Business Management, Economy, Local Business, Retail Brands, Small & Medium Enterprise (SME)

How Walmart Like Mega Corporations Change Local Economy

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We live in a culture of paranoia that is fueled by our economic uncertainty. Of course the big fish always tends to eat the small fish but in the larger ecosystem, things don’t necessarily tip towards the stronger or the mightier. Many a times I read about the excessive fear of big giant corporations like Walmart forcing small, local businesses to shut down but local business owners need to understand why is it so. Rather than panicking into submission, businesses must evaluate their strengths and find ways to counter the effect. In fact, local businesses can assert themselves even more strongly in the face of big businesses coming to town. Of course, a consideration have to be made by the general population to decide what’s good for them. More often than not, I’ve seen people starting to prefer local businesses after some time. However, only a small percentage of businesses are not negatively affected by big chain retail brands. To increase resilience of local businesses, one must look at the factors that are the core of the problem:

  1. Effect of Price Reduction: Whether it’s retail or services, the arriving of giant corporations in the scene is marked by a drop in prices. This is certainly a part of unfair advantage on behalf of big businesses that have seemingly infinite resources and deep pockets. The colourful pamphlates declaring drastic discount sales is a dead giveaway of the power of large corporations wanting to draw footfalls. While it can’t be totally absolved of its damaging potential on local businesses but there may be something that local businesses can gain from. The competition from big box retail poses a branding question to all local businesses that whether they want to join the price war, re-position their businesses or innovate something completely else. Many local businesses never even give a thought to their positioning up until a point a giant competitor threatens to destroy them. So, the inevitable price competition compels local businesses to rethink their value proposition which is a good thing. Sure, people love to get groceries for a few cents less but a old time local retailer can find new strategies to counter that effect.
  2. Vanishing Jobs: While a large scale corporate takes up ground in your city, the total number of effective jobs available through the local businesses reduce drastically. There is not even a doubt that companies like Walmart actually destroy jobs more than creating new ones. Apart from numerous studies that establish this as a fact, it a matter of simple logic. Mega retailers consolidate all categories of businesses right from groceries, electronics, clothing, bakeries, automobile parts, hardware and you name it, under one roof with a ton of automation and process management. In fact, you do half the work at a supermarket, picking, carrying and standing in checkout queue. Sure, local businesses may not be as well equipped and may seem overstaffed but they help feed more families. As there’s a new Walmart in town, many small businesses start shutting shops and not many of their employees will get absorbed in new jobs. Hence, forcing people to find other career options or move to other localities. This does kick in some entrepreneurs to try different things but number of people successfully starting new businesses is very few.
  3. Re-circulation of Money: The impact of big retail corporations on small town economy is well understood. With massive reduction of prices and reduced job opportunities, city economy takes a downward trend as money earned by the corporate is almost never re-circulated within the community. Local businesses are co-dependent on many allied services such as local advertising agencies, logistics and transportation, farmers etc. Whereas big brands have centralized supply chain and marketing which eliminates the need for local support infrastructure. One study in Salt Lake City, Utah compares the revenue re-circulated by local eateries which is 79% with branded chain eateries that only give back 30%. In presence of big corporate brands local business opportunities become less lucrative and ultimately affect civic development.
  4. Effect on Real Estate: One pertinent question that a municipal body of any town that is going to welcome a giant retail organization like Walmart is whether they are ready to face a glut in commercial real estate sector. The above factors contribute to a phenomenon where instead of rise in property values around the new big retail, businesses are discouraged to move in anywhere near. Primarily this is because the possibility of running a commercial center near a big business like Walmart is little. Residential real estate is different however. Home property prices spike as soon as plans of a Starbucks or Home Depot opening in the vicinity are revealed. This is certainly specific to upscale neighbourhoods. The fact is that it does not completely balance the overall dip in city’s economy.
  5. Wastage and Environment: All the above points are outmatched by this one. As humans we have limited resources and it is only fair that we realise this and try to live accordingly. However, the big box retail chains, in their effort to keep their stores stocked up, push the natural resources to their limits. To keep the prices low, mass production of goods are necessary. This breaks the usual demand vs supply continuum and tends to go towards over supply of goods and leads to an increase in waste. Perishable items like food including vegetables and dairy products present the biggest challenge of waste. Non biodegradable waste also increases as buyers choose cheaper, use-and-throw items. Chain restaurants are the biggest food wasters and contribute majorly to a city’s garbage pile.

Did I miss anything? If you think there’s something I should have covered here then please let me know in the comments below. You can also write to me on marty@thelocalbrand.com. For those who would like to study more about this subject I have included some reference links below. Here are also some additional YouTube videos you should watch:

 




 

References:

https://ilsr.org/key-studies-why-local-matters/

http://www.alternet.org/story/154821/capitalism’s_dirty_secret%3A_corporations_don’t_create_jobs,_they_destroy_them

http://www.businessinsider.com/the-15-worst-companies-for-the-environment-2009-9?IR=T

https://www.quora.com/Do-big-box-retailers-really-destroy-a-local-economy

https://ilsr.org/impact-chain-stores-community/

http://www.nydailynews.com/new-york/brooklyn/study-proves-walmart-super-stores-kill-local-small-businesses-article-1.140129

http://dailysignal.com/2015/08/28/how-this-new-government-ruling-destroys-the-franchise-business-model/

http://www.newsweek.com/least-green-companies-america-photos-68107

http://www.newsweek.com/real-estate-do-retail-chains-boost-home-values-91027

http://web.mit.edu/course/4/4.293/!Phoenix/Research/Tenant%20Research/bigboxstudies.pdf

http://indiafdiwatch.org/wp-content/uploads/2013/03/EPW_study_on_impact_of_malls_on_retailers.pdf

http://www.businessgreen.com/bg/feature/2392682/retailers-take-on-supply-chain-after-shrinking-environmental-impact

http://pub.epsilon.slu.se/9264/1/eriksson_m_121126.pdf

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Administrator and Chief Editor for TLB. Loves to talk. Super freak about publishing. Loves watching obscure movies, good cook and overall gentle fellow. Reach him if you want to write an article for TLB. Email him on marty@thelocalbrand.com
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