Urban Returns

Big-box experiments

Wendy Waters recounts Costco's attempt to break into the Manhattan market. A coalition of neighborhood activists, labor groups and (almost certainly) local businesses are trying to repel Costco's foray. While their agendas are transparent, the arguments they've trotted out are mostly of the, "It won't work here, so don't try" variety. Wendy does a nice job dissecting them.

I once thought that these fights in far-off cities didn't really affect me. I felt a little schadenfreude, but that was about it.

But now I think differently. And not just because Austin jumped on the bandwagon, or the Northcross Supercenter fight. As Tory Gattis has cogently argued, perhaps the real obstacle to New Urbanist development -- really, the development of a lower-case "u" urban city fabric that can attract a more diverse range of households -- is the lack of large-scale, big-box retail that offers people the variety and bargains they want. One doesn't even have to believe in the virtues of a denser urban environment.  Nor does one have to believe (wrongly) that people will walk or bike to them. No, it's simply a matter of "I want what the suburbanites got, but I don't want to move to the suburbs to get it." The city needs to offer the conveniences of the suburbs.

Costco and Wal-Mart and Home Depot don't know how to build urban stores -- yet. They need to experiment to get it right. They have to learn how to handle parking, how to build up rather than out, how to cater to the slightly different tastes of urban dwellers. They have to learn how to fit a big store in a dense city.

They are trying to experiment.   But they need to experiment in the right places.  Wal-Mart evidently pulled the plug on its Austin experiment, despite beating the neighborhood opposition, because it wasn't confident the urban model would work at Northcross.  It and the other big boxes first need to learn how to build urban stores in truly urban places.  So now, when I hear that San Francisco or Chicago or Manhattan has fought off another big box, I think, "Another experiment squelched before it hit the lab." If Costco or Sam's Club could get enough chances, in enough dense cities, they just might bee able to figure out what works. The cities that ought to be hosting the experiments, unfortunately, have closed the labs.

Watch Wal-Mart spread across the U.S.

A very cool video.

Don't hate Wal-Mart

M1EK has posted the reasons he hates Wal-Mart:

Wal-Mart are definitely bad guys. They have done very little good, and most of the good they did do was way back in the mists of time when Sam Walton was pretty new to the job.

It's a common sentiment, at least in Austin, at least among people who troll the local blogs.  (There's a representative sample here.)

People who bash Wal-Mart take the bad and leave the good.  You have to take both.

Wal-Mart saves everyone money.

Wal-Mart saves consumers money.  Not just a little bit of money.  A lot of money.  At least scores of billions, perhaps hundreds of billions, of dollars per year.  It saves money for the people who shop there.  And it saves money for the people who shop elsewhere -- even for those who shop at politically correct stores like Target and Costco.

Ignore the propaganda pushed by the pro-Wal-Mart and anti-Wal-Mart hacks.  Look at the academic research.  Like this paper.  These economists calculated the effect of super centers (mainly Wal-Mart Supercenters) on local grocery prices:

The spread of supercenters leads to lower prices both for households that shift their shopping from supermarket to [supercenters] but also for households that continue to shop at supermarkets because of lower prices caused by the increased competition from expanding food offerings at [supercenters].

They analyzed a typical basket of grocery goods.  Supercenter prices were 10%, 25%, even 50% less than supermarket prices (before supercenter competition).  The poor and minorities benefit the most from the spread of supercenters; households benefit less the more they make.  (This might explain why rapidly yuppifying Allendale sees little upside from a Supercenter.)

This paper looked at Wal-Mart's effect on the average price of 10 common consumer goods.  It found that average prices dropped between 1.5 - 3% soon after Wal-Mart entered a market, and 7 - 13% in the long run.

This paper, commissioned by a coalition of Bay Area local governments, estimated how much consumers would save from the entry of Wal-Mart Supercenters into the Bay Area market.  It found that Bay Area consumers would save between $382 million and $1.1 billion per year, just on groceries.  (To be fair, it estimated that unionized grocery workers would take a big hit.)

The "Wal-Mart effect" is corroborated by government price data.  Housewares, men's apparel, appliances -- all are much cheaper (in real dollars) than they were ten years ago. 

Cutting the price of $1 trillion dollars worth of goods by 1% saves $10 billion.  Our consumer-goods economy is several trillion dollars, and Wal-Mart has cut prices by a lot more than 1%.  Consumers save scores of billions of dollars per year because of Wal-Mart.

If you want to say Wal-Mart is "bad" or "evil," you have to account for this massive consumer welfare program.  We're all richer because of Wal-Mart.  If the harm done by Wal-Mart outweighs this good . . . well, it's got to be a whole lot of harm.

To those who claim not to care about the price savings, fine.  But don't just say so.  Show us.  Take 10% of the money you spend on consumer goods, stack it in the backyard grill, and set it on fire.   

Wal-Mart doesn't wipe out small towns

M1EK also claims that Wal-Mart "wipes out" small towns.

Not true. 

Now it doesn't take an economist to figure out that small-town retail takes a big hit once a Wal-Mart moves in.  It also should be no surprise that net retail employment decreases, and stays lower, after a Wal-Mart enters; more efficient retail means fewer employees.

Is this bad, though? 

