Rural

RESEARCH REPORT
Published by the Illinois Institute for Rural Affairs

The Impact of Large Discount Stores on

Retail Sales in Illinois Communities

Winter 1992
Volume 3, Issue 2

Stipes Hall 518

Western Illinois University
1 University Circle
Macomb, IL 61455-1390
309/298-2237

by John Gruidl and Steven Kline1

In recent years, retailing in small Illinois communities has
undergone major changes. Improvements in the highway
system have facilitated travel to larger neighboring towns
serving as regional shopping centers. Discount stores have
proliferated bringing additional competition to local merchants. 2 Although the concept of discounting has existed for
a long time, the tandem strategies of offering everyday low
prices and locating in smaller communities are fairly recent.

Furthermore, it is important for local government officials,

chambers of commerce and others influential in development to have information on the potential effects of large
discount stores on existing retail businesses.
This report examines the impact of large discount stores on
retail sales in Illinois communities. Fifteen communities in
which a large discount store opened between 1986 and 1989
are included in the study. The analysis examines retail trade
before and after the opening of a discount store in these
communities. We examine changes in total sales and in
seven retail categories; general merchandise, automotive
and filling stations, eating and drinking places, apparel, food,
furniture and household, and lumber and hardware. The
results indicate the effect of the newly-opened discount
stores on the aggregate drawing power of the retail sector.
The results also provide insights as to how existing businesses in specific retail categories, such as apparel, are
affected by large discount stores.

The news that a large discount store is opening in the

community is met with diverse reactions among residents.
Some anticipate that a discount store will bolster the local
economy, by providing jobs and sales tax revenues and by
expanding the size of the trade area. Others fear large
discount stores, believing that they will contribute to the
failure of existing stores and the long-term stagnation of the
downtown area.
Local public officials need to know whether a large discount
store will improve the competitive position of the retail sector.

Strategies of Discount Chains

discount store industry after more than 30 years of continuous growth.

Discount stores are an important element of Illinois retail

trade. Approximately 362 full-line discount stores operating
in Illinois generate sales of $4 billion, or approximately 5
percent, of Illinois total retail sales. Interestingly, Discount
Merchandiser (June 1991) reports that the actual number of
full-line discount stores operating in Illinois declined 9.5
percent since the previous year. However, the 1991 report
also indicates that the total square footage of discount store
space in Illinois is 26 million square feet, only 7.1 percent less
than the previous year. These trends for Illinois discount
centers parallel a national trend that is occurring within the

One explanation for these apparent reversals is that discount firms are strategically replacing dated stores with
fewer, but larger units capable of serving much larger trade
areas. An example of this strategy in action is illustrated by
the dueling Wal-Mart and K mart chains. Nearly one-half of
Illinois discount activity is accounted for by these two
competitors. In recent years, as competition among large
and small discount centers intensified, it has become com-

1
The authors are assistant professor and research associate, Illinois Institute for Rural Affairs. This Rural Research Report
was prepared with funding from Lt. Governor Bob Kustra, Chairman of the Rural Affairs Council. The authors thank Kay Seng Soon for
his assistance in data analysis and Ken Stone of Iowa State University for his comments on a previous draft.
This is the second Rural Research Report on the topic of discount stores in Illinois communities. A previous report (Summer
1991, Vol. 2, Issue 10, by Steven Kline) describes strategies that local merchants and communities can adopt to succeed in a discountstore environment.
2
Discount Merchandiser (June 1991) defines a discount store as a departmentalized retail establishment utilizing many selfservice techniques to sell hard-goods, health and beauty aids, apparel and other soft-goods, and other general merchandise. It typically
operates at uniquely low margins, has a minimum annual volume of $1 million, and has at least 10,000 square feet of total space. By
large discount store, we refer to discount stores with more than 50,000 square feet of total space.

