This essay will examine the discovery of the economy of Walmart, an American retail corporation. The Walmart Effect is a term that refers to the impact that large companies such as Walmart make on local businesses (Kenton, 2019). The effect usually leads to the reduction of wages for employees’ competitors and forces smaller companies in the area out of business leaving them without sources for leaving. For these reasons, many local organizations are against Walmart stores’ introduction into their territories (Lam, 2017). But at the same time, this effect tends to improve the economy as it attracts customers to the area which otherwise would be left without sales.
This term was created for the first time in the 1990s, but Charles Fishman, an American author, wrote a book “The Wal-Mart Effect” in 2006 that tells about how the American economy is affected by this large retail company (Kenton, 2019). Fishman goes beyond the pros and cons for local companies and examines the effect on consumers. The discovery of this effect is important because Walmart affects the economy significantly in a positive and negative ways. According to Christopher Fowler, a Puget Sound Sage research conductor, when Walmart comes to the community, it reallocates sales that result in the difference between wages of local markets and of Walmart’s (as cited in Business News Daily). Nearly $25 million contributed to the sales redistribution that accounts for almost $660000 loses in salary per year (Scott, 2015). Moreover, the Walmart-based trade deficit with China resulted in nearly 400000 jobs losses in the US. The manufacturing field and its employees were affected the most. The increased Chinese import eliminated almost 80 percent of the jobs which is 314500 manufacturing jobs. On the other hand, Walmart introduces other businesses when moving to the town. People coming there for low prices tend to visit other smaller shops nearby.
The possible explanation for the Walmart effect is the scope and scale of the company’s buying power. Walmart has more than 4700 stores located in the US, with almost 600 Sam’s Club stores (Kenton, 2019). Because of its size, the company can set the price it pays to the distributors at scale other retail companies cannot afford. Thus, Walmart is able to sell goods at much lower price compared to its competitors. According to the Law of Demand (Cowen & Tabarrok, 2018), with the decrease in price, the demand for the goods increases, meaning that people would come more often to the store and buy more merchandise, leaving other shops without consumers. Moreover, Walmart has always controlled compensations to workers in such a way other competitor shops might feel forced to reduce salaries for their workers in response (Meyersohn, 2019). In addition, even if Walmart decides to relocate, the effect of its initial arrival last long afterwards.
This discovery is relevant because it addresses the important economic issue of large retail markets superiority. It affects employees’ wedges, existence of smaller businesses, and the trading relationships between countries. It is also controversial and allows for numerous debates as it has advantages and disadvantages. The disadvantage of the Walmart effect is that it distorts the local businesses and the advantage is that it allows people to save money buying cheaper products. Thus, this discovery has different perspectives: businessmen’s and consumers’ ones. It allows to look at the issue from various angles.
References
Business News Daily. What it really costs when Walmart comes to town. (2020). Business News Daily. Web.
Cowen, T., & Tabarrok, A. (2018). Modern Principles of Economics. (4th ed.). Worth.
Kenton, W. (2019). Walmart effect. Web.
Lam, B. (2017). How to think about Walmart. The Atlantic. Web.
Meyersohn, N. (2019). Scathing report says Walmart’s grocery store dominance must be stopped. The CNN Business. Web.
Scott, R. E. (2015). A conservative estimate of the “Wal-Mart effect”. Web.