Bad for Individual Wealth and Detrimental to Local Wealth

February 5, 2005

I want to start by disagreeing with Lloyd (as quoted by Quint) about the fact that jobs are a cost. I do not agree that jobs are a cost. Bad jobs may be a cost, and undesirable jobs may be a cost, but a good job is part of an individual's wealth. I believe I can support this opinion with Lloyd's argument that happiness is a form of wealth, and if you are happy with/from/because of your job, then the job is part of your wealth, not just a means of obtaining the wealth. Also, what is a good job for one person is not necessarily a good job for another person. I worked in a machine shop for a while, and yes, I could pay my bills, but I had no interest in the work and was not very productive. This doesn't mean that for the two welders in the shop the machine shop was a bad job, they seemed to enjoy what they were doing and to be good at it. At the risk of sounding like a bleeding heart socialist, to each according to his needs, from each according to his ability... or at least from each according to his aptitude...

So, why do I think that places like Wal*Mart are not good for people? There are several reasons, and I believe that they all revolve around decreasing the wealth of Wal*Mart communities, Wal*Mart employees, and Wal*Mart customers. But I think the problem is really, as Aaron put it, people (at least as consumers) are stupid.

People buy stuff at Wal*Mart because they believe it is less expensive and because it is convenient. I say 'they believe it is less expensive' because I do not think it is—for several reasons.

First, often the less expensive product at Wal*Mart is of a smaller size. The price difference between the less small size available at other locations and the Wal*Mart item is comparable to the size difference, but in some cases, the price difference is less than the size difference. Yes, you may be able to buy a tube of toothpaste for less, paying $0.97 for a 4.6oz tube of toothpaste at Wal*Mart vs. paying $1.35 for a 6.4oz tube is a wash, and paying $0.97 for a 4.6oz tube vs. $1.29 for a 6.4oz tube is a loss. Though the purchase at Wal*Mart was less money out of pocket right now, in the long run, it reduces this individual's wealth by making them have to return more often or by outright charging them more. Granted, even at a higher price, smaller items can be more economical if the item has a shelf life, and if that shelf life is shorter than the time it is likely to take to use the item, but in most cases, I do not believe that item expiry is relevant with Wal*Mart items (though, with a Super Center, food is still food). The person who purchased the less costly toothpaste at Wal*Mart did not, in fact increase his wealth. This person, in fact, lost wealth—if for no other reason than having to return sooner to buy more toothpaste.

Also, regularly the less expensive item at Wal*Mart is of lower quality. I must concede to Clacy that if you are buying shoes for children who are going to outgrow them in 6 months, it doesn't matter if the shoes last one year or ten years, if they make it past 6 months... (or even close enough to 6 months). However, with many items, you are purchasing an item that will not last as long as the price difference to the higher quality, longer lasting item would justify. If you spend $0.50 on a widget that will last 4 months, when you could get a better widget for $1.00 at another location, and the better one would last a year, if the widget was something you needed, then the $1.00 widget saves you both money and time. It saves you money, because to get the same usage time on cheaper widgets, you would spend $1.50 for each $1.00 you spent on higher quality widgets. In addition, unless you knew that the widget would only last a short time and that you would need to buy replacements, and bought them all at once, you are loosing time by having to make a trip back to get additional widgets.

Another thing you run into at the big box stores are the many times when the big box price is not the low price. Consumers are deceived into knowing that when they shop at Wal*Mart, they are getting the best price on the product, but often the price is not, for example, microwaves that are $157 at Wal*Mart but $149 elsewhere. The big box stores do this to supplement their falsely deflated prices in new locations where the community has not bought into the lie that they can save money at the big box store, or in locations where the consumer base does not support the overinflated big box store itself.

Another layer of this lying from the big box stores, which I know Quint has observed at the Wal*Mart here, and I have seen at Wal*Marts elsewhere, as well as at Petsmart and Target, is the bright, shiny new "just reduced" tags hanging off a price marker that is so old and worn it is barely readable. These "just reduced" tags wither do not show a price at all, or show the same price that is on the old, worn sticker, but many consumers do not seem to pick up on this.

One big thing you get from local merchants and specialized stores that you do not get from big box stores, is knowledgeable and helpful staff. When you go to a local merchant to research or purchase a product, you can get personalized help, from someone who can talk to your needs and wants and help you to purchase the correct item, rather than the best buy or the most elaborate piece. In many cases, this does mean that the eventual purchase price will be higher in the long run if you deal with the local merchant, but you are paying for a service. I can understand Lloyd's argument that he does not want to supplement the service charges for other customers when he is purchasing an item that he does not need assistance purchasing, but there are still several other considerations on this front. First, it is likely that sooner or later, you will need the service, or that a friend of yours will need the service, and by not supporting the business that provides the service, this business will be run out of business, then when you do need the service, it will not be available. Second, in many cases, even when you purchase from the big box store, you are paying for the service—or a significant part of it—without ever having any chance of receiving the pay-back. At leat when you are supplementing the costs of customer service from a local merchant, you are paying for a service that exists and that you can make use of.

