Final memo

Managing the Ethical Implications of the

Big Box: The Walmart Effect

Daniela Cohen Ali Hassan

Christopher Kodama Jaber Al Jabri

June 6, 2020

Prepared for Iswari Pandey I

Managing the Ethical

Implications of the Big Box: The Walmart Effect

Table of Contents Abstract﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍1

Executive Summary ﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍1

Introduction﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍2

Purpose﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍2

Background﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍2

Ethical Focus﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍2

Scope﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍2

Discussion﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍3

Subtopic 1﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍3

Subtopic 2﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍4

Subtopic 3﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍5

Subtopic 4﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍6

Conclusion and Recommendations﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍7

References﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍﹍8

II

Managing the Ethical

Implications of the Big Box: The Walmart Effect

Abstract

The purpose of this report is to highlight the ethical implications of big businesses compared to local businesses. The report discusses the negative effects on local businesses of two of the biggest businesses in the world, Amazon and Walmart. This report will discuss strategies used by large operations to take over smaller businesses. Besides the retail industry, the report also discusses the effects giant restaurant chains have on smaller restaurants. While discussing big businesses, small businesses are able to provide something fresh and new to our economy that large corporations aren’t able to do.

Executive Summary This report goes into depth on how large corporations affect small businesses

and their surrounding areas. It will not only consider Walmart but will analyze Amazon and large chain restaurants as well. The Walmart Effect, by definition, is a term that was created to describe the economic impact local businesses feel when a big box retailer opens a location near them. The Walmart Effect becomes noticeable when small businesses are unwillingly put out of business and have to lower wages in order to compete. In addition, this effect has become even more apparent as conglomerates are now taking advantage of technology by growing their online presence.

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Managing the Ethical

Implications of the Big Box: The Walmart Effect

Introduction This report covers the impact large conglomerates have on locally owned businesses. There are many positive impacts small businesses have on our economy, however, it is being jeopardized by monopolization.

Purpose: ​The aim of this report is to clarify exactly what The Walmart Effect is by providing examples of large corporations and how they impact local retailers and communities today.

Background: ​By using Case Study 3 “Managing the Ethical Implications of the Big Box: The Walmart Effect”, our group was drawn to the way big businesses affect the smaller ones. Walmart was the first example discussed and led to our discovery of the many conglomerates, such as Amazon, that consume the United States’ economy.

Ethical Focus:​ The focus of this report is to cover the lack of ethics shown by corporations in their pursuit to make profits. The report analyzes the various methods used by big businesses as well as highlighting the positive effects small businesses offer and their necessity in our communities.

Scope: ​The parameters of the report will discuss if Amazon is able to help small businesses as well as how Walmart affects the economy it surrounds. By diving deeper, the report looks into the positive attributes small businesses bring to the United States’ economy. For a specific scenario, looking into the advantages big restaurant chains have compared to locally-owned restaurants.

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Managing the Ethical

Implications of the Big Box: The Walmart Effect

Discussion

Subtopic 1

Amazon is a business that has grown from being a small online bookseller to a massive online seller (Harraca, 2017). It is a big part of the American business industry, and therefore, it can either work to support small businesses or work against them. However, with recent research, it can be said that Amazon to a higher percentage has positively influenced the small business more than how it has affected them negatively. Amazon has been able to team up with small scale businesses, which has positively impacted the industry. Those small and medium-sized businesses have had increased sales, all thanks to Amazon. Apart from that, this teaming up has also boosted the companies’ exposure to social media. This kind of practice has been known widely, thus having a positive effect from Amazon. The small scale businesses have their orders being packed, stored, and at times, even shipped by Amazon. The primary function of small businesses is to provide excellent customer experience (Ritala, 2014). Once Amazon stands in to help them with their orders, they can give more focus to customers and business strategies that will enable them to grow. Amazon has also provided small scale businesses with a digital platform that has allowed these businesses to offer unique and quality services to their customers. Despite all these advantages that amazon has provided to small scale businesses, some view it as a threat in their industry. They claim that it hurts their business growth opportunities to their popularity and extensive coverage in the industry (Ritala, 2014). The impact that Amazon has had on small scale businesses has continued to persist in recent days. However, these businesses have been advised not to always worry about each announcement that is made by Amazon; instead, they should always stay focused to ensure that their companies continue to grow. Furthermore, today Amazon has taken over the business industry as we see more customers shifting and having online preference over any other mode of shopping. Considering all the positive effects, it has negatively impacted small businesses by taking control of the retail market.

