- NATE BERG
- SEP 14, 2012
In 2006, months before a Walmart store was opened in the Austin neighborhood of Chicago’s West side, researchers counted 306 businesses in the surrounding area. Two years after the Walmart opened, 82 of those businesses had closed.
That some businesses, particularly small businesses, would close after a large retailer moves into the neighborhood is to be expected. But, as the researchers found, the pattern and severity of those closures was far from typical. The closer a business was to the new Walmart store, the more likely it was to close.
“No matter which direction you go from Walmart, there’s a very high rate of business closures in the immediate vicinity, and the further away you get there’s less and less,” says University of Illinois Chicago economics professor Joe Persky, one of the authors of the study, which wasjust published in Economic Development Quarterly.
Farther out from the store, about four miles or so, the rate of closure is about average, or roughly 24 percent of small businesses, according to Persky. “Small businesses often close. They have a high turnover.”
But the closer a store was to the Walmart location, the greater the likelihood it would close. Persky and his colleagues found that for every mile closer to the Walmart, 6 percent more stores closed. Close in around the store’s location, between 35 and 60 percent of stores closed.
And depending on the type of business, the impact of a Walmart moving in can be much worse. Persky says that the per-mile closure rate increase for drugstores is almost 20 percent. For home furnishings, it’s about 15 percent. For hardware stores, it’s about 18 percent per mile. For toys, it’s more than 25 percent per mile.
The research also shows that during the study period, from 2006 to 2008, overall sales tax revenues went down in the two ZIP codes closest to or encompassing the Walmart. Before the store opened, the sales tax revenues for these two ZIP codes were growing at rates of 6.7 percent and 4.3 percent per year. After the Walmart opened, they each saw a boost – up to nearly 18 percent in the ZIP containing the Walmart and slightly up to about 5 percent in the ZIP next door. But by 2008, both of those growth bumps had faded, and the ZIPs were seeing declines – negative 11 percent sales tax revenue growth in the ZIP containing the Walmart and negative 3 percent in the neighboring ZIP. The researchers also argue that by 2008, the amount of jobs lost because of store closures was just about the same as those created by the Walmart store’s opening. It was, Persky says, a wash.
“You may have reasons to want Walmart and you may have reasons not to want Walmart, but economic development is not one of those reasons,” Persky says. “And yet that’s been, in many cases, the primary argument for bringing Walmart to the city.”
Walmart disputes these findings and argues that its stores are magnets for both growth and economic development. In a study commissioned by the company, an independent researcher argued that the assertion of jobs creation being “a wash” was incorrect and only looked at jobs created by Walmart and not other jobs that also developed after the store opened. That study[PDF] found there was actually a net increase of more than 400 jobs in the area.
“Anyone who has actually walked the neighborhoods on the west side, talked with elected officials there or met with surrounding area businesses, knows the positive economic impact our store has had on the surrounding area,” says Walmart spokesperson Steven Restivo. “The businesses that typically surround our stores either offer a product or service we don’t or are strong in areas we’re not. Just drive around the vicinity of a Walmart and you’re likely to see small, medium and large businesses co-existing.”
Persky says he understands some of the criticism of his research. He concedes that the study did not include any data on stores that opened during the 2006 to 2008 period, just those that closed. But he argues that any openings would have been reflected in the sales tax revenue data collected.
Persky argues his study offers proof that Walmart openings can be bad for small business, especially those located close to the new stores. And while he says the results shouldn’t be used as an argument for or against the retailer, he does call into question Walmart’s role in local economic development.
Photo credit: John Gress / Reuters