Residents in the Los Angeles suburb of Burbank are up in arms over a proposed new neighbour. They accuse it of paying its employees a pittance, offering inadequate benefits and driving its neighbours out of work. The target of their ire: big-box retailer Walmart. “We are against Walmart because they have ruined the way retail and manufacturing are run in this country,” says Kate Nixa, at the forefront of the protest. She has a message for anyone who has a Walmart opening up in their community: “Fight it hard or get the hell out because Walmart will ruin your town.”
This cautionary tale erupts every time Walmart proposes a new store in the US. The overarching concern remains the mega-chain’s devastating impact on smaller retailers. Studies have found that in rural neighbourhoods, Walmart has decimated surrounding retailers. Unlike Walmart, mom-and-pop stores recycle their revenue into the community, which means communities suffer when they are forced to close. “Generally, (big-box retailers) increase the total retail sales, but at the expense of competing smaller retailers,” says Kenneth E. Stone, professor emeritus of economics at Iowa State University who has studied the “Walmart phenomenon”.
Walmart did not respond to a request for comment from Outlook. In general, experts say, the much-touted ability of mega-retailers to have a positive impact on economic development is questionable. David Merriman, professor of public affairs at the University of Illinois, Chicago, conducted a study of Walmart’s impact on Chicago’s West Side. He did not find any net increase in sales or jobs. “We didn’t see an economic development benefit to that neighbourhood,” he says.
Critics also question the quality of jobs that are created. “For all the hoopla that currently exists in India about the potential entry of Walmart, Tesco and Carrefour, it is worth noting that these companies provide some of the lower end of the blue-collar work in the US and Europe,” says Amit Srivastava, director of global resistance at the India Resource Center.
Big-box retailers maximise profits by being involved in most aspects of the product’s supply chain. “With Walmart’s size and high-volume procurement, it’s Walmart that increasingly sets the prices it’ll pay for agricultural produce and manufactured goods, not the other way around,” says Srivastava. As a result, Walmart is famous for “squeezing” the producers it buys from. It’s the small farmers that lose out, he adds.
Stone, however, says the problem is that many local farmers are not willing to accept Walmart’s strict requirements. Their ability to offer lower prices tops the list of benefits big-box retailers bring to consumers and some economists say Walmart’s reputation for predatory pricing is overblown. “Consumers freely chose to go to Walmart over existing businesses, so they clearly get some benefit,” says Merriman.
So, what lessons can India learn from America’s Walmart experience? “What India can learn is that it is not the end of the world when a big-box store opens,” says Stone. Businesses that require a personal touch—a shoe or hardware store, for example—often manage to hold their own, and can even thrive, while sharing the market space with big-box retailers.
Ben Waxman, a spokesman for the Washington-based Making Change at Walmart, a group backed by the United Food and Commercial Workers International Union, has a less optimistic outlook. “The lesson for India I think is: buyer beware,” he says, adding that if the Indian government is adamant about opening retail space to foreign companies, it must, at the very least, ensure that wage and benefit standards are first set in stone. “It comes down to what standards you want to set for the retail sector in India,” he says. “If you want Walmart to set those standards, it’ll be a race to the bottom.”
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