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Small-Mart Revolution: How Local Businesses are Beating the Global Competition available in Hardcover
- Pub. Date:
- Berrett-Koehler Publishers
Defenders of massive multinational chains like Wal-Mart and Fortune 500 big business argue that, like it or not, there is no alternative. Their huge scale and international reach, they claim, make them more efficient and profitable, better able to deliver value, and an uncontested boon for the job market. According to the big boys, locally owned small businesses are simply quaint remnants of the past, unable to compete in the global economy.
But in The Small-Mart Revolution, Michael Shuman shows that the benefits these mega-stores and huge corporations supposedly deliver to communities are illusory. Crunch the numbers and you'll find that locally owned businesses turn out to be much more reliable generators of good jobs, economic growth, tax dollars, community wealth, charitable contributions, social stability, and political participation. Unlike their global competitors, they do this without massive tax breaks and subsidies that often put local economies in a permanent hole. Plus, contrary to popular belief, local businesses are competitive with the multinationalsand gaining ground every day. Shuman highlights numerous trends that are making the old "bigger is better" economies of scale argument obsolete, and he describes a variety of innovative strategies these businesses are using to successfully compete with their over-sized competitors. He also shows how consumers, investors, and policymakers can support their own communities by "going local." The Small-Mart Revolution offers a robust alternative to "go-go" globalization, one that nurtures the creative capacities of local businesses and enables communities everywhere to thrive.
Read an Excerpt
The Small-Mart RevolutionHow Local Businesses Are Beating the Global Competition
By Michael H. Shuman
Berrett-Koehler PublishersCopyright © 2006 Michael H. Shuman
All right reserved.
IntroductionFROM WAL-MART TO SMALL-MART
Nobody's perfect. Today is the one day each year I permit myself to be a petty thief. As my childhood shoplifter buddies used to explain, there's a thrill in being bad, plus there's cheap stuff to be had. Let me clarify-I don't plan on breaking any laws. My indulgence is perfectly legal, and many would even consider it smart shopping. But I shouldn't mince words. What I'm planning on doing ought to be called "community lifting." I'm going to make my annual summertime sneakers shopping run at Wal-Mart, even if it means snatching just a little bit of well-being from my neighbors.
Why am I doing this? Because for fifteen dollars I can get basic footwear that lasts a year. After twelve months of regular deployment, these puppies smell so bad they just might qualify as weapons of mass destruction. It's high time to bury the old pair and replace them with fresh rubber. And I don't want to spend a penny more than necessary.
Using the WalMart.com online directory, I discover that there are ten stores in the vicinity of my home in Washington, DC-not exactly your typical rural area targeted by the retailing giant. The closest one is in Alexandria, Virginia, sixteen miles away. Following directions from MapQuest, I wind my way through the region's sprawling suburbs, at one pointominously passing the reconstructed side of the Pentagon where terrorists crashed a plane in 2001. My mind flashes on the image of Mohammad Atta, leader of the 9/11 gang, caught on videotape on 9/10 buying his infamous box cutters at a Wal-Mart in Portland, Maine. Forty-five minutes later I arrive. The parking lot is jammed.
At the entrance is posted an official notice from Fairfax County indicating that the Wal-Mart Real Estate Business Trust is now seeking permission to expand the store. Business must be doing well.
Nationally, of course, Wal-Mart is one of America's greatest success stories. It began in 1962, when Sam Walton set up a chain of small variety stores in Kansas and Arkansas. For many years Wal-Marts were only selling novelties in remote rural towns. Today five thousand outlets throughout the United States and in nine other countries sell just about everything. Wal-Mart "Supercenters"-of which there are nearly two thousand in the United States-are each as big as four football fields. As Simon Head writes, "With 1.4 million employees worldwide, Wal-Mart's workforce is now larger than that of GM, Ford, GE, and IBM combined. At $258 billion in 2003, Wal-Mart's annual revenues are 2 percent of US gross domestic product (GDP), and eight times the size of Microsoft's. In fact, when ranked by its revenues, Wal-Mart is the world's largest corporation."
"The secret of successful retailing," Sam Walton wrote in his autobiography, "is to give your customers what they want."
But I digress. Even though the Fairfax store seems larger than a typical National Park and few staff are in the aisles to help, I quickly find my sneakers, the exact same kind I bought last year. A perfect fit! Off to the checkout line.
As I snake my way triumphantly through the aisles, I notice a few other items I could use. We just ran out of Crispix cereal and Chips Ahoy cookies. There's a great horse toy for my daughter Rachel, two years old, and some AA-batteries to fire it up. Hmmm, now I have to come back with something for Adam, my six-year-old, who's apprehensive about beginning kindergarten. Whew, there's a Back to School video, featuring Franklin the Turtle. He'll also like this new Jump Start computer program to help with his math and spelling, and a new folding chair to sit at the computer. And there's the Guinness Book of World Records book he and I were talking about the other night-got to get that. Bill Clinton's book, My Life, for only twenty-two dollars? What a steal! And all this other stuff: a 120-foot extension cord to vacuum my car, a new plastic box for my loose files, a halogen reading lamp for bedside table, four new glasses for end-of-the-day drinks, a gigantic bottle of Tide, cheap bottles of Advil and Aleve for my chronic back pain that's going to get worse when I carry this load to the car. Enough!
