What is Walmart Effect?
378 reads · Last updated: December 5, 2024
The Walmart Effect is a term used to refer to the economic impact felt by local businesses when a large company like Walmart (WMT) opens a location in the area. The Walmart Effect usually manifests itself by forcing smaller retail firms out of business and reducing wages for competitors' employees. Many local businesses oppose the introduction of Walmart stores into their territories for these reasons.
Definition
The Walmart Effect refers to the economic impact on local businesses when large retailers like Walmart open stores in an area. It often results in smaller retail companies closing down and reducing wages for employees of competitors.
Origin
The concept of the Walmart Effect originated in the late 20th century as Walmart rapidly expanded to become one of the world's largest retailers. Researchers and economists began to notice its significant impact on local economies during this expansion.
Categories and Features
The Walmart Effect can be categorized into positive and negative impacts. Positive impacts include offering consumers lower prices and more product choices. Negative impacts involve the pressure on small businesses and adverse effects on the local job market.
Case Studies
A typical case is Walmart's expansion in small American towns, leading to the closure of several local small retailers. Another case is Walmart's expansion in Mexico, which, while creating more jobs, also raised concerns about the survival of local small businesses.
Common Issues
Common questions from investors include whether the Walmart Effect leads to long-term economic decline. Generally, while there may be short-term negative impacts on small businesses, in the long run, consumer purchasing power and choice may increase.
