Harms of Big Box Retail

Harms of Big-Box Retail

Big-box retailing refers to the massive “big-footprint,” “category-killer,” stores such Walmart, Target, Home Depot, Barnes & Noble, and Cabela's that have reshaped America's economic and physical landscape the past few decades. For the definitive analysis of the many ways in which big-box stores have harmed our cities, our environment and our entrepreneurial culture, read Stacy Mitchell's Big-Box Swindle: The True Costs of Mega-Retailers and the  Fight for America's Independent Businesses.

What characterizes “big-box” retail?

Sprawl experts cite a number of features that typify big-box stores. They:

  • Occupy more than 50,000 square feet of space (sometimes as much as 250,000).
  • Require large sales volumes, so they often use predatory marketing strategies to take sales away from existing retailers.
  • Rely on shoppers who arrive at the store by car, so they need large-capacity roads.
  • Include acres of parking and occupy a large footprint.
  • Create site development that neglects any community or pedestrian amenities.
  • Seek to dominate markets and provide no unique culture, products, or identity.

Big-box stores are icons of sprawl. Since they large footprints, they rarely choose urban infill locations and opt instead to locate in suburbs and exurbs, furthering the movement of economic activity away from the urban cores. With their massive parking lots and big-road access systems, they are often inaccessible or poorly accessible by public transportation.

Harm #1: Big-box stores undermine small businesses and entrepreneurialism

The business models of big-box chains are to dominate market share. That is, they grow mostly at the expense of existing competitors, many of them locally owned independent businesses. Walmart has a goal of at least 30 percent market share for its many major product lines; Home Depot and Lowe's together now have about half of home improvement sales. With their massive advertising budgets, ability to squeeze suppliers on wholesale prices, and use of devices such as “loss leaders” and end-cap specials (those catchy deals at the ends of aisles), the chains have the ability to undercut smaller retailers.

In towns and cities across America, big-box retailers have been the death knell for local businesses. Iowa State economist Kenneth Stone, for example, has produced numerous studies looking at the long-term impact of Walmart on Iowa retailers.

Harm #2: Big-box stores undermine retail wages

Retailing is notorious for its low wages, part-time hours, and lack of health insurance and pension benefits. The only exception are those grocery chains that are unionized, but big-box behemoth Walmart, by entering the grocery business with its Supercenters and aggressively fighting union organizing efforts, is now the top seller of food and a major source of downward pressure on grocery wages.

The same pattern is true even in retail segments where there are no unions. As studies by the Austin, Texas-based consulting firm Civic Economics have found, national retail (including restaurant) chains in general pay lower wages and benefits than do locally owned businesses. By that measure and others, it has found that the chains generate fewer ripple effects in local economies: they procure less, bank less, contribute less, and participate less.

Harm #3: Loss of open spaces and natural resources

When big-box retail stores locate in farmland, wetlands, or green space, they eliminate natural resources and open space. According to the American Farmland Trust, the United States loses 3,000 acres of productive farmland to sprawl every day. This is the equivalent of all the acreage of Delaware every year.

Harm #4: Loss of uniqueness of place

As big-box retailers spread across the country and wipe out local businesses in their wake, America becomes more homogeneous and the unique character of individual communities is lost. In 2004, the National Trust for Historic Preservation named the entire state of Vermont as one of eleven Most Endangered Historic Places because Wal-Mart had announced plans to open seven new 150,000+ square foot stores there, threatening the state's revered architecture and small-town culture, as well as its entrepreneurial health and environmental standards.

Harm #5: Losses caused by main street and mall abandonment

Dead malls (a.k.a. “greyfields”) and abandoned big-box stores (or “ghostboxes”) litter America's landscape. Our nation is awash in excess retail space. The National Trust for Historic Preservation estimates that we have 38 square feet of store space for every man, woman and child, many times the rates of other industrialized nations.

