As promised, here's the transcript of my interview with Chris Holling of Global Insight. He's the Economist who authored the Wal-Mart savings study that I blogged about yesterday. Here's the explanation of how he came up with the math behind the "Wal-Mart Effect."
MB: How did you come up with the figure that Wal-Mart saves consumers $652 over holiday season last year?
CH: We did a comprehensive study on the impact of walmart..First input was all of their store data - their whole history from 1985 of store openings.. through time, county by county, store by store. and we analyzed that expansion across the U.S. and tied that to changes in consumer prices. And did this study first in 2005 and updated again in August. In that analysis, we identified an impact on the overall cpi (consumer price index) of about 3% because of Wal-Mart's expansion over that period. Then bcause of that impact on the lower CPI. we translated that into savings per person, per household
MB: So this isn't what Wal-Mart customers save per say. These numbers are the cumulative cost savings by all consumers due to the presence of Wal-Mart in their areas and resulting price competition?
CH: What we're capturing is certainly both their direct impact by potentially having lower prices. By the impact on suppliers in terms of encouraging greater efficiency and use of technology and their impact on competing retailers. So all those impact accumulating over time.
MB: How did you come up with the math? This is cumulative savings from 1980s onward?
CH: Its simply looking at total consumer expenditure in 2006 and then the implication of the lower cpi - that prices in 2006 were 3% lower than they would have been without the existence without Wal-Mart. So in some respects, its a simple multiplication of the impact on the cpi.
MB: Are there any categories of product or regions of the country that you see as most directly impacted by Wal-Mart's presence?
CH: When we did the original study in 2005 we looked at impact on different categories. We looked at groceries and other products. Groceries was where we saw the biggest impact with the expansion of Wal-Mart Supercenters over time. The fact that the grocery sector was relatively uncompetitive as Wal-Mart entered the segment. So in that case, we identified a 9.1% impact on the price of groceries. In August of this year we updated the results on a state basis, and updated on a state by state, to see how the national number of $25k/household varied by state. We found that in states where Wal-Mart has had historically low penetration, states like California and New York, that's where we had less impact being measured. In states like Alabama, Louisiana, where there's greater penetration, we saw a greater impact. At the top of the list in terms of states was Wyoming and this is a good example of some of the dynamics of Wal-Mart. Certainly in the initial years a lot of the expansion into undeserved rural markets that had relatively uncompetitive offerings and choice for consumers. So in a state like Wyoming Wal-Mart came in and offered access to advance supply chains and hence, we had some of the greatest impacts in Wyoming and then certainly if you went down to substate level in more rural areas over time.
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