Walmart announced on Friday that it’s closing 269 stores globally, including 154 in the U.S. 102 of them are small, Walmart Express stores, but the list also includes 23 Neighborhood Markets and 12 Supercenters. This type of move isn’t uncommon for large corporations and shouldn’t be interpreted as a sign of failure. Firms should constantly search for ways to reallocate their resources to the most profitable ventures. Facing aggressive expansion by Family Dollar and others, Walmart’s Express stores never took hold. Walmart will increase its emphasis on ecommerce as part of the effort.
This move is a stark reminder that business success is difficult to sustain. In fact, 88% of the largest U.S. companies in 1955 disappeared completely by 2014. This constant churn is a healthy process entrepreneurs and economists call “creative destruction.” Just when you think a company has a corner on the market, things change and new, leaner, more focused competitors move in. I’m not saying that Walmart will go under anytime soon, but idea that large, dominant firms cannot be challenged simply isn’t true.
Of course, Walmart has been demonized in recent years. Whether it’s for grinding suppliers, underpaying employees, or running small competitors out of business, Walmart has become the poster child for everything wrong with corporate America and globalization. I don’t intend to go through all of the charges in this post. Overall, I see Walmart as a good firm that has created lots of opportunities for American workers and consumers over the years. At times it seems to drift into cronyism, but that’s a topic for another day.
My point today is that Walmart execs considered all costs and revenues when it decided to close these stores. Rising wage rates, increased healthcare costs, and burdensome regulations are part of the equation. It’s impossible to identify how much these costs affected the closings, but they did. The protestors might think they’re winning when they “force” Walmart to hike wages or meet their other demands. But when costs rise, companies have to cut back somewhere, and this often translates into jobs. It’s economic reality.
As an aside, Walmart will help most of the 10,000 U.S. employees affected by the closings transfer to nearby stores. This is still a net loss of 10,000 jobs because store transfers alleviate the need for new hires. Nonetheless, it’s good for those who are already employed.
Companies like Walmart and McDonald’s don’t have money trees and cannot be expected to solve the country’s social problems. If you’re a corporate critic, be careful when you demand that they pay higher wages and incur other costs to promote the “common good.” You might get what you ask for.