February 23, 2003

Wal-Mart: The newest titan in the history of Big Retail

By Thomas Wilson

   The fear of a retailing behemoth sending the mom-and-pops businesses to the business graveyard did not begin with Wal-Mart.
   "This is a process that is not new," said economist Dr. Steb Hipple at the East Tennessee State University's College of Business. "There is a cost when Wal-Mart comes in or Wal-Mart expands, and that is you are going to lose locally owned business."
   Wal-Mart stands as the largest retail business in the world, enjoying the top spot as the leading retail distributor in North America. Its revenues for 2003 eclipse the gross domestic products of entire nations in western Europe.
   A Wal-Mart Supercenter stands as a veritable United Nations of Retailing where low, low prices on foodstuffs, housewares, knitting material and the latest DVD starring Jennifer Lopez gather to stack the shelves under one roof.
   "If you go back 100 years, small retailers were complaining about J.C. Penney," said Hipple. "Eighty years ago, they were complaining about Sears. Fifty years ago, they were complaining about Kmart."
   Hipple said a Supercenter would drain business away from competing merchandise stores such as Kmart, Service Merchandise, and Hills. The Service Merchandise and Ames retail stores closed their doors in Johnson City last year.
   *"The growth of Wal-Mart, and before that stores like Kmart and stores like Sears has always involved a destruction of local retailing," said Hipple.* quote box with this quote
   A Supercenter maintains existing Wal-Mart business by transferring existing business to another location. A Supercenter also captures spending growth in new business and takes business away from other types of retail stores, he said. However, Wal-Mart did not create the idea of a retail Goliath ... they have simply excelled at it.
   "What Wal-Mart has done is beat Kmart in the game that Kmart invented," Hipple explained, "which is mass distribution of all kinds of goods and services at a low price while maintaining quality."
   On sheer property size and value, property tax revenues for a city and county may increase marginally with the development of a Supercenter. However, an increase of six-figures in new tax revenues to Elizabethton and Carter County is unlikely.
   The existing Wal-Mart store in Elizabethton paid $3,469 in personal property taxes and $29,026 in real propety taxes to the city of Elizabethton for 2002. The City of Elizabethton's property tax rate was set at $2.30 per $100 of assessed value for the 2002 tax year.
   The store paid real property taxes totaling $28,016 in 2002 to the Carter County government, according to assessment records at the county trustee's office.
   According to property tax figures, the Wal-Mart Supercenter in Johnson City sits on a 28-acre property off Browns Mill Road. The county property tax bill goes to John A. Pritchard, Jr., of Johnson City.
   That Wal-Mart Supercenter paid a 2002 real property tax bill of $93,392 to Washington County government for 2002, according to the county's office of trustee. The store was assessed a personal property tax bill of $8,780.84 by Washington County. Washington County's property tax rate is set at $1.93 per $100 of assessed value, according to the trustee's office.
   The Johnson City Wal-Mart paid $9,781.77 in personal property taxes and real property taxes of $104,038.50 to the city for 2002, according to the city's finance office. Johnson City's real property tax rate is assessed at $2.15 per $100 of assessed value.
   Residential real property tax is assessed at 25 percent of the property's value and at 40 percet for business property in all four municipalities. A private company's sales taxes paid to local municipalities constitutes portion of the company's tax return and is not open to public record, according to representatives from both cities.
   But how big is Wal-Mart, and how does it compare to other large U.S. corporations?
   Another larger-than-life U.S. conglomerate that drew criticism from competitors during the 1990s was the Microsoft corporation.
   The Antitrust Division of the U.S. Department of Justice filed a civil complaint on May 18, 1998, alleging that Microsoft had engaged in anti-competitive conduct in violation of the Sherman Act. Simultaneously, 20 states and the District of Columbia filed a similar, but not identical, action challenging much of the same conduct.
   Microsoft owned 95 percent of the Internet browser market (which includes e-mail software) and more than 90 percent of the operating system and office suite market. Also, 28 percent of Web servers on the Internet are run by Microsoft software.
   In a final judgment issued Nov. 12, 2002, in U.S. District Court for the District of Columbia involving Microsoft, the U.S. government and nine states, Judge Colleen Kollar-Kotelly ordered that Microsoft could not restrict by agreement any OEM licensee from using non-Microsoft products and services in their software.
   Antitrust investigations and enforcement are managed by the Justice Department and the independent Federal Trade Commission (FTC). Three federal laws form the legal foundation for antitrust and anti-competitive laws in the United States.
   The Sherman Act regulates principal antitrust violations such as improper monopolization and conspiracies to restrain trade. The Clayton Act governs anti-competitive conduct that imposes restrictions on proposed mergers, acquisitions, and other business combinations. The Robinson-Patman Act prohibits specific business practices such as price-fixing.
   In addition to these federal statutes, each state has its own antitrust statutes that tend to be modeled after the Sherman Act.
   Hipple also said the role of Microsoft in the computer software industry was more pronounced than that of Wal-Mart. He also said that the wide scope of retailing's role in the marketplace did not constitute a monopoly by Wal-Mart.
   "I think you could argue Microsoft is more dominant in their industry than Wal-Mart is within theirs," said Hipple. "General merchandise stores' retailing is broadly defined, but they are not a monopoly."