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Big Box Stores & the Future of Retail: Tales from the American Economic Association

So, we’ve had a highlight from the Allied Social Sciences Associations meetings; now here’s a lowlight.

On Jan 7, the American Economics Association hosted a panel called Big Box Stores and the Future of Retail. The presenters confirmed many of the things Dollars & Sense readers already know about Wal-Mart: retail stores come and go, but non-chain stores come and go much faster than big-chain stores; bigger chains build bigger stores that offer more products; big chains lead the retail industry in technology, prices, and (never mentioned) wages; big chains enjoy economies of scope (a more diverse inventory appeals to one-stop shoppers) as well as scale (they can make deals with—maybe even control the behavior of—product suppliers).

The presenters related these facts as though they were revelations, and their tone of naive discovery led to some wonderful quotes. For instance, Justin Wolfers of the Wharton School mused on the issue of why non-chain stores fail at a much faster rate than big-chain stores, “Is it financing—that mega corporations can keep non-profitable stores open a little longer, whereas Mom & Pop are really constrained in a way we never thought of?”
[emphasis added]

Then there was Emek Basker, who made fun of the Chicago activists who this summer convinced their city council to pass an ordinance requiring “stores that occupy more than 90,000 square feet and are part of companies grossing more than $1 billion annually … to pay a minimum wage of $10 an hour by 2010, according to Erik Eckholm of the NYT. Basker applauded Chicago Mayor Richard Daley’s veto of the ordinance, saying, “The people who pushed for the ordinance were confused. Their logic was just ‘big chains are bad, so let’s go after big chains.’ But their ordinance didn’t do anything to the big stores that don’t belong to big chains.”

Her audience met this with appreciative titters, likely thinking, “Those silly activists, confusing scale and scope.”

But is it so silly? If, as the panelists (including Basker) were right when they said that big chains build bigger stores that enjoy economies of scope, where is the confusion? Size of store and size of corporation are linked. (It would be interesting to research how many non-chain retailers in Chicago have stores of over 90,000 square feet, and how that compares to the number of big-chain stores that are that large.)

And the Chicago living wage activists weren’t “going after” big chains just for the sake of going after them—they targeted big-chain retailers because they know just as well as the panelists do that the big chains lead the retail industry, and getting them to improve their behavior can help smaller retailers improve theirs.

The Chicago living wage activists even thought of a question that never crossed the AEA panelists’ minds: who can better afford low wages: workers or Wal-Mart?

Read more about the economic effects of minimum wage and living wage laws:
Measuring the Full Impact of Minimum and Living Wage Laws; Economists’ Statement Regarding the Need to Raise the Minimum Wage

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