David Fettig - Editor
Published September 1, 1992 | September 1992 issue
Every day Kenneth Stone receives about 10 phone calls from merchants and chamber of commerce officials from across the country. Some callers are a little frantic, all of them are very concerned.
It's coming, they tell the Iowa State University (ISU) economics professor, what can we do?
The question refers to Wal-Mart stores, the mega-discounter that is expanding by 170 stores per year nationwide and which has created a little sub-industry for Stone as a consultant to business communities preparing for Wal-Mart's incursion.
"I've got more business than I can handle," says Stone, who juggles his responsibilities at ISU with about 50 to 60 speaking engagements each year. While he has no intention of doing so, he says he could make more money if he left the university and devoted his efforts full-time to Wal-Mart.
Currently, the hot spots in Stone's itinerary are California and the Northeast, two regions where Wal-Mart is beginning to make headway. In California alone, where it currently operates about 25 stores, the chainwhich is most prominent in the South and Midwestis expected to open nearly 300 more stores within the next four years, according to Stone.
Stone, an extension economist at ISU, says his department is somewhat unique among universities in that it "reaches out" to the business community, acting much like an agricultural extension office. It was that department philosophy that originally led him into retail research in the mid-'70s, when he published a well-received paper on the economic impact of shopping malls.
Speaking engagements followed, but during the mid-'80s the tone of the meetings changed. Local merchants were less concerned about shopping malls and increasingly worried about Wal-Marts. Soon, Stone realized that his mall research wasn't wholly applicable to this new phenomenon, and he turned his efforts entirely to the Arkansas-based chain. He published his first paper on the economic impacts of Wal-Mart stores in 1988, a study that he updates and expands annually.
Stone's researchwhich charts trends in nearly all types of retail or service sector businessesis based on the effect of Wal-Mart stores on communities in Iowa (where 43 stores exist), but the lessons are universal, he says. Two "rules of thumb" developed from the study: Stores that sell different goods and services than Wal-Mart tend to experience increased sales because of the additional traffic drawn by the Wal-Mart; conversely, and not surprisingly, stores that sell the same merchandise generally experience sales decreases. (These rules, Stone notes, are based on communities with static population.)
As noted in the accompanying story, the trick for small businesses faced with competing against a Wal-Mart is to diversify its product offerings, perhaps through upscaling, and to offer expanded service. Also, store owners must manage their inventory better, Stone says, and improve their marketing. Virtually any retailer can survive, he says, if they find the right niche.
"My conviction is that there are a lot of good retailers around who can adjust to such changes," Stone says. "But there are lots of marginal retailers, too, who refuse to change."
One complaint that Stone sometimes hears from smaller merchants concerns the issue of fairness. It's not fair, they say, for a large chain to move in and threaten the economic viability of so many small-town businesses. But Stone is hesitant to cast judgment, adding that while business owners may be hurt by the competitionand some lose their livelihoodconsumers often benefit from the ensuing competition. This is especially true when Wal-Marts move into communities that have other large discounters, like Kmart and Target, he says.
There is one issue, however, that Stone is less reticent to criticize, and that is when communities give special tax and infrastructure breaks to a Wal-Mart to lure the chain to town. Usually this is done in a rapidly growing suburb that has less need for immediate property tax revenue, he says. "Putting it bluntly, these communities are paying a big company money to put their small businesses out of business."
With Wal-Mart growing at about one store every other day, and with the company planning to roll out a new line of Supercenters that will include groceries (500 such centers are expected within five years), Stone says the chain will likely enter a new era that may entail selective closings. For instance, in some areas of the country there are Wal-Marts in such close proximity that they have begun competing with one another.
In one such case in Texas, according to Stone, a Wal-Mart was recently closed in a small town, sparking an outcry from local residents who claimed that they were betrayed by the company: First a Wal-Mart moved in and the ensuing competition closed much of the town's former retail core, now the Wal-Mart has moved out and the town has been left with virtually nothing, leaving consumers to travel to neighboring communities to shop.
Stone says such a phenomenon may be played out with increasing frequency as the nation's largest retailer keeps getting larger.