retail space, it serves as an anchor store that's attractive 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 flocking to a Walmart mall may draw business from people who might not otherwise be in that area.

Walmart is also beneficial to rural areas that 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, and customers don't have to travel far to buy what they need, or order online and wait for shipments. 

"Walmart can offer lower prices than other small retailers, and we would expect that to have an additional effect with both costs and benefits," said Christopher Fowler, the economic impact expert who conducted the research for Puget Sound Sage, in a press release alongside the study's publication. "In some rural areas, it can be argued that Walmart is fulfilling unmet demands. The number of places in the country where people are currently unable to purchase groceries is limited, though."

Walmart's negative effects on local economies

Lowering 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, executive director of Puget Sound Sage, 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. Researchers found that Walmart pays lower wages to its hourly associates than what other local businesses pay comparable workers, estimating that the wage difference is at least $3 per hour. 

"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 that redistribution of sales to be $25 million annually. This means nearly $660,000 in wages lost per year. 

Did you know? Despite Walmart's history of paying employees low wages, it is the largest private-sector employer in the U.S.

Compromising 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. 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." [Read related article: What Is Supply Chain Management?]

Tip: Wondering if you're paying your employees enough? Check outside resources, such as Salary.com, to gain insights on salary and wage trends in your industry.

Is Walmart bad for America?

With bribery scandals, lower wages, and small businesses being squeezed out, there are some strong arguments that Walmart is bad for America, though there are also advantages. Perhaps change will come if consumers fight back by spending their money elsewhere. 

David Mielach contributed to the writing and reporting in this article.