Walmart Effect

The Walmart Effect is what happens to a local economy when a giant megacorp puts one of their stores in town. What happens when Walmart moves in down the street? Mom and pop grocery stores, the local pharmacy, and the general store with that old guy who winks creepily at you goes out of business. The little guys just can’t compete with the economies of scale that Walmart has.

The Walmart Effect is also felt by small coffee shops when Starbucks moves in, and by diners when Denny’s moves in, so it applies far beyond Walmart itself. It just refers to the fact that our market is definitely running with “imperfect competition,” since the bigger stores can easily outprice mom and pop shops.

You thought the Walmart Effect was only bad for small businesses? Nope. The Walmart Effect also usually reduces wages in the area, too. Because the small stores have to cut costs to stay in business, this includes cutting wages. And if Walmart is offering to pay Tim more than the local business he’s worked at for the last decade, because his employers had to cut his wages because of Walmart, well…he’s likely to go work for Walmart, as roundabout and messed up as that seems. Just part of the spiral of local businesses being sent to the graveyard when the big boys come to town.

It’s not all bad: the Walmart effect can help keep inflation down and lower prices on stuff. If things cost less, but your wage was cut, then there wasn’t necessarily a net benefit there. Anyway, in the end, big companies outprice smaller ones, which is why big companies have been on the rise for decades.

When will Walmart hit the wall and have to roll back on itself? Only time will tell.