From the June 18, 2004 print edition – Cincinnati Business Courier

  Wal-mart is coming. Should you be happy?
  With the retailer set to invade the city, the Courier studied the impact. What we found  may surprise you.

  Dan Monk

  Courier Senior Staff Reporter

  In her 14 years as a Harrison politician, Judy Kercheval has rarely seen an issue spark as   much feedback as the plans for a Wal-Mart supercenter at Interstate 74 and New Haven   Road.

  At least once a day, Kercheval said, Harrison residents make it a point to let her know their  feelings about the retail behemoth's West Side ambitions.

  "To be honest with you, I've not heard from one person who wants it here," said Kercheval,  who convinced her fellow city council members to conduct a fiscal
impact study before  deciding whether to accommodate Wal-Mart's plans. Kercheval said opposition "runs the  gamut from the traffic to putting some of our smaller businesses out of business, to people  not having jobs, to people who are very concerned that this humongous giant just wants to  eat everybody up."

  Wal-Mart inspires a lot of that kind of talk these days, a symptom of its prodigious size and   market clout. The world's largest retailer, with revenue of $256
billion, Wal-Mart is bigger  than all but 30 national economies.

  In a growing body of research and media coverage, Wal-Mart's legendary obsession with low   prices is credited with leading the 1990s surge in productivity and boosting the spending   power of American consumers by trillions of dollars. It also is blamed for driving down   wages, accelerating the shipment of U.S. jobs overseas, driving small retailers out of  business and sucking tax breaks and health-care subsidies out of state, local and federal  governments.

  All of this is more relevant to the Tri-State, now that Wal-Mart is targeting Cincinnati with   up to 20 new supercenters, which are combination grocery and
merchandise outlets that   average $88 million in annual sales per store. A January 2004 Harvard case study that  analyzed Wal-Mart's business model indicates groceries account for 35 percent of all supercenter sales, or $30.8 million a year per store. That means each new supercenter that   Wal-Mart opens here would gobble up 0.8 percent in market share, based on Labor  Department statistics that indicate grocery spending in Cincinnati reached $4.03 billion in 2002.

  What impact will such growth have on the Tri-State?

  The Courier analyzed several Wal-Mart impact studies -- some of them Wal-Mart-friendly,  others highlighting the downside of Wal-Mart's growth -- to come up with a price tag for the  retailer's Cincinnati invasion. We estimate that Cincinnati can expect to gain $193 million,  or $247 per household, in increased buying power annually, driven by Wal-Mart's lower prices  and the price cuts of its competitors. But we also estimate $57.1 million in negative annual  impacts from a Wal-Mart invasion, including lower wages and benefits and higher  government expenditures on health care and traffic-related issues.

  Here's how we arrived at the estimates:

  Higher Power

  The estimate comes from a Wal-Mart-funded study performed by the Los Angeles County   Economic Development Corp. It assumed Wal-Mart would achieve a 20 percent market share   in Los Angeles and surrounding counties, reducing grocery prices by 15 percent for Wal-Mart  customers, 10 percent for its competitors.

  That translated into cost savings of $3.76 billion in Southern California, or $589 per  household. We made several modifications to the L.A. study, assuming
Wal-Mart would  achieve a 15 percent market share. We also downsized the discounts, based on our own  pricing study, which compared Wal-Mart's supercenter in Aurora, Ind., to Meijer, Kroger and  Bigg's stores in Cincinnati.

  Our bottom line: Tri-State households can expect $247 annually in increased buying power,  or $193 million total, from Wal-Mart's invasion.

  So, that's the upside. Here are the findings extrapolated from some of the many  Wal-Mart-bashing studies that have been done over the past several
years.

  Lower Wages

  Wal-Mart's new stores will require some 6,800 new employees, over and above the roughly  5,800 that Wal-Mart already employs here. Wal-Mart says its local employees earn an hourly  wage that's about 10 percent higher than its companywide average, but an expert witness  who testified against Wal-Mart in a sex-discrimination suit indicates Wal-Mart's average  annual pay in 2003 was $15,638. That's 21 percent lower than the Tri-State's average retail salary, according to Labor Department estimates.

  Several studies demonstrate that when Wal-Mart enters a geographic area, overall retail  employment increases -- but many higher-paying retail jobs disappear.
If you add 6,800 jobs  at Wal-Mart's 2003 average pay but subtract 4,000 jobs at the Tri-State's average, you find  that retail wages drop by $667 per person, per year. Regionwide, that's a $27.9 million hit. Even if you assume Wal-Mart's local wages will be 10 percent higher here, it still costs the city $17.7 million.

  Lower Benefits

  These numbers are tough to gauge, but the Harvard case study cites a Wall Street Journal story as saying Wal-Mart benefits average $1,300 less per year than
retail and wholesale  workers, generally. That figure, times 6,800 new Wal-Mart workers, totals $8.8 million. But  there's another factor. Kroger workers negotiate for a new contract this summer, covering  roughly 8,500 local residents. If the talks yield concessions similar to those adopted in  California recently, it'll mean $6.6 million in reduced benefits annually for Kroger workers.

  Higher Traffic Costs

  The town of Barnstable, Mass., commissioned a cost-benefit analysis to determine whether  various land uses generate more in tax revenue than they eat up in
city services, including road maintenance and police attention. Harrison is seeking a similar analysis.

  In Barnstable, consultant Tischler & Associates concluded that only office buildings,  business parks and specialty retail centers pay for themselves.
Tischler concluded big-box  retail costs $1,023 per thousand square feet, $468 more than it generates in tax revenue. Apply that $468 in extra cost to 4 million square feet of new retail space that Wal-Mart's  expected to build here, you get $1.9 million.