Published: September 07, 2008 02:44 am            

Mom-and-pop stores buried?

WVU study finds Wal-Mart hasn’t changed size of small-business sector

FAIRMONT — In a recent study, Dr. Russell Sobel found that Wal-Mart hasn’t changed the overall size of the U.S. small-business sector.

Sobel is a professor of economics at the West Virginia University College of Business and Economics and holder of the James Clark Coffman Distinguished Chair in Entrepreneurial Studies. He has been teaching at WVU for 14 years.

Sobel and Andrea Dean, who is working on her Ph.D. in the WVU Department of Economics, cowrote a study titled “Has Wal-Mart Buried Mom and Pop?: The Impact of Wal-Mart on Self Employment and Small Establishments in the United States.”

Their research will appear in an upcoming issue of the journal Economic Inquiry. The team was also asked to write a version of the article for the general public, which was published in Regulation magazine.

Once that magazine was released, WVU started getting a lot of positive publicity from national media, Sobel said.

He said the idea for the research came about five years ago. During his four years as director of the WVU Entrepreneurship Center, Sobel worked to help entrepreneurs start their own businesses every day. A common topic of discussion was how big-box stores like Wal-Mart impact the business climate.

“I thought it’d be great to get the data and actually answer that question,” he said. “Does (Wal-Mart) affect the overall size of the business sector?”

Sobel was interested in trying to collect and apply real statistical research to determine the effect.

Sobel and Dean gathered data on the number of businesses across the states and through time, broken up by the amount of employees. They found statistics for establishments with one to four employees, businesses with five to nine workers, and sole proprietorships.

In addition, Sobel and Dean collected information on the average revenue for these small mom-and-pop retailers, profitability per establishment, and bankruptcy. They completed the study in about two years.

The study isn’t trying to look at all the issues related to Wal-Mart, but focuses solely on the impact of Wal-Mart on the small-business sector, Sobel said.

“The perception is that when Wal-Mart comes into town it drives out these small mom-and-pop businesses,” he said. “Everybody sees that happen.”

It’s easy to talk about businesses that fail when a Wal-Mart store opens, but Sobel was also interested in examining the new ones that start up in their place. He wanted to look at the aggregate measures of the whole small business sector and include all the possible effects.

Sobel said the data is clear, and no matter how it’s measured, the net effect of Wal-Mart’s presence is zero. The study found that Wal-Mart had no impact on the overall size of the small-business sector, which is just as big and vibrant as it was 30 years ago without Wal-Mart.

High Street in downtown Morgantown, for example, saw the closing of a lot of stores, but now this street is filled with new small businesses. Of course, some businesses that compete with Wal-Mart are not going to survive. But as some stores fail, others replace them and offer new things — which is a process called creative destruction, Sobel said.

“Wal-Mart doesn’t run anybody out of business,” he said. “It’s consumers who when Wal-Mart comes into town choose to shop there. It’s really consumers who run those out of business.”

The big-box stores carry brand-name products and are all about cost, hours and convenience. According to purchasing habits, consumers know exactly what they want for some items. A shopper just wants to get those particular products at the least possible cost, Sobel said.

He said people shop at Wal-Mart to save money, and families can in turn take the extra dollars they save and spend them at other businesses.

Wal-Mart has created new opportunities for people who may have never been able to open a new business downtown, Sobel said. Maybe these small businesses couldn’t compete in downtown years ago, but they have better chances today.

He said mom-and-pop stores that close around 5 p.m. may find it difficult to compete with Wal-Mart’s long hours. But in the face of big box stores, small businesses thrive when it comes to personal attention and advice. Consumers want a store that they can call on the telephone and that knows about the products.

Entrepreneurs have the same number of opportunities in starting small businesses and are just as plentiful now as in the past, Sobel said.

“Small businesses around today are just as profitable as the ones before,” he said.

E-mail Jessica Legge at jlegge@timeswv.com.

        

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