The Impact of an Urban Wal-Mart Store: An Evaluation of one Chicago Neighborhood’s Experience

1. The Impact of an Urban Wal-Mart Store: An Evaluation of one Chicago Neighborhood’s Experience 2010 Illinois American Planning Association Illinois Chapter conference Normal, Illinois September 22, 2010 Julie Davis, David Merriman, Lucia Samayoa, Brian Flanagan, Ron Baiman and Joe Persky Full report available at: http://www.luc.edu/curl/pdfs/Media/WalMartReport21010_01_11.pdf Or contact David Merriman at dmerrim@uic.edu

2. Background • U.S. Wal-Mart has achieved nearly complete coverage of non-urban markets. • Large inner city areas represent Wal-Mart’s frontier for expansion in the U.S. • Wal-Mart’s big city urban expansion plans have roused strong local political opposition. • Chicago and Los Angeles have one Wal-Mart each. New York City has not yet allowed any Wal-Mart stores within its city limits, although the retailer is still eager to enter that market

3. Expansion Plans • Wal-Mart has indicated that it is hoping to expand across the City of Chicago, starting with a second store on the South Side • Wal-Mart and its supporters have made jobs and economic development a central argument in their case • An evenhanded evaluation of the impact of the first Chicago Wal-Mart is thus highly relevant to the ongoing policy debates

4. Literature • Stone (1998, 1995A). Used local retail sales tax data in Iowa shows retail increases in Wal-Mart towns, but substantial decreases in nearby towns • Neumark, Zhang and Ciccarella (2007) and Dube and Wertheim (2005) show retail employment and payroll losses in counties where a Wal-Mart opened relative to counties with no Wal-Mart. Uses time-series and spatial regression with an instrumental variable that attempts to control for the impact of a possible endogenous site selection effect • Basker (2005) shows retail and wholesale employment gains in these counties. Also uses instrumental variables • Sobel and Dean (2007) finds that after controlling for other variables, US states with more Wal-Marts did not have a smaller or less profitable small business sector. • Ailawadi et.al. August 2010 Journal of Marketing Research. National study “find that, overall, incumbents [competing supermarkets etc.] suffer significant sales losses as a result of a Wal-Mart entry” (not discussed in our report since it came out later)

5. The Chicago Wal-Mart • Spring of 2004, Wal-Mart submitted zoning applications to locate stores in two different Chicago neighborhoods. • Contentious Zoning Board and City Council meetings • Wal-Mart was given approval for a store on Chicago’s West Side • This controversial decision was followed by an effort to • The new Wal-Mart at 4650 W. North Avenue, 60639, opened at the end of September 2006. At present Wal-Mart is eager to open a number of other outlets in the City of Chicago.

6. The Chicago Wal-mart

7. Study Goals • Evaluate the impact of Wal-Mart on small businesses in its own and neiboring zip codes • Estimate Wal-Mart effects on retail sales in its own and neighboring zip codes. • Estimate Wal-Mart effects on local employment and wages in its own and neighboring zip codes • Two observations: • In an urban context, much of the retail spending going to a Wal-Mart store must replace spending that would have otherwise gone to stores in the neighborhood. • Because of Wal-Mart’s efficiency it very likely uses fewer workers per dollar of sales

8. Bottom Line • Proximity to Chicago Wal-Mart associated with a higher probability of going out of business for local retail establishments. • Some evidence that the West Side Wal-Mart has replaced sales and employment from its own and neighboring zip codes. • Impacts modest, but significant: effects increase over time • Wal-Mart associated with the loss of somewhere between 150 and 300 full time equivalent jobs in other stores its own and near by zip codes • Suggests a loss greater than Wal-Mart’s own employment in the area. • Data consistent with the general contention that large city Wal-Marts absorb retail sales from other city stores without significantly expanding the market.

9. Methodology • Attribute changes in economic activity to Wal-Mart’s presence by comparing (1) pre-Wal-Mart activity and trends to post-Wal-Mart activity and trends, (2) changes in activity near Wal-Mart to changes further away and (3) changes in product lines that directly compete with Wal-Mart to those that do not.

10. Data • A panel survey of retailers • First round “pre-Wal-Mart” baseline in 2006 • Second round late 2007 • Third round late 2008 • Data on sales tax receipts by zip code from IDOR • Data on retail employment by zip code from IDES

11. Sample Area in Region

12. Sample Zip Codes Note: The data sets for the employment by zip code study does not include 60618, although the survey data set and the sales tax data set both include observations from that zip code.

13. Survey Responses

14. Summary Statistics from 2006 Survey

15. Changes in Employment and Wages of Continuing Stores

19. Employment Losses in Closed Firms • Expected employment loss for each establishment = (4 - distance from Wal-Mart)* regression coefficient* average employment in 2006. • Average employment in 2006 was 9.98 full time equivalent workers. • => 315 full-time equivalent jobs lost through the Wal-Mart effect. • Limiting the sample to establishments within three miles raises the coefficient per mile but lowers the number of establishments affected • =>155 full-time equivalent jobs lost through the Wal-Mart effect.

20. Employment Losses in Closed Firms, cont. • Only establishments included in the initial sample are considered. An adjustment for those not included would raise the expected job losses. • The job-loss figures estimated here can be compared to the assertion that Wal-Mart employed some 426 workers at its Chicago store of whom 310 were “sales associates.”(Mitts, 2008) • Many of the latter were undoubtedly part-time workers. An estimate of about 320 full-time equivalent workers (assuming half the 426 workers were part-time) would very likely be generous.

21. Distance and Employment and Wages of Surviving Stores

22. Own Zip Code Retail Sales: Break in Trend • ln zip sales= quarterly dummies + zip dummies + zip trend + own break in trend • Own trend is 0.081 (***) • Own break in trend is -0.096 (insignificant) ln sales 2006II

23. All Zip Codes Retail Sales: Break in Trend • ln zip sales= quarterly dummies + zip dummies + zip trends + zip break in trend ln sales 2006II

24. Retail Sales: Break in Trend

25. Retail Sales: Break in Trend

26. Own Zip Code Retail Employment: Break in Trend • ln zip employment= quarterly dummies + zip dummies + zip trend + own break in trend • Own trend: 0.014 (insig.) • Own break in trend: 0.095 (insig.)

27. All Zip Code Retail Employment: Break in Trend • ln zip employment = quarterly dummies + zip dummies + zip trends + zip break in trend

28. All Zip Code Retail Employment: Break in Trend

29. Summary • Proximity to Chicago Wal-Mart associated with a higher probability of going out of business for local retail establishments. • Some evidence that the West Side Wal-Mart has replaced sales and employment from its own and neighboring zip codes. • Impacts modest, but significant: effects increase over time • Wal-Mart associated with the loss of somewhere between 150 and 300 full time equivalent jobs in other stores its own and near by zip codes • Suggests a loss greater than Wal-Mart’s own employment in the area. • Data consistent with the general contention that large city Wal-Marts absorb retail sales from other city stores without significantly expanding the market.

30. Advertisement • Joe Persky and I are editing a special issue of the journal On economic development effects of Wal-Mart We have commissioned a series of very interesting articles on this topic. We expect the issue to appear in late 2011 or early 2012.