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Managing the Ethical

Implications of the Big Box: The Walmart Effect

Subtopic 2

Sam Walton once said, “t​he small stores were just destined to disappear, at least in the numbers they once existed” (​Sam Walton: Made in America​). Throughout the years big-box companies have devastated small businesses by disrupting a community's economic sales and hiring employees at lower wages. Companies such as Walmart are able to redistribute a community’s circulation of cash by encouraging the money to be spent at one location. Through their large product selection and lower prices, Walmart is able to create a traffic flow of customers that leave small businesses to suffer. In a study by Puget Sound Sage, Walmart was found to “[​decrease] the local community's economic output over 20 years by an estimated $13 million” (Business News Daily). This means that Walmart as a corporation will effectively reallocate sales that negatively impact the community. The wages that Walmart employees incur fall short of what other retailers would pay. This creates a cycle where cash is not spent throughout the community, but rather in locations where products are available at lower prices. It is through the lower wages of Walmart employees that many issues arise. Puget Sound Sage research further found that “each Walmart store costs the community an additional $14 million in lost wages over the next 20 years” (Business News Daily). If wages are being lost through a company's lack of pay to its employees, then the community is not benefiting from the business being in their town. In truth, it would be more beneficial for a small neighborhood to have a larger number of single owned businesses than a Walmart. This is due to the fact that the discrepancy in wages between a Walmart and small business is found “to be at least $3 per hour [. . .] impact[ing] not only the workers themselves but also the people from whom they purchase goods and services" (Business News Daily). In relation to society today, small businesses have continued to suffer from big corporations as they increase their number of store locations and enlarge their online presence. In addition, the current pandemic has caused many businesses to temporarily shut down leaving only big box stores like Walmart to fulfill the population’s needs. The implications of many events today have added to Walmart’s dominance over the market, which will in turn add to the devastation of small businesses that have been the backbone of America.

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Managing the Ethical

Implications of the Big Box: The Walmart Effect

Subtopic 3

The United States is a place for innovative and out-of-the-box thinkers. Small businesses are not only important for their local communities but also for the rest of the United States and sometimes the world. Think of small businesses as a tree, and at the bottom, you have the roots where the business just starts. As you reach the branches of the tree, the business is able to grow and multiply further. Small businesses are great because they allow our economy to have multiple trees to fit different demographics of people and ideas. Business News Daily emphasizes the positive aspects of small businesses in our economy. Although Walmart provides employment for 1% of the US population, that 1% may not live as comfortably as the 44% of the United States economy that is provided through small businesses. Small businesses generate different opportunities while promoting innovative ideas. The advantage of owning a business is the freedom that owners have to reap the fruit of their labors. Stephen Goetz, a professor at Penn State, dives deeper by mentioning how startups and small businesses are able to provide higher incomes for people rather than people working for large corporations. Besides providing jobs, small businesses help promote innovation and outside of the box thinking. If people weren’t meant to be innovative thinkers we wouldn’t have companies like Facebook, Microsoft, or Tesla. Even though these are now large companies, they all started off as a unique idea and grew to change the world. However, sometimes small businesses stay in their community’s niche. Simon’s Catering is a Glat Kosher company that focuses its attention on the westside of Los Angeles. On the westside of Los Angeles are Persian Jewish communities that need Kosher Catering options with Persian foods. This is a very specific example because Simon’s Catering is able to thrive on its community needs. Simon is a Jewish immigrant from Iran who is able to fulfill his communities needs by providing his services. Without Simon, the community would need to go to Kosher restaurants and order takeout for their events like weddings, bar and bat- mitzvahs, and any other events. Simon was smart enough to realize the demand in his community for a Kosher catering company with a Persian twist because most of the Jews on the westside of Los Angeles have a middle eastern heritage. Small businesses can remain small and stay in one community, as Simon did with his catering company, or they can grow like a tree.

