The Impacts of Big Box Retail

There Really are Limits

Retail markets are limited in size and are dependent on the health of the local economy. Consumer consumption is directly tied to the amount of disposal income, not to the availability of shopping opportunities. Big boxes do not create new markets: they draw from the existing market base and from the established merchants. Invariably, the introduction of a big box retailer will seriously impact those merchants, with the loss of sales forcing many to close up shop.

The impact of a big box is designed to be regional. They are designed to be a draw within a 10 to 15 mile radius in suburban settings and even further in less populated areas. A new big box in one town will have a substantial impact on its neighbors. In fact, in more rural areas, the impact on existing merchants can grow in severity as one gets nearer to the edge of the circle of influence of the big box.

Big box retailers are auto dependent and locate in areas with prime road access. They draw people away from “Main Street” America. Quaint town centers do not exist for visual pleasure, they exist to support economic activity. If there is no economic activity, you can bet that the town center won’t be quaint for very long.

Multiplying Money

Money bounces and multiplies within the local economy. That is, when you spend money with a local merchant, they will in turn spend a portion of that money locally which supports other merchants. The multiplier factor varies somewhat in different studies but is generally considered to be between 2.3 and 2.7. Thus $100 that you spend actually generates between $230 and $270 of local economic activity.

When you purchase from a big box, nearly all of the money flows directly out of the local economy. None of the profits stay locally and in many cases, nor do the salaries of the employees. The reason is simple: in more affluent areas, local residents are unwilling to work for the poverty level wages offered by many of the big box retailers. Without a local workforce, the retailers do exactly what the fast food industry has done- that is, to “import” workers from the cities through reverse commuting. Thus the salaries flow back to the workers’ home locale and are not available to further enhance the local economy.

Support your Local Businesses

Local businesses tend to be more employee friendly, hire more people, hire more local residents, pay better salaries, and offer better benefits than do big box retailers. The benefits to the community are obvious and so are the losses if a big box retailer forces a local merchant out of business.

What You Don’t Know Can Really Cost You

Only in some cases do big box retailers pay big property taxes. In others, they are given tax breaks to locate in a particular community that can relieve them of their tax burden for years. This is simply insane and any elected official that offers such a deal should voted out of office at the earliest possible moment.

Big box retailers are fond of touting the positive impact on taxes that the opening of one of their stores will have on the local community. In many cases, such claims are vastly overstated by the retailers. To evaluate the true impact of a big box on ones community you must look at more than the check the retailer will write to the local taxing authority(s). It is absolutely critical to factor in the increased cost of services that the big box will require as well as secondary losses to the tax base.

New or expanded road systems are an enormous cost that accompanies nearly every new big box and rarely do the retailers foot the bill. Instead, it is government that make the “improvements” with your tax dollars. Additional sewage capacity may well be needed. Additional police services are often required and represent an ongoing cost of significance. Taxpayer funded off-site storm water management systems and/or flood control measures may be required to counteract the enormous increase in stormwater runoff that is produced by the acres of impervious surface that result from big box development.

It is also critical to evaluate the potential loss to the existing tax base. Local businesses pay sizable taxes as well and as they start to fall to the pressure of the big box retailers, so do the taxes that they pay. This serves to offset any tax “windfall” that might have been promised when the big box was trying to win approval. In cases where tax incentives have been offered, this actually results in a negative tax flow which must be made up by either reducing services or increasing the taxes of the local residents.

Additionally, the taxes generated by local income taxes must be considered. Not only will salaries (and the taxes paid on these salaries) be lower when dominated by big boxes, but there may be a sizable shift in taxes from one municipality to another. For example, a big box on a highway in an adjacent township may cause a substantial reduction in the tax revenues of a nearby “Main Street” based town if the “Main Street” retailers are forced out of business.

The list of potential costs to the community could go on and on and in large part are situational. The most critical thing to remember is that in all of these cases, you are paying the bill. Your dollars are subsidizing a large corporation. They are making money at your expense.

Therefore, it is our strong recommendation that the totality of the cost be evaluated before any land development considerations are discussed. Economic as well environmental impact statements should be required and we would recommend that municipalities include this requirement as part of their zoning ordinance. When crafting the ordinance changes, care must be taken to ensure the integrity of the reports. In other words, don’t allow the retailer’s “experts” to prepare the studies.

The Final Straw

The decimation of “Main Street” America during the 1960s and 1970s is a well documented phenomena that resulted from the growth of malls during that period. In many cases, the integrity of once thriving towns has been lost forever. In others, only the expenditure of enormous financial and human resources has allowed for their resurgence. Communities that have rebounded from the retail trends of the past are once again faced with extinction as big box retailers shift the retail center of gravity away from town centers to highway access points.

