What are some of the most important dates in American history? July 4, 1776, seems obvious enough. Legislation making Juneteenth a federal holiday has shined the spotlight on June 19, 1865. Black Tuesday (October 29, 1929), the bombing of Pearl Harbor (December 7, 1941) and D-Day (June 6, 1944) are important twentieth-century dates. On July 2, 1962, however, an inauspicious store opening signaled a substantial shift in the American economic landscape. That’s when the first Wal-Mart Discount City opened its doors in Rogers, Arkansas.

1962 was a momentous year for American retail. In addition to Wal-Mart, it was also the year discounters Kmart, Target, Meijer, and Woolco opened their doors. Over the ensuing six decades, they have changed what people can buy, how they shop, and, importantly, how much they pay—so much so that the economists Jerry Hausman and Ephraim Leibtag have argued that the U.S. has mismeasured the Consumer Price Index by not adequately accounting for the retail revolution. Creative destruction in retail, of course, has not made everyone strictly better off all the time: stores that compete with the Walmarts, Targets, and Home Depots of the world have had a tough time, and many have closed their doors. Woolco is no longer, and Kmart is a shadow of its former self. On balance, however, the revolution in how people shop has helped people “Save Money. Live Better,” in the words of a slogan Walmart adopted in 2007.

Here’s just one example. In 2011, Charles Courtemanche and I published a paper in the Journal of Urban Economics estimating that Walmart Supercenters explained about 10.5% of the increase in obesity in the US from the late 1980s to the early 2000s (we summarize the key findings here). A few years later, Courtemanche and a different group of coauthors reached similar conclusions about the spread of obesity.

In our 2011 paper, we found that the additional obesity-related health costs associated with Walmart Supercenters were tiny compared to what the average household saved because they could shop there. If our estimates are correct, saying “we could reduce obesity by shutting down Walmart Supercenters” might be true. It is also true, however, that I could lose some of the weight I need to take off by cutting off an arm. The costs would definitely outweigh the benefits, and there would be other unintended consequences, as well. In a 2019 paper, we teamed up with Xilin Zhou and Murugi Ndirangu and found that Walmart Supercenters reduce food insecurity, particularly for low-income households (here is an ungated summary we did for VoxEU).

Big Box retail studies extend well beyond their narrow effects. In 2009, Courtemanche and I published a trio of papers looking at how Walmart affected social capital, individual values, and leisure activities, and the late Steven Horwitz explored Walmart’s disaster relief efforts in the aftermath of Hurricane Katrina. The “costs and benefits of the Big-Box retail” rabbit hole is pretty deep—we explored it in our contribution to the 2016 Elgar Handbook on the Economics of Retailing and Distribution, and in my considered judgment, Walmart looks like a pretty substantial net positive for the world, and while its critics are still active—unionizing Walmart’s 2.3 million employees would provide a handsome increase in annual revenue for the UFCW and the SEIU—it looks like Amazon is taking some of the heat formerly reserved for Walmart.

But This Time is Different—Or Is It?

Joseph Schumpeter’s “perennial gale of creative destruction” tends to be accompanied by a perennial gale of calls for “conversation” about whether or not the latest change to how we do things is good or bad. Concerns about Walmart have been overshadowed by concerns about “Big Tech;” however, Walmart is still at the top of the Fortune 500 (with Amazon now at #2), and it has been fifteen years since Charles Fishman published The Wal-Mart Effect, a book that was the subject of a symposium in 20(3) of Academy of Management Perspectives to which Fishman contributed the lead essay and in which we find a comparison between Costco and Wal-Mart, an analysis of Wal-Mart saying that what’s called the Wal-Mart effect is perhaps better known as the “stakeholder effect,” and a third article arguing that even conservatively measured, a few back-of-the-envelope calculations suggest the benefits from Wal-Mart substantially exceed the costs. All told, the articles in the symposium feature some common claims about how Walmart affects the economy. I’d like to concentrate on two things: the fear that the “Wal-Mart Effect” means a new era of financial, political, and social dominance by megacorporations, and the insistence that Walmart should be more like Costco.

Books claiming that “this time is different; these new innovations will change the world as we know it and lead to a dystopia dominated by these giant corporations” have predicted about as poorly as they have sold well. It is a literature with a long and venerable history, and in its current manifestation we are hearing that Big Tech will consign us to a Brave New World of tightly supervised technological unemployment. People have been predicting technology-driven unemployment pretty much forever, though, and with a pretty dismal track record. I don’t see why this time is different. Neither does Deirdre McCloskey in this 2017 article for Reason. The fifteen years separating the articles in the Academy of Management Perspectives symposium and today give us a dose of perspective. In his essay, Fishman writes that Wal-Mart did not have any “near rivals” and lists ExxonMobil, AOL Time Warner, General Motors, General Electric, Verizon, IBM, Dell, Procter and Gamble, and Southwest Airlines as exemplars of how the Wal-Mart Effect is producing the latest incarnation of the new industrial (or new technological) state. In his contribution to the symposium, R. Edward Freeman mentioned Citibank and Hewlett-Packard by name.

First, things have changed. Amazon, which was founded two years after Sam Walton died and which was #276 on the Fortune 500 in 2006, is now #2 and the entry on the Fortune 500 website for Amazon leads with “Walmart had better watch out.” A company that wasn’t a “near rival” in 2006 is breathing down Walmart’s neck in 2021.

The companies Fishman and Freeman mention by name as “Wal-Mart Effect” exemplars have also moved within the Fortune 500, and the trends are illuminating. Here are the companies, where they were on the 2006 Fortune 500, and where they are on the 2021 Fortune 500.

