It is very common for everyone that lives in a small town to get all their groceries at Wal-Mart. During the last 50 years of creation, from a small town on Arkansas, Wal-Mart became the biggest retail company of the world. At this time, this company is one of the major employers of the world and has more than 4,000 stores just in America. It is very difficult for a small business to compete with this company. Now before going forward, it is very important to understand how Wal-Mart operates.
The main strategy of their operation is getting the cheaper supplies and sells their products a very low price to the customers. Another of their strategies is to centralize all kinds of products in one store. The key element for this business is to analyze the market considerations when they open a new location. There are tools to help companies to find out the best location.
For example, according to Stevenson (2011, P. 348), “Geographic Information Systems is a computer based tool for collecting, storing, retrieving, and displaying demographic data on maps”. Now that we know this, let’s analyze the following disadvantages of opening a new Wal-Mart in a small town. Disadvantages for owners of small business located nearby are several. Let’s start by mentioning that small towns are surrounded by and full of small business that support the local economy and employ the local population. With the presence of Wal-Mart, small businesses that offer similar products will be obligated to reduce their price to the minimum in order to compete with the big retail company.
According to Dartmouth College, in 2009, they conducted a study that indicates the “the impact a Wal-Mart store has on a local business is correlated to its distance from that store. The leader of that study admits that this factor is stronger in smaller towns”. Wal-Mart is using what people call predatory pricing. Wal-Mart buys products from cheaper suppliers; this issue hurts the local suppliers and local economy.
Small businesses will be obligated to reduce their price to the minimum if they want to compete. All the money that small businesses will generate goes to local banks and stays in the community; in the case of Wal-Mart, this money goes to the main banks in other towns or cities, and the bottom line is this money does not stay in the area. According to the Institute of Local Self Reliance as Wal-Mart expanded small business retails dropped more than 39% and many small businesses are now closed. Let’s imagine this town a few years later with all these small business closed and for any reason Wal-Mart has to leave the town. The consequences will be catastrophic.
Another point to take in consideration is the possibility that Wal-Mart is doing a monopoly of the sales in the small towns. With their aggressive campaign of reducing prices to the lowest minimum, and disappearing small businesses, they are obligating the consumers to only go to Wal-Mart for their needs. The disadvantages from the town residents and the residents of nearby towns are also several. Let’s start to mention the impact of a new Wal-Mart store in the life of these residents. Earlier it was mentioned how small business were, in many times, obligated to close.
These issues have a direct impact in the life of the residents, since these small businesses contract local people.People are forced to, in many cases, to leave the town because they cannot afford the costs of living. Wal-Mart only can hire a smaller group of people than many small businesses together. After all, the only place to work will be at Wal-Mart and without a competitor they will mandate the wage pay and the benefits of their employees. When small businesses are closed they destroy the moral and the way of life of the community.
When these businesses close, residents will lose their livelihood. Many of these new Wal-Mart stores get the land at very cheap price; they bring with them traffic, delinquency, and a big reduction of price in the land of the residents surrounding these stores; all this translate as a big reduction of taxes that these small tows will receive.
According to the Institute of Local Self Reliance “many studies have found that when locally owned business are displaced by Wal-Mart, the participation and voter turnout falls, the number of active nonprofit organizations drop and residents are less likely to know and interact with their neighbors”. Now after hearing all the arguments of these two groups, it is time for Wal-Mart representative to respond to all these allegations and propose some of the advantages to open a new store in a small town.
The first thing to analyze is that where ever a Walmart is, residents of that town and nearby towns are finding a big reduction in the cost of their products. Another of the good things that Wal-Mart will bring to the town is a good market ideas and competition. Owners that bring good ideas can benefit of the presence of a big store like Wal-Mart. There is a main factor here, with an economy like the present, a store like Wal-Mart will bring to the town lower prices for the customers, a reduction of transportation, and an increase of jobs for the community.
When we talk about transportation, it means to drive less to find all the products in the same place. When we talk about jobs, it means new jobs for the residents close to the store. One of the more important arguments to favor Wal-Mart is the support of the community through programs by their customers.
References Stevenson, W. J. (2011). Operation management (11th ed). New York: McGraw-Hill/Irwin. Retrieved from http://www.ilsr.org Retrieved from http://articles.chicagotribune.com/2010-07-04/business/ct-biz-0704-soda-wars-20100703_1_chicago-wal-mart-costco-and-wal-mart-pricing