The Economic Impact of a Walmart Store in the Skyway Neighborhood of South Seattle
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The Economic Impact of a Walmart Store in the Skyway Neighborhood of South Seattle Christopher S. Fowler PhD. • C.S. Fowler Consulting LLC April 5, 2012 This report was produced by C.S. Fowler Consulting LLC for Puget Sound Sage. Special thanks to the United Food and Commercial Workers 21 for 2009 wage and contract data. Over the course of 2012 Puget Sound Sage will be releasing a series of briefs and reports examining the impact of service sector industries on the Puget Sound regional economy. Author: Christopher S. Fowler PhD. C.S. Fowler Consulting LLC (206) 920-1686 [email protected] Executive Summary Recent analyses conducted in support of • Although the direct impacts resulting Walmart store development plans in the from the renovation of the site contribute Pacific Northwest are irreparably flawed by a net positive effect of $2.67 million in their failure to address offsetting losses in economic output and $1.12 million in employment and employment income that labor income during construction, this is would be the result of new store development not nearly enough to offset other changes in the saturated retail environments for which over the twenty year life of the project. these projects are proposed. • The net present value of all changes Following standard practice in regional estimated in our Base scenario over a 20 analysis, we consider the redistribution year project lifespan is projected to be in consumer sales that would occur if a a net loss of $13.07 million in economic new Walmart “neighborhood market” of output and a loss of $14.51 million in approximately 40,000 square feet were to labor income. open at the site of a former grocery in the • These losses mitigate somewhat to $11.61 Skyway neighborhood of South Seattle. million in economic output and $12.89 million in labor income in our Opportunity Our analysis finds evidence of significant Cost scenario, in which the impacts of a direct and indirect impacts on the local new Walmart are compared to those of economy associated with Walmart’s potential a generic competitor, but deepen further entry into the Skyway neighborhood grocery to $13.73 million in economic output and market and within a broader study area $15.24 million in lost labor income in our extending out approximately five miles from Consumption Growth Cost scenario in the proposed site. Specifically: which growing consumer demand out to 2015 is also accounted for. • The new grocery would shift consumption patterns in the neighborhood, diverting Overall, by properly specifying our model we $25.38 million per year in sales from are able to demonstrate that Walmart would existing retailers based on 2010 levels of be expected to have a net negative impact consumer spending on groceries. on any local community where its average wage is less than the average wage paid by • This shift translates into a drop in the total existing retail competitors. Based on these payroll value of $655,000 per year or 1.2% findings and broader impacts not covered percent of the total payroll for grocery in this analysis but reported by credible store employment within our study area. sources elsewhere we conclude that there • When the direct and indirect effects of is no basis for treating Walmart’s arrival in a this change are considered the impact neighborhood as anything but a net loss in rises to $898,000 in lost output, roughly terms of the public good. 6.4 fulltime jobs and $997,000 in lost labor income. C.S. Fowler Consulting LLC - 1 I. Introduction What are the likely effects of a Walmart locating in an urban community? Who gains from the arrival of a new store and how are the costs and benefits allocated among consumers, retailers, workers, and the region as a whole? There is a burgeoning literature on this subject covering issues as diverse as traffic, health care, consumer demand, and retail sales. Although it covers just a single location in a South Seattle neighborhood, this analysis contributes to this debate by looking closely at how a new grocery store, and a new Walmart in particular, can alter consumer behavior and how this alteration can then reverberate throughout the regional economy. While the specifics of this analysis pertain to the Skyway neighborhood, the results would likely hold true in any location where Walmart’s average wage paid to its workforce is lower than that of its competitors. As we will demonstrate, this difference in wages has the potential to lower Source: C.S. Fowler Consulting the total payroll value in the area; negatively demand among grocery sellers. Walmart’s impacting not only those workers who receive impact in this case is to redistribute existing their wages from Walmart, but a broader consumer demand, redistribute the collection class of individuals who supply goods and of sales tax, and redistribute the demand for services to those workers. labor in the grocery and general merchandise A fundamental motivator for this project is sectors. Although redistribution is not costly to provide a quantitative response to the in terms of the public good in and of itself, deeply flawed methodology applied in several it is also not the same as creating new studies commissioned by Walmart of the demand and new income, as Walmart and effect its new stores are likely to have on a its consultants would have one believe. The community. In recent studies for Portland, effects tallied by Walmart’s consultants tell Oregon, Tacoma, Washington and Bellevue only half the story and need to be put in the Washington, Walmart’s consultants purport to context of consumer demand as it currently show sizeable benefits accruing to the region exists. While Walmart may be ‘creating’ jobs, as a result of the entry of new stores. These its competitors will have to reduce jobs or analyses share a common, fundamental, grow more slowly. In a situation where no error in that they treat all employment, all new demand is created, entering the market sales tax revenue, and all other development is a zero sum game and all Walmart ‘benefits’ expenditures as benefits to the region have to come from somewhere. To ignore without ever considering the costs. New the existing structure of supply and demand grocery stores in an urban setting do not is a misapplication of the Economic Impact increase demand; they simply reallocate Analysis methodology Walmart’s consultants 2 - The Economic Impact of a Walmart Store in the Skyway Neighborhood of South Seattle purport to use and has no justification or meaningful precedent in economics or regional analysis. A key contribution of this analysis is to show that when an appropriate counterfactual scenario is used for Economic Impact Analysis the purported benefits of Walmart disappear. It is possible to argue over some View from Skyway neighborhood looking east to Lake Washington. of the finer details as to who pays what wage Source: C.S. Fowler Consulting LLC and how far consumers will actually travel to buy discount goods. The fact remains, This Economic Impact Analysis compares however, that any policy decision related conditions in which Walmart opens a to Walmart’s development plans needs to grocery-only store on the Skyway site with a be made with both the development and counterfactual condition in which no store is counterfactual scenarios accounted for. opened on the site. The mechanism by which When this comparison is made appropriately, these two possible conditions are compared the sizeable benefits attributed to Walmart is a gravity model that estimates food sales development in its recent studies are simply at each of the 375 grocery stores in a 10 mile unattainable. radius extending out from the proposed site under the two different conditions. With the II. Study Framework total consumer budget for food fixed we are thus able to see who the winners and losers The purpose of this study is to consider are as a result of Walmart’s entry, and to the impacts of a new Walmart grocery calculate broader impacts from these results. store sited at the intersection of 68th Ave The analysis presented here can be South and Renton Avenue South in the meaningfully understood in six parts: Skyway neighborhood of South Seattle. The site is presently unoccupied, but has • Collection and preparation of pertinent served as a grocery store in the recent data, including consumer spending, past.1 This site was selected for analysis competitor locations and employment, after communications between community and wages in the study area; leaders and local government officials • A gravity type model to estimate change indicated that Walmart might be taking the in consumer behavior; preliminary steps necessary to open a store • A set of calculations to convert changed here. More broadly, Walmart has made clear consumer behavior into an expected its intentions to expand in the urban areas change in the total payroll value for throughout the Puget Sound region with grocery store employment; recent announcements related to sites in Bellevue, Lynnwood, and Tacoma. This study • A further set of calculations using the is illustrative of an appropriate methodology Washington State Input Output model for analyzing the impacts of Walmart and to estimate direct, indirect, and induced suggestive of the kinds of costs these new impacts of this change in the total payroll stores could be expected to impose on the value; region in any of its proposed new locations. • Calculation of construction effects C.S. Fowler Consulting LLC - 3 associated with the remodeling of the This study is intended to offer an ‘apples to Skyway site immediately or in the near apples’ comparison with studies produced in future; and support of Walmart’s activities in the region.