Walmart moved into the top spot on the list, but notably, it’s the only company that moved up. ExxonMobil, which has topped the list twice since 2006, has been passed by tech giants like Amazon, Apple, and Alphabet (Google), among others. We look upon AOL Time Warner as we look at the two vast and trunkless legs of stone in Percy Bysshe Shelley’s “Ozymandias.” Hewlett-Packard has split, and the enterprise that carries its legal history is no longer in the Fortune 50. The free market’s gale of creative destruction has produced quite a headwind for the companies that were mentioned alongside Walmart as representatives of a new reality in American business.

Even as Walmart has held onto the #1 position by revenue, its profits suggest just about anything except “dominance” of the US economy. Walmart’s profits in 2005 were $11.2 billion on revenues of about $315.7 billion. Walmart’s profits in 2020 were $13.5 billion on revenues of $559 billion. These are enormous sums of money compared to anything any of us are familiar with, but do they suggest that Walmart somehow dominates the American economy? I don’t think so: GDP in 2005 was about $13 trillion and GDP in 2020 was about $21 trillion. This means Walmart’s revenues were 2.4% of GDP in 2005 and 2.7% of GDP in 2020. In other words, the revenues of the largest company in the world pale when compared to the size of the US economy.

Furthermore, the hypothesis that Walmart is such a smashing success because its policy of “Every Day Low Prices” is subsidized by a policy of “Every Day Low Wages” has not fared well, either. In a 2015 paper in the ILR Review, a group of economists found that larger firms and larger establishments actually pay better than traditional stores. But the question remains: can’t Walmart pay like Costco and still be successful?

Can’t Walmart Be More Like Costco?

It’s a reasonable question, and Sam Walton himself said he got a lot of his best ideas from Sol Price, the discount retail innovator who started FedMart in 1954 and then Price Club in 1976. In 1983, Costco was co-founded by Jeffrey Brotman and former FedMart and Price Club executive Jim Sinegal, and in 1993, Price Club and Costco would merge. It seems like Sam Walton absorbed all of Sol Price’s ideas except for paying his employees well.

While Walmart and Costco look the same, they are very different in a lot of very important ways. In 2012 and 2013, Megan McArdle explained how. First, McArdle points out that Costco brings in a lot more revenue per employee than Walmart, and Costco executives have pointed out that offering very high wages is a way to screen for very productive, trustworthy workers. Second, Costco sells higher-quality merchandise to a more affluent clientele than Walmart, or even Walmart’s warehouse club, Sam’s Club. In his 2006 comparison of Costco and Sam’s Club that appeared in the aforementioned symposium in the Academy of Management Perspectives on The Wal-Mart Effect, Wayne F. Cascio noted the following:

“Costco is the largest purveyor of fine wines in the world. It also sells state-of-the-art electronics and Tiffany-style jewelry. ... Make no mistake: there is a socio-economic element to Costco’s success.

In contrast, Sam’s Club stocks few upper-end items. There are no coats over $100, no jewelry over $3,000. Gourmet cheeses and other staples of la dolce vita are hard to find...”

He notes that Costco and Sam’s Club buyers have two different philosophies with respect to what they will stock: “Sam’s Club buyers tend to think about value—meaning price—while Costco’s buyers tend to think about value—meaning quality.” At this stage in my life, I am comfortably a member of the Costco Class, and of Costco, for that matter. Quality is what economists call a normal good: as people’s incomes increase, they are generally less price-sensitive and more conscious of quality. My wife just ducked her head in the office and told me she was going to Target—which, as Emek Basker explained in a 2008 paper, is a perfectly normal thing to do.

It’s also important to remember just how much bigger Walmart+Sam’s Club is than Costco and to understand the differences in where they do business. A few minutes with store locators show that there are only four Costcos in Alabama, and they’re all in or next to the big cities (Birmingham, Huntsville, Mobile, and Montgomery). By contrast, there are eight Sam’s Clubs, three of which are in the Birmingham metropolitan area, and there are thirty-four Walmarts within 50 miles of my ZIP code. That means there are more Walmarts within a reasonable drive from my house than there are Costcos in the entire state of Texas (33) or the entire state of Florida (28). Or I’ll put it another way: when we moved in October, we moved into the footprint of a different Walmart. If we wanted to go to a different Costco, we would need to drive to Huntsville.

The profit-and-loss test is a built-in lie detector, and it is one of the free market’s more attractive features. As Donald Boudreaux and others never tire of pointing out, a lot of critics’ claims imply that Walmart is leaving massive piles of money on the table that are there for the taking with just a few simple tweaks to their operations. Nothing is stopping commentators or humanitarians from starting a competing enterprise—call it HeartMart—run by a team of executives who are just as able as the people running Walmart but who are less greedy and, therefore, positioned to create better jobs for the people Walmart is so ruthlessly exploiting without compromising shareholder returns, prices, or selection. If the only substantive difference between Walmart executives (or Amazon executives, or Apple executives, or...) is that the executives are rapacious while the commentators and critics are not, it should be easy. The fact, though, that worker-owned co-ops tend to be very small and no one has bankrupted Walmart by competing with them or changed their ways by buying them out is more informative than we might think at first.

Walmart, of course, is a very big deal. The company has imitated and innovated its way to an incredible size and scale. Walmart is the country’s largest private employer, they appear regularly at the top of the Fortune 500, and I have no reason to think their days are numbered even if they are eclipsed by Amazon in the near future (this prediction may not age well). Is Walmart the creative destroyer of retail? Absolutely. Is Walmart an existential threat to the free and democratic society we all know and love? Absolutely not.