I tag the checkout line as if it were home base and finally catch my breath. I consider asking the clerk to put me in a straitjacket so that I won't buy anything else.
It's the week before school opens, so long lines of exasperated parents and their screaming children make the nearly half-hour wait compare unfavorably to my experience squatting in a New Delhi bus station a decade earlier. My own checkout line is so long that by the time I reach the front the brain-dead clerk is relieved halfway through scanning my items. The new clerk begins by ringing me up again for the chair, a mistake to which I politely draw his attention. A bit grudgingly, he removes the extra charge. As I'm about to walk away, I look again at the receipt and discover that I have just parted with $275; I also realize that the new clerk double-charged me for the one item I came to buy in the first place-those damn sneakers!
What kinds of deals did I secure during my whirlwind community-lifting experience? Research shows that the "savings" from shopping at chain stores generally turn out to be vastly overestimated. A 2002 survey by the Maine Department of Human Services, for example, found that local drugstores actually provided better deals than the pharmacies at Rite Aid and CVS. Wal-Mart prescription prices, which fell roughly in the middle of the group surveyed, also varied significantly from place to place, depending on the degree of local competition.
In the days that followed my shopping spree, I decided to do some comparative shopping at various stores in my neighborhood in northwest Washington, DC. It is true that for most of the generic items, Wal-Mart offered prices about 5 to 10 percent less than what I could find locally. Applying the upper end, I "saved" about $27.50.
But recall that I was overcharged forty-six dollars on two items. Had I not caught these errors in the chaotic checkout process, I would have lost money. Okay, to be fair, Wal-Mart fixed the errors once I brought them to the irritated clerk's attention. Later, however, I learn that an NBC undercover team found that deep discounters like Wal-Mart are overcharging 10 to 25 percent of the time and that these mistakes are three to one against the consumer. I had assumed that the error was not deliberate dishonesty, just poor training and low morale. But several recent academic studies have found Wal-Mart scanners yield error rates as high as 8.3 percent of the time, four times the federal standard, prompting investigations by several state attorneys general.
Next, consider the time and money it took me to get to the Alexandria store. That year the Internal Revenue Service allowed businesses to write off about 40.5 cents per mile for auto wear and tear, gas, insurance, and other incidentals. The thirty-two-mile round trip thus cost fourteen dollars. I spent ninety minutes driving round trip and thirty minutes in a checkout line. Assuming I'm worth at least a living wage of ten dollars per hour, that's twenty dollars of my time. The transaction cost of this trip was thirty-four dollars, again, greater than my savings.
When I returned home my wife, whose instincts for taste and quality are far more trustworthy than my own, took one look at my four discount scotch glasses and told me that she was promptly dispatching them to the local recycling facility. She declared the reading lamp too ugly to gain admittance into our bedroom. Rachel's horse toy lasted about a week before it broke, and the pieces scattered to the far corners of the house. The cheap 120-foot extension cord turned out to lack the third safety prong most of our appliances now require, so it now sits on a shelf in the basement gathering dust.
What about the pure joy of shopping, of gliding from department to department while humming Muzak versions of old Top 40 hits? Not. Rather than bump into my neighbors and trade some gossip, I wound up shopping in a sea of strangers who were all as agitated as I was and unwilling to kibitz.
And the biggest loss was this: I never expected to buy most of this stuff in the first place. I came to buy $15 sneakers, and wound up spending $275 on a half-dozen bags of junk. Caught up in the superficial frenzy of discounts and deals, I wound up spending nearly twenty times more money than I intended, much of it on goods of shoddy quality in a shopping excursion that wasted two hours of my time and gave me an enormous headache. Even more embarrassing, the sneakers I came to buy, which wound up not having a price tag, actually cost twenty-six dollars, about the same price I would have paid at a dozen other stores in Washington.
Yes, crime doesn't pay.
The Dark Side
Why use terms like "crime" and "community lifting"? Why should I feel bad about doing what millions of Americans do every day with no reservations whatsoever? Because the reality is that every dollar I decide not to spend at my local businesses and instead surrender to Wal-Mart saps just a little bit of vitality from my community, all for bargains that turn out to be largely illusory. Had I spent my $275 at locally owned stores like Rodman's or Strosniders, many more of my dollars would have remained circulating in my local economy and boosting the area's income, wealth, and jobs. My personal gain, which proved illusory, was my neighbors' loss.
But doesn't Wal-Mart at least provide a bunch of decent jobs for my neighbors? In fact, the average pay of a sales clerk at Wal-Mart is $8.50 per hour. The company keeps many employees working in part-time positions to avoid paying health care and other benefits. So many workers live below the poverty line that in 2004 Wal-Mart workers qualified for $2.5 billion in federal welfare assistance, according to a recent congressional report. The U.S. government is shelling out as much as $2,103 per employee for children's health care, low-income tax credits, and housing assistance. State welfare agencies are making similarly steep outlays. One in four Wal-Mart employees in Georgia has a child in the state's program for needy children. This crazy quilt of public policies means that every taxpayer, including those businesses paying their workers decent wages, is effectively footing the bill for Wal-Mart's low prices.
