The 'Big Box' Boom:
Is 24/7 Good for Rural Areas?

By Zanetta Doyle, Digest Editor

“Stack it deep; sell it cheap; stack it high and watch it fly; hear those downtown merchants cry!” (Source: walmartwatch.com)

It is Saturday morning. There’s a laundry list of things to do. Eye doctor appointment, develop the vacation film, fill the prescriptions, pick up groceries, and since no one in the house cooks on Saturday, McDonalds is on the menu tonight. Instead of running all over town, as in times past, these errands can be accomplished today with just one stop at the local Wal-Mart. But while the supercenters offer convenience, opponents argue that the ever-expanding ‘big box’ stores present economic challenges, as they increasingly stifle the survival of ‘mom and pop’ and main stream businesses in rural communities.

According to a 2000 study by the Center for Applied Economic Research, The Impact of Big Box Retail Chains on Small Businesses, retail chains such as Wal-Mart, K-Mart and Target have a significant impact on employment rates, sales and the environment of small towns. In the article, “The Case Against Sprawl,” (excerpt from the book “Slam-Dunking Wal-Mart, by Al Norman, 1999), Iowa State University Professor Ken Stone examined the sales changes in Iowa small towns from 1983 to 1993 and discovered a “huge shift of sales to larger towns and cities, with substantial amounts captured by mass merchandise stores.”

Stone estimated that the total number of businesses lost in small towns and rural areas was 7,326 during this time period. Iowans spent $425 million more at discount stores, but $153 million less at variety stores; $129 million less at grocery stores, $94 million less at hardware stores, $47 million less at men’s and boys apparel stores. In the 11 store types studied, businesses lost more than $603 million in sales. Iowa lost: 555 grocery stores; 298 hardware stores; 293 building supply stores; 161 variety stores; 158 women’s apparel stores; 153 shoe stores; 116 drug stores; and 111 men’s and boys apparel stores.

While this is an example of one state, the article also explained how ‘big box’ stores have affected the manufacturing sector throughout the U.S. Between 1973 and 1996, America lost nearly half of its apparel manufacturing jobs. A total of 597,000 jobs were lost during the 23-year period.

The reasons behind the big box stores’ success varies, but the most prevalent reason is their ability to under-price their competitors. According to an article in Time Magazine, (Can Wal-Mart Get Any Bigger? January, 2003), Wal-Mart under-prices their supermarket competitors by about 15 percent, in part, because they are more efficient, but they also use non-union labor. The article also reported that many of the 1,300 Wal-Mart supercenters were converted from standard discount stores, offering everything from hardware to groceries and drugs. In some cities these stores are placed as close as five miles apart, leaving the remaining local grocery and convenience stores in between to struggle . “I’m not trying to be flippant, but simply put, our long-term strategy is to be where we’re not,” Lee Scott, Wal-Mart’s CEO told Time.

Another challenge faced by small retailers is mega-retail discount chains’ ability to buy directly from manufacturers, thus in many cases, eliminating the regional wholesaler who traditionally served the small downtown retailer. The Center for Applied Research study also explained that when stores such as Wal-Mart or Target propose building in small communities, the initial reaction of local authorities is positive, citing an increased tax base and more options for the community. However, over the years, the result is often a lower tax base as the smaller businesses close.

Proponents welcome the convenience, the lower prices, free parking, and hours of operation (some are open 24 hours, seven days a week). Opponents say that some of the disadvantages include: Poor customer service, cluttered, unorganized stores which make it difficult to find items, traffic congestion, sprawl, and less competitive salaries and benefits as compared to their smaller counterparts.

Minnesota Feels the ‘big box’ Pinch

Wal-Mart, Home Depot and Rainbow (grocery store), have significantly impacted the regional and local economies in several Minnesota communities. According to Reginald Edwards, Executive Director of the Region 9 Development Commission in Mankato, Minnesota, an EDA-funded district, the presence of the ‘big boxes’ have had detrimental impacts on the local drug, hardware and grocery stores. “The ‘big box’ stores add value to regions, but at the expense of local stores that lose their customer base,” said Edwards.

The local stores in Minnesota are having difficulty competing in pricing and product availability. In addition, malls and ‘big boxes’ now co-exist in regional hubs which pull customers from the smaller communities. “Not only do they make regular trips to these cluster areas, but commuters from small communities patronize them on their way home from work,” added Edwards.

While the smaller businesses are struggling, Edwards explained that some are surviving by finding niche markets such as organic wild meat, or cultural specific foods; they offer specials; many go the extra mile to offer good customer service; and others have been able to maintain their customer base through their involvement in community activities like city parades, festivals or charity events.

“Big boxes bring some variety of products, competitive pricing, and serve as a magnet for other economic development,” said Edwards. “However, the cost is the decline of small town grocery stores, hardware and drug stores. Ultimately the decline in quality of life in small communities,” he added.

Surviving the Supercenters

The ‘big box’ stores are dominating the smaller businesses in rural communities, but industry experts believe it is still possible to survive. Above all, according to the National Grocers Association (NGA) President and CEO Thomas K. Zaucha, in order for smaller businesses to compete, they must focus on customer loyalty. “You must be absolutely committed and obsessed with gaining customer loyalty because a loyal customer feels compelled to drive past a competitor’s store to shop at his favorite store, whereas a satisfied customer is willing to shop anywhere.” He added, “Customers agree supercenters have competitive prices, friendly employees and good store conditions, but they tell us price is not more important than quality and freshness; that there aren’t always enough employees [at supercenters] to serve customers; managers aren’t always available to solve problems; and products they want are not always in stock – all of which provide opportunities for traditional supermarket operators to make hay in an effort to gain customer loyalty.”

Zaucha commented that manufacturers could be valuable partners in the independent’s survival. “Manufacturers recognize the need for diversity in the marketplace, and independent operators represent the keystone to that diversity.” He added, “Manufacturers are beginning to ask themselves whether they’re putting too many eggs in one basket. While no one is questioning their commitment to Wal-Mart, they are beginning to understand how important a diversified market is.”

The NGA offers these tips to small retailers who attempt to compete with the ‘big box” giants:

Work with wholesalers and direct-store-delivery companies to develop marketing strategies.

Identify their own strengths and the supercenters weaknesses and capitalize on those.

Promote aggressively rather than being buying-driven.

Operate clean, modern, friendly stores that let customers know they have the best shopping environment available.

Empower employees by treating them fairly, encouraging and rewarding good performance, and involving them in decision-making.

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