Executive Briefings

Banning Big-Box Stores Can Hurt Local Retailers, Study Says

Sometimes city governments issue zoning requirements prohibiting the construction of giant retail stores. The latest: Swansboro, North Carolina, where town residents are hotly debating an ordinance that, in effect, would ban construction of a Walmart.

The typical goal of these regulations is to protect local businesses from the crushing competition of “big-box” stores. But it turns out such rules often backfire, according to research by Raffaella Sadun, an assistant professor at Harvard Business School. Studying census data on retail stores in England, Sadun found stricter planning restrictions against big-box stores actually coincided with independent retailers closing down or hiring fewer workers, a signal their business was weakening. Why? Because large retail chains can skirt the regulations by opening small stores instead. And while their giant superstores generally sit on the outskirts of a city, their smaller chain stores are often located downtown, creating more direct competition against the mom-and-pops.

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The typical goal of these regulations is to protect local businesses from the crushing competition of “big-box” stores. But it turns out such rules often backfire, according to research by Raffaella Sadun, an assistant professor at Harvard Business School. Studying census data on retail stores in England, Sadun found stricter planning restrictions against big-box stores actually coincided with independent retailers closing down or hiring fewer workers, a signal their business was weakening. Why? Because large retail chains can skirt the regulations by opening small stores instead. And while their giant superstores generally sit on the outskirts of a city, their smaller chain stores are often located downtown, creating more direct competition against the mom-and-pops.

Read Full Article