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Big Box of Nonsense: Wal-Mart's Imaginary Billions

Don't worry, House of Smiley. Be happy.

You're not as bad off as you think.

Yes, the Chicago City Council voted Wednesday on a living wage proposal that will require "big-box" retailers such as yourself to pay workers more than you are used to.

But you're still in pretty good shape - surely up to absorbing Chicago's new rules and still make gobs of money. And same to you, Chicago - unless you believe Wal-Mart's propaganda. Those full-page newspaper ads desperately asking, "Would You Turn Down $6.5 billion?" don't really add up.

The figure comes from an independent estimate cited in a 2004 Crain's Chicago Business article that says: "Chicago consumers spend $6.5 billion a year on goods outside the city's borders -meaning the city is losing out on tens of millions of dollars a year in sales tax revenue."

Big-box stores account for a significant chunk of that spending, but certainly not all of it. So on the face of it, the number is nonsense.

In fact, the same story cites a company estimate that "Chicago residents spend $500 million a year at Wal-Mart's 35 suburban Chicago stores."

Of course, Wal-Mart is not the only big-box out there. So let's do a little experiment. Let's say the big-box ordinance had failed, and Wal-Mart, Home Depot, Target and the rest of 'em sought to soak up that entire $6.5 billion city dwellers are spending in the suburbs. Let's also say that Wal-Mart's $500 million from its 35 suburban stores is a good measure of typical big-box performance. [Update/clarity caveat: remember, that's $500 million from Chicago consumer spending, not all spending at those stores.] It doesn't take an economist to see that the numbers don't add up. To get to $6.5 billion, the following would have to happen:

* Big-box retailers would have to cram 455 more stores into Chicago. Do the math: $500 million is one-thirteenth of $6.5 billion. Thirty-five multiplied by 13 equals 455. This, of course, assumes that . . .

* The city would have to have several square miles of large, open parcels of land on which to build all these new stores. Wal-Mart's square footage per store is growing. According to the proposed ordinance, the smallest big-box stores take up 90,000 square feet. Wal-Mart's suburban stores often run larger. Assuming all 455 stores are itty-bitty big-boxes, we're looking at 40,950,000 square feet, which converts to 1.5 square miles. If they tend more to the size of the 145,000 square-foot Wal-Mart already approved for the Austin neighborhood, that'll be 65,975,000 square feet, or about 2.4 square miles. (To be fair, the smallest U.S. Wal-Mart I could find takes up only 40,000 square feet, but according to CNN, supercenters - the ones that Wal-Mart would presumably have to build here to provide a significant amount of affordable groceries - usually top 100,000 square feet.)

* Chicagoans would have to stop going to suburban big-box stores entirely. Would residents of Rogers Park abandon the Target on the Evanston side of Howard Street? And the Home Depot on Oakton Street in Evanston? Would residents of the Southwest Side stop going to the Evergreen Park Wal-Mart?

* Poor city dwellers would have to match the spending power of suburban shoppers. No doubt, well-placed Wal-Marts could greatly benefit poor Chicagoans who don't have access to major pharmacies and affordable groceries. But would spending at inner city Wal-Marts be comparable to spending their suburban counterparts?

* Poor city dwellers would have to match their wealthier counterparts' transportation and hauling ability. Wal-Mart has threatened to run shuttle buses between the city and suburban stores. Even if Wal-Mart does open more stores in the city, this might be a good idea for poor people who don't have cars.

* The growth of suburban markets and the decline of urban markets would have to slow or reverse. While Chicago has stemmed its population loss, the long-term trend shows more people ditching the city for the suburbs and exurbs, which are the real big-box stomping grounds anyway. Suburban revenues are only going to grow, regardless of what the city does.

The City Council has made a controversial decision that may or may not end up costing the city jobs and tax revenue. But either way, it wasn't a $6.5 billion decision, as advertised. Not even close.


Posted on July 26, 2006

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