Business free essays: Effects of Chain Stores on Small Economies
Effects of Chain Stores on Small Economies
Chain stores are retail outlets that share a central management and a brand. Such outlets have standardized business methods and practices. Chain stores started emerging in the United States at the beginning of 20th century in cities such as Philadelphia and New York after grocery owners started assembling their retail stores. However, chain stores were legally recognized for the first time in 1929 in North Carolina and other states followed later. Despite this, chain stores started gaining significant market share in the US and other countries in 1960s. By 2004, Wal-Mart, which has headquarters in the US, was the largest retail chain in the world. Numerous studies have been conducted focusing on determining the impacts of chain stores on local economies. As explained in this paper, chain stores have an adverse impact on local businesses and the local community and ultimately, they have unfavourable effect on the growth of small economies.
A significant aspect of chains stores is that they displace local businesses. Consumers may prefer chain stores because of selling goods at lower prices than local businesses. However, this comes at a great cost. As they venture into new markets, most chain stores adopt as strategy that involves selling products at lower prices than competitors in order to attract customers. In the past, for instance, Wal-Mart has been selling milk in new markets at prices lower than the acquisition costs (Dunlap, 2015). Adopting such a strategy sets up a battle that local merchants hardly win. If the local merchants reduce prices for their products to match the prices offered by the chain stores, the latter incur losses. If the local merchants sell their products at prices that are higher than the prices offered by the chain stores, they risk losing customers. Chain stores that focus on gaining market share can operate new branches at a loss for a long time. Conversely, local merchants that incur losses for a considerable length of time are forced to close (Dunlap, 2015). As such, chain stores derive their market share by displacing existing businesses in the local and foreign markets where they venture. A study conducted in 1999 in the US showed that after Wal-Mart was established in the state of Iowa, it derived around 84 percent of its sales from existing local businesses (Dunlap, 2015). Another study report released in 2013 indicated that after Wal-Mart chain store sets into a market in a local community, the sales of the local discount variety stores and supermarkets reduce by 10 to 40 percent (de Blasio, 2013). Thus, there is significant evidence that establishment of chain stores leads to closure of local businesses.
The problem with the closure of the local merchants as a result of establishment of chain stores is that the former have a higher contribution to the growth of small economies than the latter. Local merchants carry out most of their business activities locally and spend their profits within the local economy (Dunlap, 2015). As well, local merchants support other businesses established locally since they purchase their products and services. For instance, local merchants usually do business with local financial institutions. They also advertise their products and services through local media channels. In doing so, they support the growth of the local economies in which they are established. Conversely, chain stores centralize such functions and activities at their head offices. Chain stores keep their spending and investment within the local, small economies at minimum. For instance, chain stores bank with multinational banking institutions and banks established in the countries or areas where their headquarters are located (Dunlap, 2015). Chain stores hardly use the media channels established in the local markets to advertise their products and services. As such, almost everything earned by a chain store leaves the local economy since such organizations usually spend their earnings elsewhere (Dunlap, 2015). This explains the fact that establishment of chain stores leads to lower growth of small economies since they replace local businesses that have a higher contribution to the growth of the local economy.
A significant aspect of the chain stores is that they often cause instability within local economies. Chain stores such as Wal-Mart can establish numerous branches within a town where it deems to have good prospects for growth of sales, profits and markets share (Dunlap, 2015). After establishing numerous stores and forcing existing local businesses to close, a chain store can decide to close all its stores. In such as case, the local community is left with severe shortage of supply of the products and services that the closing chain store has been offering. In January 2016, for instance, Wal-Mart decided close 269 of its stores, 154 of which are located in the US (Gustafson, 2016). Such a move can lead to lower supply of products than demand, leading to a rapid rise in prices. Unlike the chain stores, local independent merchants hardly move away and are usually rooted in the local community. Such firms tend to retain their business activities within the established locations even during periods of economic hardship. As such, local merchants create economic stability and diversity. After establishment of chain stores, small economies lose such benefits associated with the existence of local businesses.
Last, establishment of chain stores can lead to increase in the rate of unemployment as well as replacement of existing retail jobs with lower-paying jobs. The case of the impact of Wal-Mart on the local communities in the US provides a good illustration. In 2013, a report was released containing a comprehensive assessment of more than fifty studies focusing on the economic impact of the organization in different counties in the US (de Blasio, 2013). The findings derived from the comprehensive studies indicated that for every two jobs that are created after the establishment of a chain store for Wal-Mart within the local communities in the US, three jobs are lost due to the subsequent closure of retail stores. The report further indicated that Wal-Mart was paying an average wage of $20,774 to its workers in 2009, which was significantly lower than the average income earned by owners of retail businesses (de Blasio, 2013). The report indicated that in California alone, the lost economic value, including the declined wages, could be around $2.8 billion every year. Thus, the negative impact of chain stores on local economises profound.
Overall, chain stores have existed for around one century, although they have gained significant market share in the global market more recently. Recent assessments have shown that chain stores have profound adverse impacts on small economies since they lead to the closure of local businesses, which contribute more to the local economies. As explained in the above discussion, chain stores cause economic instability within local communities, increase in unemployment rate and replacement of high-paying jobs with low-paying jobs. As such, chain stores limit the growth of small economies.
Dunlap, B. J. (2015). Proceedings of the 1990 Academy of Marketing Science (AMS) Annual
Conference. New York, NY: Springer.
Gustafson, K. (2016, January 15). Wal-Mart to close 269 stores as it retools fleet. CNBC.
de Blasio, B. (2013). New Report: Wal-Mart Destroys Local Economy. Retrieved from