Institute for Local Self-Reliance Rebuts Study on Wal-Mart's Impact

This month, the Institute for Local Self-Reliance (ILSR) announced that it had found "fatal flaws" in the study Has Wal-Mart Buried Mom and Pop? by Dr. Russell Sobel, chair of Entrepreneurial Studies at West Virginia University, and Andrea Dean, a Kendrick Fellow in WVU's Economics Department. The study, published in the October issue of the academic journal Economic Inquiry, asserts that Wal-Mart has had no significant impact on the size, growth, or profitability of small businesses.

Stacy Mitchell

Stacy Mitchell, senior researcher for the New Rules Project, and author of Big Box Swindle: The True Cost of Mega-Retailers and the Fight for American's Independent Businesses (Beacon), wrote ILSR's rebuttal to the WVU study. "When I pulled up the study, I was immediately struck by the figures right away," Mitchell said. "There was a chart showing the growth of Wal-Mart stores and another showing small retail establishments, and the numbers in that chart was quite high. The numbers I pulled up from the U.S. Census Bureau were much, much lower."

Noting that the WVU study's counter-intuitive results have drawn media attention, Mitchell said that journalists are now circulating misinformation "based on a poorly constructed study that has the power to influence how people think about this issue." In addition, the study received the public approval of Wal-Mart, which has produced and is widely distributing a fact sheet highlighting key findings and quotes from the study.

"The study came to my attention through citizen groups fighting big box stores, who were getting hit over the head with it [from developers]," said Mitchell. "This study is problematic for all Shop Local groups and citizens groups [especially when used in the] context of local development."

Has Wal-Mart Buried Mom and Pop? posits that the growth of Wal-Mart has spurred a process of creative destruction, where the "introduction of a new idea or product results in the obsolescence of other products." The authors contend that this "benefits consumers and it frees money and resources that can then give rise to new businesses and further advancements." Their study also indicates that the number of small retail establishments (businesses with one to four and five to nine employees) remained almost unchanged from 1985 to 2002, while the number of Wal-Mart stores increased to more than 2,800 from 700.

But, according to Mitchell, one of the key problems with the study lies in a misreading of U.S. Census Bureau definitions. An "establishment" is not the same as a "firm," she noted in her rebuttal. "An establishment is a single business entity. An establishment is a single business location. Starbucks, for example, is one firm with thousands of establishments. The authors, therefore, are counting not only genuine small businesses, but every corporate-owned chain store with fewer than 10 employees at that particular location. Since the goal is to measure impact on small 'Mom and Pop' businesses, this is a crucial distinction.... Using the correct data -- the number of small retail firms -- one finds that, between 1982 and 2002, the number of retail businesses with one to nine employees actually fell by one-fifth."

In conclusion, Mitchell stressed that the findings in the Wal-Mart study are unfounded, and Sobel and Dean's "sweeping conclusion" could end up hurting communities, not helping them.

"In the last few years, more communities have been carefully weighing both the benefits and costs of a new Wal-Mart store or other large-scale retail development before approving these projects," Mitchell wrote in her rebuttal. "Their discussions are informed by a growing body of empirical research showing that these stores have significant economic impacts and the impacts are not necessarily positive.

"Shoddy studies like this one may make for eye-catching headlines, but they only frustrate and impede the ability of citizens to make informed decisions about development in their communities."

Mitchell recently submitted her rebuttal to Economic Inquiry. The journal is reviewing her argument and has not yet approved it for publication. Mitchell's rebuttal is available in full on the New Rules website. --David Grogan