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What It Really Costs When Walmart Comes to Town

David Mielach, TMN
Tuesday, 24 Apr 2012 | 11:00 AM ET
Walmart
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Walmart

It's more bad news for Wal-Mart . After a New York Times story alleged that Wal-Mart bribed officials in Mexico to allow the company to open stores in that country, another new report reveals exactly how much it costs a community in dollars and cents when Walmart comes to town.

The research, done by a Northwest community group, estimates that one Walmart store, which is set to open in a Washington neighborhood, will decrease the community's economic output over 20 years by an estimated $13 million. It also estimates the Walmart will cost the community an additional $14 million in lost wages over the next 20 years.

"We know now the true economic impact a Walmart store has on a neighborhood when it moves in," Christopher Fowler, the study author, 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."

"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.

That redistribution in sales is estimated at $25 million annually, according to the research. This means that nearly $660,000 in wages is lost annually.

"Walmart may say they help people 'Live Better,'" said David West, executive director of Puget Sound Sage, a nonprofit public policy organization that looks at regional economic issues. "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.

"These impacts stem from the low wages Walmart pays to its hourly associates compared to the wages earned by comparable employees of existing retail grocery stores," the researchers said. "The difference in wages, which we estimate to be at least $3 per hour, has the capacity to impact not only the workers themselves, but also the people from whom they purchase goods and services."

One important caveat to this research: It applies only to areas where consumer demand for products is already being met. In areas where demand is not being met, however, there is a benefit to having a Walmart since it makes more products available to consumers, Fowler said.

"Walmart is able to offer lower prices than other small retailers and we would expect that to have an additional effect with both costs and benefits," Fowler said. "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."

This is not the only negative news about Walmart in recent weeks. There is the recent Mexico scandal, in which The New York Times alleges that officials at Walmart's Mexican stores group, Wal-Mart de Mexico, had been involved in bribing local officials to gain access to their regions for Walmart stores and that the parent company knew about it and covered it up.

That's in addition to another report earlier this month that made the assertion that the presence of a Walmart and other big box stores breeds hate groups. That research, conducted by professors at Penn State University, New Mexico State University and Michigan State University, argues that local businesses are pillars of the community and promote civic engagement and foster community values. When Walmart comes to town and puts those companies out of business, it creates a business vacuum which weakens the community's civic "backbone" and creates an atmosphere ripe for hate groups to form and gain power in the absence of strong leadership among local business owners and community leaders.

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