In almost every region, the plague of over-built retail is evident. The director of the National Trust's Main Street Center once testified that cities with too much retail space suffer all kinds of hidden costs. When just one Main Street store, with two floors of 2,000 square feet, goes from being occupied and busy to being vacant, the total cost to the local economy is almost $250,000 a year, she reported. That includes losses in property taxes, wages, bank deposits and loans, rent, sales and profits.

It's not just downtown retail areas that are suffering: older malls are also getting cannibalized. A 2001 study by the Congress for the New Urbanism and PriceWaterhouseCoopers about “greyfields” found that 7 percent of regional malls were already greyfields and another 12 percent are “potentially moving towards greyfield status in the next five years.” That would be 389 dead malls.

Since vacant or underutilized properties usually get reassessed and pay much lower property taxes, dead malls mean big tax revenue drops. For example, Northridge Mall in Brown Deer, Wisconsin went from an assessed value of $107 million in 1990 to a greyfield sale value of $3.5 million in 2001. That lead to a staggering drop in property taxes. Check out Deadmalls.com for links and news.

Harm #6: Hidden costs in the form of public assistance to low-wage workers

When Wal-Mart and other poverty-wage retailers fail to provide their workers with a decent wage and full-time hours, many employees and their families qualify for safety-net help such as Medicaid, State Children's Health Insurance Program, Earned Income Tax Credits, Section 8 housing assistance, low income energy assistance, and free or discounted school lunches. These programs cost taxpayers money.

Indeed, a 2004 report by Congressional staffers tallied all of these hidden costs; they estimated that each Wal-Mart store with 200 employees costs federal taxpayers $420,750 a year in safety-net costs. Multiply that by more than 4,000 stores Wal-Mart already has in the U.S.—and by many more it seeks to open every year and you get a hefty taxpayer tab.

To date, about half the states have disclosed the names of employers who hire the greatest number of workers that depend on taxpayer-funded healthcare programs. Good Jobs First has been keeping track of these disclosures as they materialize. Click here to see if your state is among those disclosing which companies have the most employees dependent upon taxpayer-backed healthcare.

Harm #7: Popular confusion about prosperity

The opening of new retail space creates the false illusion that a regional economy is prosperous, never mind the dead malls, ghostboxes and boarded-up Main Street not far away.

A few retailers—Cabela's and Bass Pro come to mind—have mastered the ultimate illusion of “destination retail,” enticing shoppers from great distances. In the case of Cabela's, the bait is pseudo-outdoors settings such as its Conservation Mountain store centerpieces with wild-game taxidermy. In some cases, these attractions are legally structured as a condominium within the store and owned by the local government (as a pseudo-museum), and are therefore exempt from property taxes.

Harm #8: Bricks and mortar economic development subsidies

Finally, despite the fact that big-box stores pay poorly, fail to provide most employees with full-time hours, and often cannibalize existing retail employers, they attract massive subsidies in the name of “economic development.” Good Jobs First's 2004 report Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth found that Wal-Mart has received more than $1 billion in subsidies from local and state governments. That research, since updated at WalMartSubsidyWatch.org, now finds subsidies totaling more than $1.2 billion. In essence, taxpayers across the country are paying Wal-Mart to build new stores.

Big-box usually flunks the definition of “economic development”—and therefore should not get subsidies—because it packs such a lousy bang for the buck compared to almost any other economic activity. To measure the ripple effects of a new business, you look “upstream” to see how many supplier jobs the region would gain, and then you look “downstream” to see how many jobs would be created by the buying power of the people who work at the business. The upstream of a big-box store creates very few jobs for the local economy (i.e., Made in China), and the downstream ripple effects are terrible because retail jobs are overwhelmingly part-time and poverty-wage, with no health care.

That means most retail workers have very small disposable incomes: after paying for bare necessities, they have little left with which to stimulate the local economy. Building new retail space just moves sales and lousy jobs around. It doesn't grow the economy.

We believe that there is only one justifiable time to subsidize retail: to help revitalize a truly depressed neighborhood that lacks basic retail needs such as food, prescriptions and clothing. In all other situations, subsidizing retail is a waste of money that could be better deployed creating better jobs and stronger ripple effects.