Wal-Mart likes to assert that it is a “retail magnet” that attracts more sales to a community, enhancing the business environment, adding jobs, revenues, and lifting all boats. This, unfortunately, has been disproved by an ever-increasing number of economic reports that suggest just the opposite: that Wal-Mart’s sales derive largely from existing merchants. The latest such warning comes for a company on Madison Avenue called Global Credit Services. A new seven page report from GCS concludes that “the disproportionate size of Wal-Mart relative to its rivals in the distribution and retailing of finished goods represents a fundamental imbalance in the macroeconomy for the consumption of finished goods on a global basis.” GCS says that “the risk for these systemic imbalances is that a large number of retailing and distribution firms will be forced to either merge or file bankruptcy and in some instances these firms will terminate their operations.” GCS describes Wal-Mart as “a distribution firm at the center, and a mass merchandiser at the end of its own supply chain…Wal-Mart, in this sense, is the supreme disintermediator of the supply chain.” The report continues: “It is well known that local merchants are often unable to survive against this imbalance in the local commerce of finished goods. Local shoppers disgorge so much of their discretionary earnings that they are not able to leverage enough additional personal consumption expenditures to support local merchants.” GCS notes that this “imbalance” has created “sudden consolidations” in the supermarket field, and a “decline in the number of viable firms in the retail sale of discount apparel.” All of this is due to what the GCS simply labels “the Wal-Mart effect”. “Any firm involved in the sale of most categories of nondurable finished goods has to deal with the Wal-Mart effect,” the report says. “The Wal-Mart effect says that so many dollars of finished goods are flowing through Wal-Mart to consumers that many other retailing firms will not be able to generate the level of revenue growth necessary to help fund their debts. There is not enough residual dollars left in the consumer economy to support a retailing firm the size of Wal-Mart and concurrently support a large number of other retailing firms…”
The GCS reports concludes that “Wal-Mart stores is so large in scale that the low savings rate of consumers combined with rising levels of consumer credit must eventually lead to an incraease in unfavorable condition for a large number of retailing firms. Before more Wal-Mart shoppers give up on going to Wal-Mart for basics at daily low prices in a one-stop shopping experience, they will probably cease going to enough other stores to cause some problem at other firms.” In other words, Wal-Mart takes such a large market share that there is very little pie left for other merchants. Wal-Mart sucks down enough dollars that only “residual dollars” are left for other merchants. Just one more report stating the obvious: Wal-Mart does not increase market share for other merchants in your town, but leads to a declining number of such outlets and increasing consolidation of stores into fewer and fewer hands. This is the “Wal-Mart effect”.For a copy of the Global Credit Services report, issued April 24, 2000, contact the company at 212-308-6060.