To get back to the wages and jobs issue... Believe it or not, when a big box store opens up, other businesses struggle. To accommodate the drop in business, which is more significant from a big box store than from another local competitor, these businesses often have to let people go. This will result in a net decrease in the available local jobs, as well as usually a decrease in the salaries or wages paid to the workers. This constitutes an overall reduction in the wealth of the local consumers. This reduction in wealth is the very thing that the big box stores thrive on.

The big box stores perpetuate their own existence by reducing the spending money that their customers have. The start this by providing jobs where there weren't any, and because there weren't any, they can pay lower wages than the local businesses can. Meanwhile, the local stores pay people closer to what they are worth, and try to provide the best for their employees that they can. Once the big box store starts taking business from the other retailers, the retailers have to cut back. One of the first things they have to do is reduce expensive things, like staff. Since the low-paid big box employee is expected to do a little in each section of the big box store, there are net fewer jobs in the community as the local shops cut staff and possibly eventually close. Additionally, these fewer jobs are at a lower pay rate, meaning the the people who are employed, on average, in the community are making less money than they were before. Now, whether jobs are a cost or are part of your wealth, when there is a loss of jobs, there is a loss of wealth—if you are not making any money, you are not accruing wealth.

Coupling this with the big box advertising scheme that encourages people to believe that:

  1. the price at the register is the only thing that matters and
  2. that everything is always less expensive at the big box stores

People are encouraged to, against their own best interest, shop at the big box stores. This further decreases the wealth of the individuals shopping at the big box stores as described above. In addition, the loss of the businesses that provided services to customers along with sales, or their reduction in services to stay afloat when competing with a big box store, reduces the wealth of the community as a whole.

When a big box store comes to town, though there is an initial increase in job availability, over the long term, there is a net decrease in jobs, a net decrease in salaries, and, therefore, a net decrease in individual wealth. In addition, the loss of the services driven local merchants coupled with the loss of the individuality of the community through the loss of these merchants constitutes a loss of wealth of the community as a whole.

In addition to harming the local economy and consumers by reducing the choice of retail outlets from which a consumer can purchase goods and services, big box stores also cause damage by reducing the selection of product available. Like smaller stores, big box stores tend to only offer a limited selection of items, and tend to only stock part of any given product line. However, when a local merchant will deal with special orders to get lower volume items in for a specific customer, the big box stores do not provide this service. If it isn't on the shelf at the big box store, you could check back next week to see if they have it in, but it is unlikely that they will order anything for you. Also, while any given small merchant will only stock some brands and part of those lines, the different local merchants will often stock different brands and lines, making for better availability and better product selection to the consumer. The big box stores tend to have the same selection (though often with merchant specific SKUs and model names—or even with merchant specific 'brand' names) of products from the same manufacturers and vendors. This variety reduction is another loss of wealth for the community at large.

Another loss of wealth to the community when big box stores come to town is that more of the money that goes into a local merchant stays local. On average, for every dollar spent at a local merchant, 70 cents is kept local to pay wages, utilities, and to purchase goods (as well as profits), while only 25 cents on the dollar spent at a large chain store is kept local. That's less than 50% of what a local merchant will keep local. This is a loss of potential income for other businesses in the area (local or big box) and a reduction in local wealth distribution. This reduces that ability of a local community to support new businesses and new jobs, and makes the community more reliant on the big box stores themselves.

Now, to return to the subject of stupidity, I believe, as I mentioned above, that, as Aaron stated, people in general, and particularly people as consumers, are stupid. Many individuals are intelligent, but when it comes to actions of masses, the evidence does not seem to reflect intelligence. In addition, people as consumers and contradictory, possibly even to the point of being hypocritical. Also, people cheat the system, going to the local store to get the service, then making their purchase elsewhere after getting the service, support and information they need. Often over as little as a 2% price difference.

So, people are stupid. This can be illustrated by cases like this: Customers will come in to Bozeman Pet Center and check out our prices on fish. They will see our rock of 6 tanks with all the fish and plants priced at $0.99 and decide that they are interested in the small neon tetras. They will ask a couple of questions, then leave. They will go to Wal*Mart and look at the fish selection there and see that Wal*Mart does not have neon tetras that cheap, theirs are $1.27. Then they will drive over to Petsmart and find out that they have neon tetras for $1.29. Then they will drive out to Fishy Business at Four Corners to find that they have neon tetras for $1.25, then to PetCetera in Belgrade to find that their neon tetras are also $1.25. Then back to Bozeman Pet Center to purchase the fish. At this point, they would have to buy dozens of neon tetras at the $0.99 price to even break even on their price investigation.

Now, it's one thing to visit all the local pet stores when you are first getting started to get an idea of what is available and what prices might be, and also to get an idea of the quality of service and the knowledgablity of the staff, and product availability. And it is also a good thing to visit the stores from time to time to observe differences or changes in the various retailers, but when you are looking at a specific purchase, shopping around, unless it is a big purchase, such as a car or a furnace, is expensive and often counter productive.