As big box retailers draw the life blood out of the downtown areas, one can only expect that they will degenerate with all of the social implications that are associated with dying towns. Vacant stores will replace thriving businesses and the huge public investment spent on revitalization will ultimately be wasted. To our knowledge, no one has yet calculated how many tax dollars are likely to have been tossed out the window on such failed efforts but it is important to recognize that those are your dollars and that the cost is yours to pay.

Community Support is Essential

Big box retailers are great at supporting high visibility NASCAR teams but they are decidedly stingy when it comes to supporting the local community. In fact, the largest big box retailer, Wal-Mart, also appears to be among the least generous major companies in the United States, committing a very meager .004% of its earnings to charitable causes.

This is a critical concept to understand. It is local business that provide the bulk of financial support for many community organizations. Kill off the local businesses and you cripple your community organizations. Just look at the back of Little League jerseys and you will begin to understand the significance. While you are likely to see that a team is sponsored by “Jack’s Auto Parts” you’ll have to look far and wide to find one that is sponsored by “Wal-Mart”. When Wal-Mart drives Jack’s out of business, who is going to sponsor the team?

Think about all of the organizations and events that benefit from the support of the local business community. Booster clubs, PTA/PTOs, school bands, scouts, sport leagues, theater groups, 4H and the list goes on. Sure, you may save a little bit by shopping at a big box but if you don’t support the businesses that support your organizations, don’t cry alligator tears when you have to make the decision to foot the bill yourself or let the organization die from lack of financial resources.

Hurting Your Neighbors

Very few people would intentionally go out of their way to make live miserable for their friends and neighbors but that is exactly what happens when people shift their business from local retailers to mass merchants. Local businesses fail and the families that run them, sometimes for generations, face financial ruin.

Money problems are a leading cause of marital discord and it can often lead to the breakdown or even the breakup of a family system. When big box retailers drive independent merchants from a market, the implications are far greater than merely the closing of a store. People are put out of work and family crisises are initiated. The people affected are your friends and neighbors. They are your children’s classmates. They are fellow parishioners and community volunteers. Their lives may be greatly impacted and those impacts are very rarely positive.

Have They Got a Deal for You!

Everyone likes low prices but there is a hidden cost that comes with those savings. Service and support decline, often evaporating totally as does product quality. Big box retailers frequently will hire or bring in special “teams” for a store opening, bringing in more employees than will ultimately staff the store. Their goal is to provide a positive initial experience that will encourage shoppers to come back. Once the opening period is over, the number and experience level of the staff will be reduced. The result: the very positive initial experiences are rarely duplicated over time.

Adding to the problem is the inordinately high employee turnover that most big boxes encounter. Wal-Mart’s turnover rate is among the worst in any industry group (somewhere in the 50 - 60% per year range), which results in an inexperienced work force servicing customer needs. Unfortunately, by the time many people realize that the “bargain” of low prices is not quite the bargain that it appears to be, the stores that actually did provide the level of service that people desire are long gone and unlikely to ever return.

Likewise, once the businesses that actually provided service to their customers disappear, so do many of the options that were available to shoppers. Special orders and access to specialty manufacturers becomes much more difficult. The product selection and availability is dictated by high volume purchasing, not personal taste.

News Flash!

Retail businesses are not in business to provide customer service. They are in business to make money. To many local businesses, service is a major part of their sales kit. They service their customers because that is good way to bring people into the store and to develop a client base. The client benefits by having access to quality pre-sale advice, after sale support and access to a wider product selection because items can be special ordered and/or customized to meet the particular client desires.

The services that one receives from a small business are not free. They are expensive to provide. To properly provide customer service requires an experienced and knowledgeable staff as well as a much larger time commitment per client. The cost to provide quality services are reflected in the price you pay and not unexpectedly, many local retailers that provide good service are more expensive than big box retailers because providing that service is a real and tangible expense.

One of the easiest ways for a big box to increase their profit margins is to eliminate service. By doing so, they can use inexperienced staff and pay them poverty line wages. Nobody expects quality sales help at a big box and the consumer is on their own when making a product selection. If the consumer makes a bad selection, then the cost of that decision must be deducted from the money “saved” by shopping at a big box. In the end, whether one actually pays less or not is subject to some luck and a lot of debate. It really boils down to “you get what you pay for.”