I grew up in a small Mississippi town.  We got our Wal-Mart in 1986.  Everyone was excited.  Until then, all we had were some rundown (chain) dimestores, a mail-order Sears, and overpriced and understocked pharmacies, clothing stores, and appliance stores.

We didn't realize the dime stores were rundown, and we didn't realize the other stores were overpriced, of course, until Wal-Mart set up shop.  Predictably, the dime stores grew shabbier, and we lost several of our small stores (and our mail-order Sears).  For a while, there were vacant store fronts downtown and some seedy strip malls on the main drag.

Today, though, there's a Wal-Mart Supercenter anchoring a thriving indoor mall on the edge of town.  Downtown is now populated by specialty stores -- stores that cater to consumers who want things or service they can't get at Wal-Mart.  The main drag is a mix of offices and super-discount stores (some still seedy).

The town has not been "wiped out."  The structure of local retail has changed.  For the better, in my opinion.  People who want the mass merchandise or groceries cheap have a place to get it.  People looking for something else have a place to get that too.  If you asked the townspeople to vote on whether Wal-Mart is a good thing, it would be Wal-Mart in a landslide.

Enough anecdote.  Does Wal-Mart cause a decline in total employment when it opens in a small town?  The evidence is mixed.  These University of Wisconsin economists say that Wal-Mart has little or no negative effect on total employment and average weekly wages.   This Marshall University economist, analyzing Pennsylvania data, found a (small) positive impact on long-term employment.  On the other hand, these economists from the Public Policy Institute found that Wal-Mart may increase total employment while reducing total payrolls per person; they found that in the South, both total employment and total payrolls per person declined due to Wal-Mart.

Even the Public Policy Institute economists admitted that Wal-Mart's net effect could be positive even after accounting for job/wage losses:

The earnings declines associated with Wal-Mart do not necessarily imply that Wal-Mart stores worsen the economic fortunes of residents of the markets that these stores enter.  Wal-Mart entry may also result in lower prices that increase purchasing power, and if prices are lowered not just at Wal-Mart, but elsewhere as well, the gains to consumers may be widespread.

None of these claim that Wal-Mart wipes out small towns.

Suburban versus urban growth

I don't dispute that Wal-Mart uses suburban design in urban markets.  Just about everyone does, though.  The two Targets in South Austin have the same format:  a big box set at the back of the lot, parking in the front.  I'm not defending the design (in an urban setting).  There's just no reason to single out Wal-Mart for it.

Eliminating the competition

Usually, the argument is, "Wal-Mart wipes out local retail."  M1EK's take is that Wal-Mart destroys competition in old downtowns, where the public investment had already been sunk, and forces new public investment at the outskirts of town.

I've got two responses:  First, the public cost of extending roads/utilities to a strip mall on the edge of town shouldn't be that great, especially if amortized over a reasonable period. (Theoretically, cities could charge Wal-Mart for the cost of the infrastructure.)  Anyway, I don't see how the extra investment will be anywhere near the amount of consumer savings. 

Second, by this logic, any new competition for downtown businesses is potentially "bad," if it requires new city infrastructure.  The same argument would apply to a new Target, a new Sears, or a new "Local Bob's" General Merchandise Store. 

Monopsony and worker pay

I'll address in a future post.  The short answer, though, is that one suppliers' loss is another suppliers' gain.  (The main objection I've seen is that by squeezing prices, Wal-Mart has forced suppliers to relocate to China.)

There are some upsides here, too.  Suppliers have become more efficient.  Suppliers have also been forced to cut down on their packaging.  (Deoderant packaging is a widely-cited example; it's gone from a cardboard box to a foil strip.)

M1EK didn't really focus on the "Wal-Mart exploits its workers" argument.  I suppose that's one of the main objections others raise; I'll try to address that one in my next post too.  But the short answer is:  Just because Wal-Mart's workers would be better off if Wal-Mart paid them more and offered better benefits does not mean that they would be better off if Wal-Mart did not exist at all.  The only class of workers demonstrably worse off from Wal-Mart's existence are unionized retail workers in markets Wal-Mart plans to enter.  (Wage losses for these workers are significant.)

I understand why people despite shopping at Wal-Mart.  It doesn't deserve to be hated, though.  Americans, on average, are better off because of it.

Another take on Wal-Mart

From Sybil's Star.

P.S.  To be fair, I think a lot of the local anti-Wal-Mart crowd would not be caught dead in one.  Really, they don't have to sacrifice too much by shopping elsewhere, as long as a Wal-Mart's within range.  Wal-Mart has driven prices down across the board.  They benefit even if they've never set foot in one.

Gnomes and Wall-Mart

Two South Park episodes for those of us on the "wrong" side of the Northcross/big-box/Las Manitas debate:

Gnomes (download available from AOL video).  The townspeople crusade to save the local coffee shop from an evil "Harbucks."  (Here's the episode's Wikipedia entry.  Here's a straight-faced deconstruction by a University of Virginia English professor.)

Something Wall-Mart This Way Comes (complete episode).  A "Wall-Mart" opens in South Park, wipes out local businesses, and sparks a, uh, "backlash" by the townspeople.  (Warning:  this one's scatty even for South Park.)  Stone and Parker don't reveal their take until the last minute.