Another piece of consumer stupidity illustrated in the example above, is that most of the people who go through a process like this are still convinced that the big box stores will have the best price...

On the point of contradiction, there are several interesting items. One is the 'controversy' around the opening of the new super Wal*Mart here in Bozeman. Wal*Mart came to the city and filed for a building permit. The city denied the permit because the building violated several Bozeman building codes. Wal*Mart applied for an exemption and was denied. Then Wal*Mart asked the city to conduct a survey, because, they claimed, a survey of the people would show that the people want a Super Wal*Mart, and therefore Wal*Mart should get their permit. So, the city sent out a survey. The survey came back overwhelmingly against a Super Wal*Mart, so the city told Wal*Mart no. Wal*Mart claimed that the survey, being conducted by the city was biased against Wal*Mart and therefore irrelevant, and sent out their own survey. This survey also came back overwhelmingly against having a Super Wal*Mart, so the city again said no. At this, Wal*Mart said that was fine, they would just build in Belgrade where they didn't have to deal with the same zoning regulations. So, Bozeman gave Wal*Mart their building permit. The thing that is odd about this, is that after twice giving an overwhelming vote against a Super Wal*Mart, the people of Bozeman keep the Super Wal*Mart parking lot full of cars all the time.

Another one that comes up quite frequently are the letters to the editor of the Chronicle along these lines. Explaining to people that buying locally benefits the community, benefits the local people, creates better jobs, etc, and that the bog box stores take away the uniqueness of the community, and frequently that is at least part of why people moved here in the first place. These are frequently followed up with letters about how right they are and assorted other 'me too' type responses, and when you talk to people they tell you how nice it is to work with various local businesses and how much better the service is, and how you feel you leave the store with what you needed and the information you need to complete your tasks, but they turn around a week later and tell you how great it is that we finally have a Target, and a Home Depot, and a Super Wal*Mart, and a Petsmart. I can understand Carrie's argument about businesses in Helena that were not helpful, and that she could go to a big box and get better service, though this seems to be the exception rather than the rule. But, unfortunately, these businesses are not only not the only ones hurt when the bog boxes come to town, they are often hurt less when the bog boxes come to town than the stores that do provide the extra services. This is contrary to Lloyd and Clacy's arguments that the only businesses that are (or can be) hurt by the bog box stores coming to town are the ones that don't deserve to exist. It is in fact, the businesses that can actually provide better service and strive to help people rather than just rip them off that are most hurt by the influx of big box stores.

Another issue is that people will cheat. They will come in to the local merchant's establishment, ask questions of the staff, learn what they need to know to make the right purchase, then turn around and purchase somewhere else where they believe that they will save money. This happens constantly in the pet industry, where someone has made a purchase at Petsmart or Wal*Mart and then comes to Bozeman Pet Center or Fishy Business to figure out why all of their fish are dying, or why their bird is pulling out its feathers, or why their lizard lost all its color, only to find out that they were not provided sufficient information to start with or were sold significantly inappropriate equipment for the animals they purchased. The inverse also happens quite frequently. People will come in and spend time with an employee to find out how to set up a good environment for their pet, and how to care for it, and then go purchase their equipment on-line or from a big box store (often at a higher price than they would have paid hand they purchased their equipment when they were asking questions, then return to us to ask more questions about a pet and equipment that they purchased elsewhere—or nearly as bad, they will purchase their equipment elsewhere and then purchase their animal from us, when the animal costs us nearly as much as the advice (which is why the local pet store is very likely to have better selection of healthy animals than the big box store to begin with).

This doesn't only happen in the pet trade, though these examples are the ones that I am most familiar with. This also happens with stereo equipment, computers, small appliances, printing, and hardware, just to name a few. When I worked at Avicom, people would come in and talk to our techs about hardware and what they should get to meet their computing needs, then come in a week later with an e-Machine or a Gateway for us to set up their Internet access. At least they were getting the intereat access through us, but Internet access, unless they used it for several years without need of tech support, would not cover the expense of the consultation on their computer hardware.

I am aware that there are statistics that show that big box stores don't (or even can't) hurt local businesses, and that there are also statistics that show that big box stores help small businesses, but I would question the validity (and even the source) of these statistics. There are also statistics that show that the average income of a community will drop and that long-term unemployment rates will increase in communities where the big box stores have come in. In fact, Petsmart, for example, is not only proud of the fact, but they state it as one of their goals that when a new Petsmart is opened in a community, within 6 months, 30-50% of the local bet stores should be run out of business! Yes, many big box stores will send customers to local businesses when they have product questions, but generally this is post purchase, and either way, this is sending people to create an expense at the local business and further hurt that business, with little chance of compensation to the local business and little risk of loss of business to the big box store.

I have not seen any arguments that do not contradict the presentable facts, that a Wal*Mart, or any other big box store, is not only not good for the community, the consumers, local businesses, and the local economy, but is actively bad for them.