Does Wal-Mart Sell Inferior Goods?

I estimate the aggregate income elasticity of Wal-Mart's and Target's revenues using quarterly data for 1997-2006. I find that Wal-Mart's revenues increase during bad times, whereas Target's revenues decrease, consistent with Wal-Mart selling "inferior goods" in the technical sense of the term. An upper bound on the aggregate income elasticity of demand for Wal-Mart's wares is -0.5.Retail, Wal-Mart, Target, Inferior Goods

'Twas Four Weeks before Christmas: Retail Sales and the Length of the Christmas Shopping Season

I study the effect of the length of the Christmas "shopping season" in the United States (traditionally, beginning the day after US Thanksgiving) on aggregate retail sales. I find a statistically significant increase in per-capita retail sales in November and December (combined) of approximately $6.50 per additional day over the relevant range. The implications of these finding are briefly discussed.Christmas, Retail, Shopping

Selling a Cheaper Mousetrap: Wal-Marts Effect on Retail Prices

I quantify the price effect of a low-cost entrant on retail prices using a case-study approach. I consider the effect of Wal-Mart entry on average city-level prices of various consumer goods by exploiting variation in the timing of store entry. The analysis combines two unique data sets, one containing opening dates of all US Wal-Mart stores and the other containing average quarterly retail prices of several narrowly-defined commonly-purchased goods over the period 1982-2002. I focus on 10 specific items likely to be sold at Wal-Mart stores and analyze their price dynamics in 165 US cities before and after Wal-Mart entry. An instrumental-variables specification corrects for measurement error in Wal-Mart entry dates. I find robust price effects for several products, including shampoo, toothpaste, and laundry detergent; magnitudes vary by product and specification, but generally range from 1.5-3% in the short run and four times as much in the long-run.Wal-Mart, Competition, Prices, Market Size

Job Creation or Destruction? Labor-Market Effects of Wal-Mart Expansion

This paper estimates the effect of Wal-Mart expansion on retail employment at the county level. Using an instrumental-variables approach to correct for both measurement error in entry dates and endogeneity of the timing of entry, I find that Wal-Mart entry increases retail employment by 100 jobs in the year of entry. Half of this gain disappears over the next five years as other retail establishments exit and contract, leaving a long-run statistically significant net gain of 50 jobs. Wholesale employment declines by approximately 20 jobs due to Wal-Mart's vertical integration. No spillover effect is detected in retail sectors in which Wal-Mart does not compete directly, suggesting Wal-Mart does not create agglomeration economies in retail trade at the county level.Wal-Mart retail employment

When Good Instruments Go Bad

This note examines the instrumental variables method used by Neumark, Zhang, and Ciccarella (2005) to analyze Wal-Mart's effect on retail labor markets, and exposes major flaws in that methodology. Neumark, Zhang, and Ciccarella use an interaction between distance from Wal-Mart's headquarters and time effects to predict Wal-Mart's presence in a county, and find that each Wal-Mart store destroys, on average, approximately 200 retail jobs. These findings are in stark contrast to Basker (2005) who found a small, but positive and statistically significant, effect on jobs. I show that the IV estimates obtained by Neumark, Zhang, and Ciccarella confound Wal-Mart's causal effect with other factors. To illustrate the problem, I show that their methodology implies a large impact of Wal-Mart not only on retail employment but also on county manufacturing employment. Reduced-form estimates of the regressions show statistically and economically indistinguishable effects in counties with and without Wal-Mart presence, implying that other factors are most likely driving the results.Instrumental Variables, Wal-Mart, Retail Employment

The Causes and Consequences of Wal-Mart's Growth

Wal-Mart is the largest company in the world, yet little is known about its economic impact. This essay discusses what is known about Wal-Mart's competitive advantage and its economic impact on local communities, as well as the national and global economy, and highlights the open questions to be addressed by future research.Wal-Mart, Retail

The Causes and Consequences of Wal-Mart’s Growth

W al-Mart plays a large and ever-growing role in the U.S. economy. As ofJanuary 31, 2007, Wal-Mart operated more than 3,400 U.S. Wal-Martstores along with more than 550 Sam’s Club locations. Wal-Mart is the largest private employer in the United States, with 1.3 million employees, and the largest retailer in the United States. In 2004, Wal-Mart handled 6.5 percent of U.S. retail sales (8.8 percent if automobile sales are excluded); this number has since increased. Wal-Mart is the top U.S. seller of apparel, groceries, and music, among other products, and is the top retailer in most states. Wal-Mart’s 2005 revenues exceeded those of the next five U.S. retailers combined; these are Home Depot, Kroger, Sears Holding Company (which includes Sears and Kmart), Costco, and Target (Schultz, 2006). Wal-Mart currently accounts for 28 percent of Playtex’

The Evolving Food Chain: Competitive Effects of Wal-Marts Entry into the Supermarket Industry

We analyze the effect of Wal-Marts entry into the grocery market using a unique store-level price panel data set. We use OLS and two IV specifications to estimate the effect of Wal-Marts entry on competitors prices of 24 grocery items across several categories. Wal-Marts price advantage over competitors for these products averages approximately 10%. On average, competitors response to Wal-Marts entry is a price reduction of 11.2%, mostly due to smaller-scale competitors: the response of the big three supermarket chains (Albertsons, Safeway, and Kroger) is less than half that size. We confirm our results using a falsification exercises, in which we test for Wal-Marts effect on prices of services that it does not provide, such as movie tickets and dry cleaning services.Wal-Mart, Retail Prices, Supermarkets, Price Competition

Putting a Smiley Face on the Dragon: Wal-Mart as Catalyst to U.S.-China Trade

Retail chains and imports from developing countries have grown sharply over the past 25 years. Wal-Marts chain, which currently accounts for 10% of U.S. imports from China, grew 10-fold and its sales 90-fold over this period, while U.S. imports from China increased 30-fold. We relate these trends using a model in which scale economies in retail interact with scale economies in the import process. Combined, these scale economies amplify the effects of technological change and trade liberalization. Falling trade barriers increase imports not only through direct reduction of input costs but also through an expanded chain and higher investment in technology. This mechanism can explain why a surge in U.S. imports followed relatively modest tariff declines and why Wal-Mart abandoned its Buy American campaign in the 1990s. Also consistent with these facts, we show that tariff reductions have a greater effect the more advanced the retailers technology. The model has implications for the pace of the product cycle and sheds light on the recent apparent acceleration in foreign outsourcing.Wal-Mart, Trade, Economies of Scale, China, Technological Change, Retail Chain

Raising the Barcode Scanner: Technology and Productivity in the Retail Sector

Barcodes and barcode scanners transformed the grocery industry in the 1970s. I use store-level data from the 1972, 1977, and 1982 Census of Retail Trade, matched to data on store scanner installations, to estimate scanners' effect on labor productivity. I find that early scanners increased a store's labor productivity, on average, by approximately 4.5 percent in the first few years. The effect was larger in stores carrying more packaged products, consistent with the presence of network externalities. Short-run gains were small relative to fixed costs, suggesting that the impediment to widespread adoption of the new technology was profitability, not coordination problems.