A recent lawsuit revealed that the night crew is occasionally kept locked in the store past closing and receives no overtime. Issued to every store manager is a booklet called the "Manager's Toolbox to Remaining Union Free." When a renegade meat-cutters' department in a Texas Wal-Mart voted to unionize in 2000, Wal-Mart shut down the department and fired the employees.
Wal-Mart is arguably the greatest destroyer of communities on the planet. Vampirelike, it sucks retail transactions out of existing businesses and decimates once-vibrant downtowns. Kenneth Stone of Iowa State University is one of a handful of scholars to study systematically the impact of Wal-Mart's spread on independent retailers. Between 1983 and 1996, at a time when chain stores like Wal-Mart increased their sales by 42 percent, he found that overall retail sales in Iowa plummeted in small towns: by 17 percent in towns with 2,500 to 5,000 people, by 30 percent in towns with 1,000 to 2,500 residents, and by 40 percent in towns with fewer than 1,000 residents.
But dwelling on Wal-Mart is, frankly, a distraction. The only real difference between Wal-Mart and thousands of other chain stores is its degree of success and its take-no-prisoners tactics. I begrudge its methods and mission, not its success. The fundamental challenge for communities struggling to revive their economies is not to destroy Wal-Mart, because a Target or a Sears or a hundred other chains stand ready to take its place. The challenge is, instead, to find ways to nurture competitive local alternatives to Wal-Mart that can revitalize our local economies and our communities.
The Small-Mart Revolution
When you think about Small-Marts, the first things that come to mind are the mom-and-pops and neighborhood stores that have been struggling and disappearing in recent years. Through business tactics that have been, depending on your perspective, brilliant or ruthless, chain stores like Costco and major Internet retailers like Amazon have steamrolled almost every community's homegrown businesses. Five supermarket chains sell 42 percent of all our groceries, Home Depot and Lowe's account for 45 percent of hardware and building supplies, and Barnes & Noble and Borders control half of all bookstore sales. "Most striking of all," writes Stacy Mitchell, a researcher for the Institute for Local Self-Reliance and an astute observer of these trends, "Wal-Mart now captures nearly 10 percent of all U.S. retail spending. Wal-Mart is the largest grocer in the country, the largest music seller, the largest jeweler, the largest furniture dealer, and the largest toy seller."
The increasing visual and financial presence of these powerful chains on our streetscapes, however, can be misleading. Retail is just one of the many sectors that produce wealth for a community, typically representing only about 7 percent of a local economy, and chain stores just half of that. Every box of corn flakes contains the labor and resources of farmers who grow the corn, manufacturers who produce the flakes, accountants and lawyers who support corporate management, utility dispatchers who provide the power and lights, wholesalers who connect the retailers with the manufacturer, and shippers who bring the cereal to the store. The Small-Mart Revolution is about supporting independent and local businesses in all of these sectors.
Just as the American Revolution of 1776 was not merely a revolt against the tyranny of the king of England but also a watershed for democracy and freedom, the Small-Mart Revolution is about much more than fighting chain stores. If you spend your shopping hours each week making sure that not a single screw on your workbench comes from Home Depot while your mortgage sits in Wells Fargo Bank, in dollar terms you've made one baby step forward and a hundred-mile leap backward. If your limited time and energy are exhausted in opposing big-box malls, you may have little left to build a community-friendly economy. If you blow your political capital on erecting controversial zoning and trade barriers against businesses you detest, you'll be ill-equipped to implement the policy reforms needed to level the playing field that currently tilts against small business.
In other words: what the Small-Mart Revolution is for is more important than what it's against. The Small-Mart Revolution aims to improve the prosperity of every community, here and abroad, by maximizing opportunities for locally owned businesses. And since "place-based" businesses already make up more than half of a typical community's economy, the Small-Mart Revolution, for the most part, means doing more of what we already know how to do pretty well. In that sense, it's not terribly radical. But sometimes it's the subtle changes in our lives, in our buying and investing habits, in our business practices, and in our public policies that are the hardest to realize.
The Small-Mart Revolution is against one thing-the vast web of laws and public policies that directly disadvantage small and local businesses. Currently, nearly all business subsidies in this country go to nonlocal firms. These exceed $50 billion per year at the state and local level, and $63 billion per year at the national level. The capital markets, as we'll see, also are heavily rigged against small business. Just these two factors alone have suffocated what could have been the Small-Mart Revolution over the past decade. Despite all the hype about globalization, if we manage to level the playing fields in subsidies and capital access, the next decade might well see a Small-Mart Renaissance.
Excerpted from The Small-Mart Revolution by Michael H. Shuman Copyright © 2006 by Michael H. Shuman. Excerpted by permission.
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