Wednesday, November 18, 2009

Do big boxes displace mom-and-pop stores?

When Wal-Mart moves into town, is this good or bad? It is commonly perceived that this is bad for local businesses, and especially for small "mom-and-pop" stores. In reality, that depends on whether big-box stores like Wal-Mart are complements or substitutes. Intuitively, they should be largely substitutes with respect to the shops they directly compete with, while there may be complementarities with other shops as they attract more customers to town.

John Haltiwanger, Ron Jarmin and C.J. Krizan confirm this intuition. Surprisingly, this was not a clear result from the previous literature. The difference here is that establishment level data is used, and that employment dynamics within a metropolitan area are studied.

That being said, what is so bad about seeing mom-and-pop stores closing? These are high inefficient retailers, and if similar retailing services can be provided at lower cost, we should go for it. If people value a different retailing experience, they should be willing to pay for it, and visibly they are not. Banning big boxes only provides rents to existing inefficient businesses.

1 comment:

Anonymous said...

I agree that we shouldn't ban Big Box stores but this is only half the story. The other half is when Big Box stores use Eminent Domain (more often then people realize) to force other smaller businesses out of business. Steven Greenhut documents several examples of Big Boxes such as Cost Co, Walmart and others using Government to push business owners off their land:

"In a chapter entitled "Corporate Welfare Queens" the author lists a number of examples of how people are forced to hand over property so that companies like Costco, IKEA, Wal-Mart and Home Depot can build stores where they want to. Greenhut singles out Costco as the worst offender citing numerous instances where the company was involved in eminent domain cases. "Costco is the worst of any corporation out there in the case of eminent domain abuse," John Kramer of the Institute for Justice told Greenhut.

The city of Lancaster, California attempted to use eminent domain to take a 99 Cents Only Store property and then sell it to Costco for one dollar. The owner of 99 Cents Only Stores, Dave Gold, decided to fight the condemnation with his own money. Despite the city dropping the case, Gold wanted the court to hear the case. The judge blistered the city of Lancaster, ruling "In this case, the evidence is clear beyond dispute that Lancaster’s condemnation efforts rest on nothing more than the desire to achieve the naked transfer of property from one private party to another…. In short, the very reason that Lancaster decided to condemn 99 Cents’ leasehold interest was to appease Costco."