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30 years after Walmart's arrival, small towns doing better

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Iowa State University economist Ken Stone made headlines in 1988 when he released the first academic study on Walmart's economic impact on the economies of small communities.

Twenty-five years later, the professor emeritus, who retired in 2007, has co-authored a new ISU study that could make another splash, but for different reasons.

Walmart opened 45 stores in Iowa between 1983 and 1994, then took a five-year break on opening new Iowa stores. Beginning in 1999, another wave of store openings began that brought Walmart to 59 stores in 55 different communities.

Stone's 1988 study found Walmart's arrival hurt retailers competing head-on with Walmart in the same merchandise categories, but had a positive effect on retailers that sold different kinds of merchandise.

Retail sales tended to fall in surrounding non-Walmart towns, and the initial sales jump towns received from a Walmart opening tended to taper off as competing retailers closed or cut back.

Now, ISU's research find that Walmart has been an overall retail boon for small Iowa towns with Walmart stores and the drain on surrounding towns has stabilized.

Real per capita sales in Walmart towns increased an average of 11 percent after the stores opened and fell to about 5 percent after 15 years.

Sales in a control group of towns without Walmart stores declined by an average of 25 percent, but had stabilized by the end of the 15-year post-opening study period.

Early Walmart store openings in the late 1980s focused on smaller communities, the report said. They tended to increase general merchandise sales in the community by about $9.8 million, the report said, possibly because Walmarts were relatively new and attracted many customers from outside the host town.

In the 1990s, the size of new Walmarts increased to about 90,000 square feet and they could conservatively generate $22.5 million in annual sales. Host communities gained a more modest $7.8 million in net retail sales.

Stone said his biggest surprise from the research was the stabilization of retail sales in non-Walmart communities.

The reasons weren't probed in the study. Stone's best guess is that control group of communities stabilized because they have discount and specialty retailers such as Hy-Vee, Fareway, Family Dollar and ALCO. Those retailers have adjusted their strategies to cope with Walmart.

Stone's 1988 study raised the ire of top Walmart officials including founder Sam Walton, Stone said, and launched him in a new direction of speaking and consulting on how best to cope with Walmart in Iowa communities.

One criticism of the original study was that it ignored Walmart's store site selection criteria. If Walmart chose high-growth areas for its stores, they said the study and others like it would underestimate the negative effects of a Walmart on the retail economy, and overestimate the positive effects.

The new study addressed the concern by reaching back 15 years before the Walmart stores opened. That historical analysis of retail sales in the community over that period made it clear that most of the small communities were already in an extended trend of retail decline before the Walmart stores opened.

Coping with Walmart is a daily fact of life for stores like J.T. Hadherway Co. in Monticello. The family-owned department store has made adjustments like ending apparel sales because a Walmart less than ten miles west in Anamosa made apparel lines unprofitable, and focusing more on things like selling high-quality fabrics not available at Walmart to quilters.

"We felt a ripple when the Walmart came, but we never tried to compete with Walmart," said founder Julie Tuetken, who now works for her son Chris part-time at the store.

Tuetken said that Walmart in earlier years would send employees into J.T. Hadherway to benchmark her prices so that Walmart could undercut them. She said J.T. Hadherway's strategy has been to offer products that are in local demand that customers can't find at Walmart, and to offer service that leaves customers smiling.

Stone said the fate of small community retailers that were competing directly against Walmart is the sad part of the situation, but it's clear that having a Walmart helps communities by improving sales tax collections.

Communities might be inclined from the study findings to offer incentives to attract Walmart stores. Economists generally agree that incentives should only be used when they do not harm the competitive position of other local firms, the study said, but municipal leaders might find it to the town's overall benefit.

The ISU study analyzed over 20 Iowa communities with populations between 3,000 and 20,000, in which Walmart stores opened no later than 1994, and an equivalent number of non Walmart communities.

If small towns with Walmart stores were overall gainers and small towns without Walmarts have stabilized, it might seem that everyone's coming out OK in the Walmart game.

That's not true, Stone said, because retailing has swooned in small Iowa towns with populations of 2,500 or less. Those towns are not only too small to attract a Walmart but other discount or specialty retail chains, Stone said. Their retail sales have declined by about 33 percent over the 15-year period.

Stone hadn't planned to work on any more Walmart studies, but changed his mind after the Economic Development Quarterly asked him to write the lead study for an edition devoted exclusively to Walmart studies. He said he still takes a strong personal interest in the mega-retailer.

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