An Analysis of the Economic Impacts of Big-Box Stores on a Community’s Retail Sector: Evidence from Maine

Abstract

1.IntroductionBig-box stores such as Walmart have gained popularity among shoppers in the past decade because of their low prices and wide merchandise availability. New retail development can create a much-needed positive economic boost in communities. However, the growth of big-box retail stores has become a source of controversy in many communities across the country. Grassroots organizations, city planners, environmentalists, and many others argue that the negative economic, social, and environmental impacts of big-box retail far outweigh the benefits to consumers. In particular, much concern has been expressed about the adverse these big-box stores have on other smaller retail businesses. As such, policymakers desire credible estimates of the impacts of big-box stores on the local business community.Small business formation is important to the overall economy and is an indicator of community economic vitality (Deller and McConnon, 2009; Goetz et al., 2010). It is especially important in rural communities that often struggle to maintain a strong retail sector (Irwin and Clark, 2007). Big-box stores have become a source of controversy due to the widelyheld notion that Walmarts and other big-box stores have negative effects on the creation and success of local mom-and-pop retail stores (Renkow, 2005). However, previous studies have indicated that the presence of a big-box store pulls people in to shop from neighboring communities. Although local businesses that sell the same goods as big-box stores saw reductions in their sales after the introduction of bigbox retail, businesses that sold products different from those available in local big-box stores actually saw increases in sales (Stone et al., 1992).Concerned with the impacts of big-box stores, in 2007 the State of Maine passed the Informed Growth Act, which required towns who have received permit applications for large retail stores to determine whether the store could have undue adverse impact on the local economy and community. If shown to do so, the permit for the store could not be approved by the town's planning board. The Act required a study be prepared (paid for by the developers who applied for the permit) by an economic expert to examine the possible effects of a new large retailer on a comprehensive economic area. The study would examine the effects on local employment, existing retail businesses, wages, and municipal revenue. However, the Informed Growth Act was repealed in 2011 because a majority of legislators felt it was discouraging national companies from building their stores in Maine by adding to the costs of permitting (Bell, 2011).The majority of current research on the impacts of big-box stores focuses on the negative economic impacts that could result. There is not a great deal of discussion in the relevant research, however, on whether big-box stores may actually be creating demand in communities. In the case of induced demand, an increase in supply results in more of the good being consumed (Lee et al., 1999). There is the possibility that the research is ignoring the counterfactual - that pushing big-box stores out of town may actually be worse for a local economy. It is possible that big-box stores may supply so many goods and be so convenient that customers may be making trips and purchasing goods that they would otherwise forego due to high opportunity costs. One-stop shopping could save shoppers from having to make multiple trips or having to travel greater distances to obtain goods. The savings from purchasing necessary goods at less expensive big-box stores might also provide consumers with more disposable income to spend at other local businesses.This study examines the impacts of big-box retailers on the vibrancy of Maine's retail sector. Other studies have examined this issue nationally and at the county-level, but few have successfully isolated bigbox impacts on the growth of retail businesses at the community-level in a state like Maine. …