Scarborough, Ontario, forms the eastern part of the City of Toronto, Canada. It was a separate city for over 200 years, but has been part of the East District of Toronto since 1998. Scarborough has a reputation as being the greenest and leafiest part of Toronto, and is the birthplace of Mike Meyers (Austin Powers). Perhaps it was the green that first attracted Wal-Mart to Scarborough. The area definitely has been “shagged” by a Wal-Mart supercenter. Last week, an investment company named CIBC World Markets released a 14 page report called “Wal-Mart’s Canadian Supercenters: Trade Area Damage.” The study looks at the Scarborough trade area one year after a Wal-Mart supercenter opened there. The purpose of the study was to examine what impact the supercenter had on the seven grocery chain stores and the 17 small independent grocers in the area. According to CIBC, after being open one year, the Wal-Mart supercenter (40,000 s.f. devoted to groceries) was bringing in $18.2 million a year in grocery sales. This is roughly 10% of the total grocery market of $180.38 million in Scarborough. Almost all of Wal-Mart’s 10% market share came from existing merchants — because total grocery sales in the trade area increased by only $240,000 a year, or a growth of just one half of 1%. Wal-Mart’s $18.2 million in sales came mostly from two sources: $5.2 million from a Wal-Mart discount store that the company shut down when the supercenter opened, and $10.4 million when a Price Chopper grocery store closed. The smaller independent grocers lost collectively around $783,000, or only 2% of their sales. Two grocery stores owned by No Frills lost a total of $1.3 million, and 1 No Frills stores gained $2.6 million in sales. 1 Dominion grocery store basically lost no market share. But as the report states, “most of the sales come from local chain competitors.” 94% of the Wal-Mart supercenter sales came from either its own closed Wal-Mart (29%) or other grocery competitors (65%). Wal-Mart’s opening of the supercenter only created 6% new sales. So $17.1 million in Wal-Mart grocery sales came from other cash registers. “It’s no secret that Wal-Mart will have a huge impact on the Canadian grocery business,” the report states. CIBC concludes that the Price Chopper that failed in Scarborough was the worst store in the area, and that the “worst damage will occur at the worst stores.” The study also says that “weak competitive stores will close,” those that are “old and depressing.” It was not necessarily the closest or highest price store that closed — but the oldest and worst-operated. As for a price war, “pricing will drop, adjust, and drop again,” researchers say. One of the No Frills grocery stores kept lowering prices too. “Wal-Mart wants to be the lowest priced,” CIBC says, “and No Frills won’t let them.” Finally, “conventional fresh stores should be ok.” The study notes that “well operated, recently renovated conventional grocers — despite relatively high pricing — should be almost undamaged.”
This CIBC study makes it painfully clear that Wal-Mart was not an engine of new economic development in Scarborough. First, it led to the closure of the existing Wal-Mart. Second, it resulted in almost no expansion of total grocery sales in the trade area. For an area to see growth in food sales, it must first have substantial growth in population, because food sales are not very elastic. Third, it is striking that 94% of the sales that went into Wal-Mart cash registers came from existing stores. This supports the research done by the late Tom Muller in Iowa, who showed that 80% or more of Wal-Mart sales were “transferred” from existing merchants. Within one year of the Wal-Mart supercenter opening, two stores had closed. 86% of Wal-Mart’s grocery sales came from those two stores. Total Wal-Mart sales were $46.8 million, which means that grocery sales were about 39% of total sales in the store. Local officials who boast of Wal-Mart’s ‘new jobs and new sales taxes’ should review studies like the CIBC “Trade Area Damage.” This report illustrates that Wal-Mart is fundamentally not a form of economic development, but instead a form of economic displacement. The net change in sales in Scarborough was almost negligible. Wal-Mart brings little or no added value to the local economy, and more of the sales dollars at Wal-Mart leave the local economy than at a smaller, locally owned store. No wonder, then, that equity research firms call their analyis one of “damage,” not of growth. For a copy of the CIBC report, contact [email protected] or email [email protected]
