Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Wal-Mart Effect

What it is:

The Wal-Mart effect refers to the economic impact of a large discount retailer on a local market.

How it works (Example):

The Wal-Mart effect, named for the large discount retailer, is used to describe the crowding out and shuttering of smaller, local businesses trying to operate in the same market as a big box store. By virtue of its ability to leverage extremely high volumes of merchandise, large retailers are generally able to offer much lower prices. In other words, a large retailer can buy goods from suppliers at lower per-unit prices than smaller local stores due to its comparatively higher volume of inventory.

Why it Matters:

Despite the low-cost benefits to the individual consumer, the Wal-Mart effect is widely criticized for its social repercussions. As a large retailer crowds out local businesses, residents often find the effects detrimental to the community's culture and way of life. To this end, municipal governments often pass resolutions preventing the entry of large retailers in an effort to protect the local economy.