Who Cares if it Breaks as Long as it is Cheap

The issue of product selection and availability is of importance to more than the end consumer, it is one that is vitally important to the economy as a whole. Obviously, big boxes gain much of their price advantage by bulk purchasing. This means that their suppliers must be able to provide huge quantities of a particular product and often at a price dictated by the big box retailer. Consider the ramifications:

A. Much of the merchandise sold by big box retailers is now imported. It has been estimated that as much as 85% of the merchandise sold by Wal-Mart is foreign-made and charges of inhumane conditions in sweatshops are rampant throughout the industry.

Not only are there human rights issues that must be considered, but the simple reality is that the buying habits of Americans have fueled the surge in big box retail and it is costing other Americans their livelihoods. The American textile industry is but one example in that it provided the basis for existence in many American towns for years. As an industry, it has all but disappeared with the jobs it provided now relegated to cheap offshore labor. There are real costs associated with the migration of jobs to third world countries and ultimately everyone who shops at a big box should be cognizant of those costs when computing their “savings” in the checkout line.

B. Smaller manufacturers find it difficult, if not impossible, to market their products to big box retailers and have relied on the local retailers to sell their wares. When the local retailers are forced out of business by the big boxes, the smaller manufacturers are very likely to suffer serious financial consequences as their sales channel disappears.

The outcome is wholly predictable. More businesses will close as sales fall. More quality jobs will be lost. Product options will become fewer and product quality will be reduced as craftsmen are replaced with dollar-a-day laborers.

Ugly and Uglier

By any standard, most big box retail centers are ugly. Unfortunately, when all is said and done they may not be the worst looking thing around. When big boxes come to town, they often spell the end to shops in existing retail centers. Abandoned commercial buildings, whether on “Main Street” or at a strip mall (which seem to fare particularly poorly) soon turn into both a visual and actual blight on the community.

The financial viability of a retail area is reliant on the success of all its components. As vacancies increase, the ability of owners to maintain the property decreases with the flow of rental income. As the quality of the property decreases, so do the rental rates that can be charged and the quality of the retail establishments occupying the space are very likely to decline. Of particular concern is that if a property owner is forced into bankruptcy then the maintenance of the property becomes even more of an issue and its deterioration often accelerates dramatically. Any given community must have a “critical mass” of businesses in order to remain viable and economically stable. With the introduction of big boxes into a community and the resulting failure of small businesses, a town may well lose its needed critical mass of shops and services.

Small is Big

Every politician will tell you at every election that small business are the backbone of America. Although it may sound merely like vote getting rhetoric, it is true. Consider the following statistics from the United States Small Business Administration and then ask yourself if it is a good idea to kill them off with superstores.

Uglier Still

While the impact of a big box may result in the deterioration of surrounding retail centers, big box abandonment is an issue unto itself. The “shelf life” of big box stores is relatively short (5-15 years) with older stores often replaced by newer facilities erected by the same retailer within the same market. The old stores are simply abandoned with little opportunity for reuse.

There are a number of reasons for the high incidence of big box abandonment. First, when a big box retailer decides to “refresh” their market presence with an updated store, it is cheaper for them to build a new facility than it is retrofit the existing structure. The very nature of big boxes makes them relatively inexpensive to erect and extremely expensive to retrofit to an updated floor plan. Add to that the reality that the construction related to any major facility upgrade will seriously impact the sales of the store and it makes economic sense (for the corporation, not the community) to replace rather than rehabilitate an existing store.

The second factor that comes into play is the reality that the only use for a big box building is for big box retail. If a retailer decides to decommission a store and replace it with a new one within the same market they are not going to be anxious to lease the empty store to one of their competitors. Their solution: leave the box empty.

Even if a noncompetitive retailer were “allowed” to lease the property, in most cases they will be reluctant to do so. Why? Most big box retailers have established a “certain look” that clearly identifies a structure as one of their stores. Whether you are in Oregon or Pennsylvania they want you to be able to identify with their brand name simply by looking at the building. Obviously, it is easier, and often faster and cheaper, to achieve this type of branding by constructing new facilities that reflect the corporate image of the retailer than it is convert an existing facility built in another corporations image.

Homogenizing America

Big Box retailers are concerned with promoting their image, not with blending in with the local environment. In fact, most big box stores bear absolutely no relationship to their surroundings. From a marketing perspective, this is desirable. You might not be able to tell if you are in New Jersey or New Mexico but you can sure tell if you are in a Wal-Mart or a Target.

Planners and sociologists are increasingly concerned with the loss of a “sense of place,” referring to the fact that every town is beginning to look like Any Town USA. We all like to think that we are unique and that the communities in which we live have their own defining character. That character and the commitment to community is lost when it becomes impossible to differentiate one town from another. The full implications of this phenomena have yet to be studied but it is safe to say that its ramifications will prove to be largely negative.