TOPICS > Economy

How Local Businesses Coexist with Wal-Mart

BY Larisa Epatko  August 20, 2004 at 9:37 AM EDT

Wal-Mart shoppers in Syracuse, N.Y.

A Wal-Mart discount store arrived in the historic town of 40,000 people more than 10 years ago.

Larry Banner, vice president of the Charlottesville Chamber of Commerce, said like other college towns, Charlottesville — home to the University of Virginia Cavaliers — has a variety of customers from those seeking upscale stores to those looking for basic retail items.

And the key for “smaller stores to live in a Wal-Mart world,” according to CATO Institute Chairman William Niskanen, is to specialize in products and services that Wal-Mart or other large retailers do not provide.

Such is the case for some of the existing businesses in Charlottesville. Although some of its merchandise is similar to Wal-Mart’s, the JCPenney department store was largely unaffected bythe arrival of Wal-Mart, said JCPenney store manager Karen Rogers.

The two stores draw “totally separate” customers, Rogers explained. Wal-Mart customers tend to be one-stop shoppers, whereas customers of JCPenney, which is located in a shopping center, often plan to spend the afternoon going from store to store, she observed.

“They expect more customer service and are willing to pay for it,” Rogers said.

Elizabeth Hurka, owner of The CatHouse, a boutique of jewelry, clothing and home decor in a feline motif, said her specialty store doesn’t often overlap with Wal-Mart’s stock, and she works to keep it that way.

“If we end up getting the same thing — which I try not to do — people will buy it there,” she said. “Some things they sell at retail are less than what we pay wholesale.”

So Hurka has adopted a tactic: “If I hear someone say, ‘I bought that at Wal-Mart,’ I don’t reorder it.”

Similarly, store manager Robert Stokes said his gourmet store, Food of All Nations, does not compete with Wal-Mart’s staple groceries, and the clientele are different as well. “I deal with the upper crust,” he said.

A call to a direct competitor, Charlottesville’s K-Mart, was referred to the company’s national headquarters, which did not return the call.

Source of Wal-Mart’s low prices
Niskanen said Wal-Mart is able to sell things so cheaply basically because of its “economies of scale” purchasing. In other words, since Wal-Mart buys such a large quantity of items, it can purchase them at a lower rate and then sell them at lower prices.

If smaller retailers tried to match Wal-Mart’s purchasing power, rather than individually dealing with wholesalers, they could get some of the advantages of Wal-Mart’s economies of purchasing scale, Niskanen said.

Harley Shaiken, professor at the University of California, Berkeley, who specializes in labor issues, said in addition to economies of scale, Wal-Mart leads the pack in efficiency in how it warehouses and inventories products, and employs some hardball tactics when dealing with suppliers.

Wal-Mart can make or break a product based on whether it makes it to Wal-Mart’s shelves, said Shaiken.

“There are disgruntled suppliers in any industry but with Wal-Mart, no one wants to go on the record” for fear of losing its Wal-Mart contracts, he said.

“The only way (for smaller businesses) to survive is providing niche goods or services. If it’s a generic product you’re selling, [Wal-Mart] will undercut your prices,” Shaiken added.

Wal-Mart’s ripple effects
Shaiken said in general Wal-Mart’s arrival is “disruptive to small businesses and can change the whole fabric and tenor of a community,” bringing in traffic, and while it brings in jobs as well, they are low paying with low benefits.

But Charlottesville’s Wal-Mart store manager Shannon Moon said a Wal-Mart opening in a community can also improve the surrounding economy.

Moon said when he opened a Wal-Mart in the small town of Oakland, Md., “the community was fairly skeptical, especially the business owners.” The town was not a destination point, he continued, but after Wal-Mart arrived, it provided jobs for hundreds of workers who would normally have commuted to other places.

In addition, surrounding restaurants and specialty shops that were not direct competitors saw increased sales, Moon said, adding that he did not know how direct competitors fared.

Back in Charlottesville, Wal-Mart may soon see a challenge of its own. Banner said he just received word that Target, a slightly upper-end large retailer, is coming to town.

People tend to shop where it is convenient and prices are affordable, Banner said. “Will [Target] challenge Wal-Mart and K-Mart? Sure.” But competition among retailers is a good thing and the customer will benefit, he said.