# Understanding the Walmart Effect: Impact on Local Economies

## What Is the Walmart Effect?

The Walmart Effect describes the significant economic influence a Walmart ([WMT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=wmt)) store has when it opens in a community. This effect often pushes smaller businesses out of the market and depresses local wage levels, sparking opposition from local retailers. Explore how Walmart's buying power shapes economies, affecting consumers and suppliers too.

### Key Takeaways

*   The Walmart Effect refers to the economic impact on local businesses when Walmart opens a store in the area.
*   Smaller retailers often struggle to compete with Walmart's lower prices and extensive product selection, leading to reduced foot traffic and potential closures.
*   Walmart's significant buying power enables it to demand lower prices from suppliers, which can lead to cost-cutting measures such as offshoring or using cheaper materials.
*   While Walmart can help curb inflation and offer savings to consumers, it may also lead to wage reductions for competitors' employees in the local market.
*   The term "Walmart Effect" became popular after Charles Fishman's book highlighted its profound influence on economies and consumers.

![Two shoppers push a Target shopping cart past a Walmart storefront.](https://www.investopedia.com/thmb/-C2mKamM1zt_V6g_fQD36qXA8BU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WalmartEffect-baefd36ebda9403e80f6cfb5b281948e.jpg)

*— VIEW press / Getty Images*

## Understanding the Walmart Effect's Economic Impact 

The Walmart Effect also has its positive benefits; it can curb [inflation](https://www.investopedia.com/terms/i/inflation.asp) and help to keep employee productivity at an optimum level. The chain of stores can also save consumers billions of dollars but may also reduce wages and competition in an area.

> **Important**
>
> The Walmart Effect has been shown to not only affect competing companies and suppliers but consumers as well.

## Pros and Cons of the Walmart Effect: A Deep Dive

Walmart's insistence on [procuring products at lower prices from suppliers](https://www.investopedia.com/articles/insights/050116/walmart-stock-analyzing-5-key-suppliers-wmt.asp) means that suppliers must find ways to make their products for less money, or else they could be forced to take losses if they choose to sell through Walmart. 

The exposure of selling merchandise through Walmart may increase [consumers](https://www.investopedia.com/terms/c/customer.asp)’ awareness of a product; however, suppliers often bear the cost of bringing products to market. This can compel them to seek out lower-cost alternatives to manufacture their product, which could lead to the use of overseas operations or less expensive materials in the production of their goods.

## Factors Influencing the Walmart Effect

The Walmart Effect is driven by the scale and scope of Walmart’s buying power. The company has over 4,700 stores in the U.S., including almost 600 Sam’s Club stores. It’s the largest employer in the U.S. As a retailer of this size, it can dictate the price it pays to wholesalers at a magnitude many other companies cannot. 

As a result, Walmart has the capacity to sell its merchandise at lower prices, compared with other businesses in the markets in which it operates. This can have an effect that goes beyond the retail market and into manufacturing and production. In addition to its buying power, Walmart has historically controlled its [compensation](https://www.investopedia.com/terms/r/remuneration.asp) to employees in such a way that rival companies might feel pressured to reduce salaries or cut benefits to their workers in response.

When a Walmart opens, its low prices and wide selection attract consumers away from local shops. With less [foot traffic](https://www.investopedia.com/terms/f/foot-traffic.asp) and declining [sales](https://www.investopedia.com/terms/r/retail-sales.asp), local retailers see their profits fall, forcing them to make cost-cutting decisions. Such strategies, however, may not be enough to keep such businesses open as Walmart continues to operate profitably while local retailers' losses mount. In time, Walmart might choose to relocate its store to another location, but the impact of its initial arrival may continue to last well afterward.

The term Walmart Effect was first used in the 1990s, but Charles Fishman wrote a book entitled “The Wal-Mart Effect” in 2006 which details how economies are affected by Walmart. Fishman goes beyond the advantages and disadvantages for local businesses but also includes how Walmart can positively and negatively impact consumers.

## The Bottom Line

The Walmart Effect presents both opportunities and challenges for local economies. While the arrival of a Walmart store may lead to lower prices for consumers and increased product visibility for suppliers, it can also result in the closure of smaller businesses, wage suppression, and pressure on suppliers to cut costs. Understanding these dynamics is crucial for community stakeholders and policymakers who aim to balance Walmart's economic influence with the need to preserve local businesses and maintain fair labor practices.

> **Article Sources**
>
> 1.  Walmart. "[Location Facts](https://corporate.walmart.com/about/location-facts)."
>     
> 2.  Charles Fishman. "[The Wal-Mart Effect](https://www.penguinrandomhouse.com/books/294987/the-wal-mart-effect-by-charles-fishman/)." Penguin Random House, 2006.