Commercial Development: Towns Before and After Wal-Mart

As recently as 50 years ago, downtown was still America’s commercial center. A variety of factors moved the center to orbital suburbia. One of those factors was Wal-Mart.

Wal-Mart’s ubiquity on the edge of town didn’t happen overnight. Kenneth Stone, professor emeritus of economics at Iowa State University in Ames, has been studying Wal-Mart’s development for 25 years.

According to a 10-year study Stone published in 1997, small retail faced adversity from the beginning of the 20th century and onward as Montgomery Ward and Sears Roebuck catalogs offered better selection than mom-and-pop shops and railroad infrastructure provided effective delivery.

As the automobile developed into the country’s main transportation mode, rural shoppers could more easily visit larger cities. After World War II, shopping malls delivered one of the greatest blows to downtowns due to “ease of access, large selections, controlled climate, easy and free parking and their extended shopping hours,” Stone said. “Shopping malls fundamentally changed the way Americans shopped.”

The year 1962 introduced the trinity of Wal-Mart, K-Mart and Target. The latter two grew in mostly larger communities, spreading fairly rapidly.

Wal-Mart’s strategy, however, was to move into smaller Southern towns where it could easily become the dominant retailer.

“Furthermore, Wal-Mart’s founder, Sam Walton, did not want to outrun his logistical support, namely his distribution centers,” Stone said.

The reason for its positioning on the outskirts of town was mostly necessity: One store requires between 25 and 30 acres of land, and in some early Wal-Mart towns, that’s the same size as an entire downtown area.

“Wal-Mart progressed methodically across the United States, always building stores within a day’s drive of its distribution centers, and taking over 30 years to become a fully national chain,” Stone said.

Wal-Mart had a dramatic effect on the small towns. Stone said his most recent study, yet to be released, showed that Wal-Mart host towns had greatly increased retail sales and had evolved into “regional trade centers.”

“But one has to keep in mind that most of that gain was by Wal-Mart stores, and they did have negative impacts on a lot of other businesses in town — mainly any store that was selling essentially the same thing they were selling,” Stone said.

Shops that sell fabric, drugs, toys, hardware — strong areas for Wal-Mart — couldn’t compete.

In Wal-Mart’s early days, Stone said, competitors didn’t know how to react.

“They didn’t understand how potent of a force Wal-Mart was,” he said. “They had to change their business models. They really started thinking about how to compete.”

Hardware stores, for example, once carried full lineups of general merchandise. Wal-Mart’s high-volume, deep-discount style quickly priced them out, and surviving hardware stores scaled back the general merchandise and focused on specialty tools.

Businesses with more niche markets — video game and cell phone shops, shoe stores, chain restaurants and “category killers” like Home Depot and Staples — now also gain from the influx of Wal-Mart customers.

“They are clearly an economic anchor wherever they locate their big stores,” said Rett Tucker, a partner in Little Rock’s Moses Tucker Real Estate. “Other national retailers flock to be near them.”

“So there’s a good educational process that’s occurred over the years,” Stone said. “It’s quite a bit different than it was. Many companies learned how to compete against Wal-Mart.”

Stone said the non-Wal-Mart towns survived, stabilizing mainly because smaller chains like Dollar General appeared to soak up the local shoppers. Now, Wal-Mart is seeking to emulate the Dollar General model with its Wal-Mart Express stores.

Stone’s report examined Iowa towns. The smallest, he said, suffered greatly. In towns with fewer than 2,500 people, sales declined by 30 percent — or $1.5 billion — in the time since Wal-Mart showed up.

“I think for smaller towns, and for many towns, bigger and small, it really hurts the downtown,” Stone said. “Wal-Mart hurts the stores selling the same type of merchandise as them.”

As for Wal-Mart’s growth model, Stone tends to think it may be nearing the end of its life.

“They deny this, but I think they are about to peak out,” he said. “They’ve hit every county seat in the country and any city with a viable chance for business.”

Wal-Mart’s final frontier in the U.S. is the biggest cities like New York and Los Angeles. Stone said Wal-Mart was still growing overseas as well, with its main footholds being Mexico and China, but that it found success elusive in Japan, Korea and Germany.