Lessons From The Walmart Effect – Analysis
By Anbound
By Zhao Zhijiang
In the United States, Walmart is always “within reach.” The latest data shows that the retail giant has 5,205 stores across the country, with 90% of Americans living within 10 miles (about 16 kilometers) of a Walmart. Over the past 50 years, Walmart has deeply integrated itself into the daily lives of Americans, leveraging its advantages in warehousing and logistics along with abundant resources. However, has Walmart really helped consumers “save money, live better” as its marketing slogan claims? The answer is no.
A recent article published in The Atlantic points out that Walmart has had a significant impact on the U.S. economy. The article suggests that in areas where Walmart operates, not only have local community incomes decreased, but unemployment rates within the community have also risen. These costs have outweighed the savings passed on to consumers. In short, Walmart has made the regions where it operates poorer than they were before the stores entered.
The Atlantic magazine referenced a joint study published in September 2024 by social scientists Lukas Lehner and Zachary Parolin, alongside economists Clemente Pignatti and Rafael Pintro Schmitt. The researchers analyzed economic data spanning over 18,000 Americans since 1968. They conducted two paired studies involving communities with similar demographic characteristics: one group was exposed to the opening of Walmart stores, while the other was not. The study found that, in the ten years following the opening of a Walmart Supercenter, average annual household income in those areas declined by 6%, equivalent to about USD 5,000 per year. The most significant income drops were observed among low-income, younger, and less-educated workers.
According to a survey commissioned by Walmart in 2005, the store saves households an average of USD 3,100 annually. However, many economists believe this estimate is overly generous because the income losses in these communities far outweigh the savings. Even under the most optimistic savings scenarios, they calculate that poverty increases by around 8% in areas where Walmart stores open.
The Atlantic Monthly also cited the work of economist Justin Wiltshire to delve into the impact of Walmart on communities. He compared communities with a Walmart store to those where Walmart had attempted to open a store but was thwarted by local opposition. Wiltshire’s research found that Walmart’s arrival not only disrupted the existing retail sector in the area but also affected employment in the food service, agriculture, and other sectors. The reason Walmart brings poverty is that when it opens a store, it undercuts local competitors with low prices and quickly becomes the dominant player in the region. This leads to mom-and-pop grocers and regional chains cutting costs or shutting down. Local farmers, such as bakers and manufacturers, who originally supplied goods to small and medium-sized retailers, are gradually replaced by Walmart’s national and international suppliers, resulting in a decrease of about 3% in local employment. As Walmart becomes the dominant employer, workers are subjected to “monopsony power”, where the company can pay low wages due to a lack of alternative employment options in the area. This also explains why Walmart’s wage levels have consistently been lower than those of other competitors in the U.S. market, and why the areas where this large retail chain operates tend to become increasingly impoverished.
This is the “Walmart effect,” a concept first proposed in the 1990s. In 2006, journalist Charles Fishman popularized it with his bestselling book of the same name. Objectively, the “Walmart effect” has both positive and negative dimensions. The negative aspect can be summarized as the “destruction of the business model”. Walmart’s low-price strategy may appear innocuous at first, but its monopoly power has led to far-reaching, often unforeseen consequences that have created a toxic environment for the entire business ecosystem. Small local businesses are squeezed out, which is the most immediate and visible impact. However, more insidious side effects take time to manifest: the erosion of community spaces, the homogenization of consumer culture, the decline of healthy labor relations, and the complete domination of the supplier market by corporate giants.
Senior experts at ANBOUND point out that this shift in business model is undesirable and that it is a form of destruction disguised as innovation. It forces the public and society to accept the reality and rationalize it. Whether it’s the “Walmart effect” or “gentrification”, the pattern is similar. From the perspective of production and economic growth, it may be beneficial, but from the standpoint of community culture and residents’ lives, it is a different story. Researchers at ANBOUND once encountered an example in a small town in the Midwest of the United States: the town had a donut and coffee shop where residents used to gather to drink coffee, eat pastries, and socialize. However, after Walmart opened in the area, some consumers began opting to buy coffee or cakes at the Starbucks inside the supermarket while shopping, instead of going to the donut coffee shop on the other side of town. As a result, the coffee shop’s customer flow began to be affected. The owner was very distressed, feeling that Walmart not only took away his business but also threatened to change the social culture that the town once had.
The most direct lesson of the “Walmart effect” for China is the current development of the platform economy. Online shopping, group buying, shared mobility, food delivery, and rapid doorstep services are all typical manifestations of the parallel economy in China. Like many disruptive technological innovations, the platform economy embodies characteristics of destructive or even catastrophic innovation. Just as Walmart disrupted the traditional business ecosystem and culture of American communities, the rise of the platform economy has posed challenges to many traditional business models in China, leading to the rapid decline of related industries and rising unemployment. The vitality and energy of some cities and communities have also been harmed and gradually lost. Some analyses suggest that the development of the platform economy and e-commerce impacts the real economy not only in terms of efficiency but also in relation to urban life and historical cultural traditions. Traditional commodity markets used to contribute to the vibrancy of city streets, something the platform economy cannot address. Therefore, the development of the platform economy must seek balance, adapt to local conditions, and provide market space and consumer choice.
Additionally, the platform economy has shown many unhealthy signs during its development, such as malicious competition, illegal operations, user discrimination, and labor disputes. Just as Walmart employees were ultimately forced to accept minimum wages, China’s platform economy has created a new type of labor relationship between platform companies and workers. However, workers remain a vulnerable group compared to the powerful platform enterprises, further exacerbated by pressures from price wars and intense competition. Notably, these pressures can also become the source of various conflicts, disputes, and risks. Some argue that there should be stronger regulation of the platform economy to protect the labor rights of new types of workers and to encourage platform businesses to assume social responsibility. At the same time, efforts should be made to support traditional industries in competing with and exiting the market alongside the platform economy, so that its development does not lead to social instability.
Finally, researchers at ANBOUND have noted that the platform economy is currently at a new crossroads. The next steps for its development require a deeper analysis and understanding of future directions and trends. The platform economy must overcome market and technological bottlenecks, and develop different strategies and approaches in segmented areas to achieve alignment with macroeconomic growth.
Final analysis conclusion:
Walmart did not help American consumers “save money and live better”. On the contrary, it causes the areas where it set up stores even poorer than before. The business model change brought about by the “Walmart effect” is undesirable. It is, in fact, destruction disguised as innovation. From the perspective of production and economic growth, there are benefits, but from the standpoint of community culture and residents’ lives, that would be a different story. The development of China’s platform economy currently faces similar issues, and this is an issue worth reflection.
- Zhijiang Zhao is a Research Fellow for Geopolitical Strategy programme at ANBOUND, an independent think tank.