Pros of big box stores outweigh cons: economics professor

The pros of big box stores usually outweigh the cons, a prominent economy professor told CityNews a day after Thorncliffe Park residents expressed concerns that an incoming Costco superstore would bring crippling traffic to their already bustling neighbourhood.

American economics professor Art Carden has spent years studying the effects big box giants can have on neighbourhoods and their competitors.

Carden, who co-wrote a voluminous paper on the topic, dispelled some of the myths and misconceptions concerning big box stores during a Skype interview with CityNews.

Among them: the presence of a big box store automatically assures competing business will lower their prices.

“With Costco … we’ve found a slight increase in competitors’ (prices),” he said. “Costco has a substantial cost advantage; they are going to have lower prices. But we were at a bit of a loss to explain why there appeared to a slight increase in prices at competing stores when Costco entered.

“Costco is probably picking up the really price-conscious consumers and other stores are then competing for the relatively price-insensitive consumers … The prices are a little bit higher but (consumers) are willing to pay for a nice shopping environment.”

Carden also said smaller businesses aren’t necessarily doomed when a big box store moves in. In some cases, the increases in traffic, although concerning to many residents, can give other businesses in the area a much-needed boost.

“There might be some positive spillovers, where a (big box) store can be an anchor for other stores,” he said. “There are other places I am likely to visit because I’m on my way to Walmart or Costco.

“But If you’re competing directly with Walmart or Costco, then your days might be numbered. If you own a hardware store, and Home Depot moves in next door, then that could be a very difficult thing quite obviously.”

So how can smaller businesses compete with the behemoths?

“What (smaller shops) can do to compete with Walmart or Costco is to work to capture these price-insensitive shoppers by offering higher quality and better selection,” Carden said. “That’s something that mom and pop can do, is provide a better, more pleasant shopping experience than your warehouse club.”

Carden said research shows housing prices rise when big box stores set up shop, a fact that may not help Toronto’s legion of renters. But he maintains higher rents also come with benefits.

“They might be paying slightly higher rents, but they are in a place that they have access to more amenities,” he said. “Rents increase for a reason … It’s going to become a more expensive place to live because people want to live there.”

Carden said he understands why residents in unique neighbourhoods like Kensington Market band together to fight the big box invasion, but areas that embrace them can reap the benefits.

“In terms of how they affect a neigbhourhood, you are going to end up with a lot of change when a Walmart of Costco comes in,” he said. “I think when we look at the effect on employment, product selection, product variety, overall standards of living because people have access to a greater number of goods … the evidence suggests that on balance they are a good thing for an area.”