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Managing the Ethical

Implications of the Big Box: The Walmart Effect

Subtopic 4

Big businesses play a major role in our lives. Food columnist Lucas Kwan Peterson states that according to a market research firm NPD Group, “of the nearly 647,288 restaurants in the U.S., chains account for 301,183 in a 2018 study”. These fast-food franchises are here because they have the resources to tackle economic issues such as the current pandemic. Their competitive pricing is appealing to the public in this crisis. Most if not all the major restaurant chains are essentially selling heated food that is processed in mass elsewhere and shipped to shops. As a result, they lack the quality that independent restaurants offer. Small restaurants are shutting down entirely or have turned to layoffs to maintain business. While big chains such as Pizza Hut and Dominoes are hiring thousands of workers across their chains to keep up with an excess of demand. Big chains can thrive in this pandemic because their pricing appeals to consumers in a time of saving. With all their profits, big chains sell their brand to the public through commercials, billboards, and advertisements. If a person were to question any random individual on the street on the pricing of any popular chains such as McDonald’s or Dominoes, they will name the pricing as well as add any special that is being given out now. On the other hand, most people would have trouble naming independent restaurants let alone their prices. Big chains have teams working specifically on how their advertisement can psychologically affect consumers into buying their products. Their idea is to plant the idea in your head that it is affordable by using adjectives that diminish the price constantly through their commercials and posters. Most local businesses don’t have the excess profits to sponsor or advertise in competition with big businesses. Independent restaurants have quality, but they lack the general profits that are needed to weather a crisis. There are arguments for big businesses that it is a competitive market and as businesses, they are not responsible for other’s successes or failures. The article accentuates that big chains have an unethical advantage over small businesses because of their lobbying power. Food columnist Peterson mentions “President Trump filled the dining hall with big macs and Chick-fil-a sandwiches to greet college teams” and held a joint call with executives of fast food chains such as Subway and Wendy. While it is important to communicate with big chains, there was no mention of any communication being done with local businesses. Furthermore, big businesses have also gobbled up most of the Paycheck Protection Program, public humiliation being the only reason that some big businesses have declined the loan. Due to the current pandemic, small businesses are having trouble staying afloat because the P.P.P. was taken by large corporations.

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Managing the Ethical

Implications of the Big Box: The Walmart Effect

Conclusion and Recommendations

In conclusion, after studying each of our articles and Case Study 3, it has provided insight into the effects of economic development and ethical dilemmas that arise with progress. Even though arguments can be made that the economic market is very competitive, the goal is to make profits. Certain steps need to be taken to ensure no monopolization or bullying of small businesses occurs.

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Managing the Ethical

Implications of the Big Box: The Walmart Effect

References

Blake, Brock. “Amazon: Small Business Friend or Foe?” ​Forbes​, Forbes Magazine, 23 Sept. 2019, www.forbes.com/sites/brockblake/2019/09/23/amazon-friend-or-foe/#a4c8f10736 73​.

Editor, Business News Daily. “How Walmart Hurts The Economy - Small Towns - Business.” ​Business News Daily​, Businessnewsdaily.com, 24 Apr. 2012, https://www.businessnewsdaily.com/2405-real-cost-walmart.html

Editor, Business News Daily. “Small Business Is Good for Local Economies; Big Business Is Not, Researchers Say.” Business News Daily, Businessnewsdaily.com, 4 Aug. 2011,​www.businessnewsdaily.com/1298-small-business-good-for-economy.html​.

Peterson, Lucas Kwan. “Column: We Cannot Let Giant Chains Take over the Restaurant Space.” ​Los Angeles Times​, Los Angeles Times, 26 Mar. 2020, https://www.latimes.com/food/story/2020-03-26/coronavirus-shutdown-restaurant-fast-fo od-small-business

Ritala, P., Golnam, A., & Wegmann, A. (2014). Coopetition-based business models: The case of Amazon. com. ​Industrial Marketing Management. https://www.academia.edu/36449420/Coopetition-based_business_models_The_ case_of_Amazon.com

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Managing the Ethical

Implications of the Big Box: The Walmart Effect