Walmart has once again exceeded revenue expectations this quarter with reported revenues of $169.6bn- this is $2bn higher than expected. With revenues increasing by 5.5% year on year, this comes as no shock for the retail giant. Whilst they have certainly earnt their title as the world’s biggest retailer, we must assess the extent to which their market dominance is harming or helping the US economy.
Basic economic theory indicates the potential of colossal revenues leading to significant economies of scale, and Walmart is no exception. With the highest number of stores in the US, suppliers in the market are often compelled to collaborate with the retailer to stay afloat. This dynamic enables Walmart to benefit from bulk buying discounts, bolstering its profitability, and reinforcing its absurdly dominant market position. Whilst such a market leading status may appear concerning, particularly from a regulatory standpoint, the effects aren’t entirely negative.
For instance, many reports highlight that suppliers are benefiting from Walmart’s entry. A 2012 study found supplier profits have increased by 18%, almost entirely due to the sheer volume of sales driven by the retailer. Consumers also appear to benefit, as Walmart’s revenue growth enables them to offer the lowest prices on the market. In fact, a 2023 DataWeave study concluded their prices were 10-25% lower than competitors like Target and Amazon. This price advantage is crucially beneficial for low-income families in the US (a country with a staggering level of food poverty despite its significant GPD).
Walmart’s market power is defying other traditional concerns about labour market impacts. Contrary to the belief that reduced competition drives wages down, research supports that Walmart offers similar wages, if not higher, than its competitors. Moreover, they have increased retail employment in rural areas by 6-8% and 20% in urban areas. Employees without college degrees have access to promotional opportunities, and stock-based compensation for staff introduces low-income families to the stock market, potentially helping them accumulate wealth. With these findings, Walmart seems to be vigilant in its approach, ensuring to steer away from exploitative practices.
However, the story isn’t as rosy for small businesses. Supporters of Walmart often claim it competes primarily with large supermarkets and only small businesses within a ‘small’ 2-mile radius are affected. Yet, with 4,611 stores in the U.S., there is a Walmart within 5-10 miles of most communities. This proximity has exacerbated the so-called ‘Walmart effect’ where small businesses are struggling to compete with Walmart’s lower prices and broad selection of goods. As a result, consumer foot traffic is drawn away from small businesses often leading to a failure to break even. Meanwhile, Walmart’s same-store sales have risen 5.3% this year alone.
If this trend continues, the US economy could face the risk of monopoly-driven conditions whereby Walmart’s competitive edge will no longer be achieved by offering lower prices or generous employee benefits. Although the US retailer’s existing growth appears to offer economic benefits, the long-term effect on competition is looking uncertain. Is Walmart’s growing market power putting the future of the US economy in danger?
Comments