cused on rural areas, it is the chain most widely recognized

as affecting small-town economies. Wal-Mart first entered
Illinois in 1978, and by late 1991, had 86 stores in predominately rural locations. The average 1990 population of a WalMart community in Illinois was 18,721. Wal-Mart especially
appeals to lower to middle income households; 40 percent
of its customers have household incomes of $20,000 or less
(Rawn, 1990). The average Discount City has approximately 70,700 total square feet with sales per comparable
gross square foot of $263, up from $250 in 1989 and $194
five years earlier (Wal-Mart Stores, Inc., 1991). Thus, the
average Wal-Mart store has annual sales of more than $18
million.

monplace to find two, or even three discount stores battling

for market shares in rural communities of 20,000 population
or less. As the store wars continue, discount chains are
proceeding to make strategic adjustments by establishing
new stores, relocating many stores, and closing some
locations altogether.
Wal-Mart and K mart have followed very different store
location strategies (Davies and Rogers, 1984). Only after
saturating urban markets has K mart developed smaller
sized stores for rural markets and the fill-in areas of major
urban markets. K mart has more than 120 stores in Illinois,
but approximately 60 percent are in Cook and the collar
counties.

Downstate Illinois also has several other discount stores,

such as Jacks (a Penn-Daniels, Inc. chain of 13 stores),
Target (the discount arm of Dayton Hudson Corp.), and
Farm King (six family owned stores in west-central Illinois
primarily serving people in farming). Many of these stores
are located on the outskirts of small towns. Although these
stores generally are smaller in size than K mart or Wal-Mart,
presumably they have similar effects on retail trade patterns.

Wal-Mart, in contrast, targeted rural markets from its inception with a down-home merchandising format that appeals
to residents of small-towns. The rural locations have been so
profitable that Wal-Mart is now the nations leading retailer in
sales and profits. Wal-Mart also locates around, or rings,
cities like Chicago and St. Louis and is beginning to enter
urban markets.
Because Wal-Mart has expanded so rapidly and has fo-

Effects of Wal-Mart in Iowa

Stone (1989) studied changes in retail trade in 14 Iowa
communities where Wal-Mart stores had opened in the mid1980s. Although Wal-Mart stores were studied, presumably
the findings would apply to other large discount stores in
similar retail environments. Stone compared the retail drawing power of Wal-Mart communities with similar size communities that did not have Wal-Marts. Iowa communities, in
general, had stable or declining demand, as indicated by
population and income trends during this period. In effect,
the retail pie was fixed in these communities, except for
changes in the capture of retail customers.

stores in other retail categories. This applies to circumstances in which the retail pie was fixed. If the retail pie had
been expanding, it is likely that redirection from local merchants would have been less severe.
Stone developed two rules of thumb regarding the effects of
a discount store on existing businesses in a community with
a fixed retail pie. First, businesses supplying goods and
services other than those sold by Wal-Mart tend to experience higher sales due to the spillover effect of the higher
additional traffic attracted to the community by Wal-Mart.
Second, businesses that sell the same goods as Wal-Mart
tend to experience some reduction in sales after Wal-Mart
opens.

Stone reports that, in general, total retail customers increased at a faster rate in the Wal-Mart communities than in
same-size communities. This is an important finding, since
it suggests that large discount stores improve the competitive position of the retail sector. Stone also reports that even
though Wal-Mart protected the trade market, there was
considerable redirection of sales away from existing merchants. In the average town, total retail sales increased by
approximately $4 million after the opening of Wal-Mart.
Since the typical Wal-Mart store, in his study, had annual
sales of approximately $13 million, approximately $9 million
was redirected from local stores. Of this $9 million, roughly
$6 million represented losses by existing general merchandise stores and $3 million was the net reduction by local

In examining specific sales categories, Stone reports that

home furnishings (including furniture stores, major household appliances, floor coverings), eating and drinking places,
and apparel sectors performed better in Wal-Mart communities. Generally, this finding is consistent with his rule of
thumb, since these stores probably enjoy spillover effects.
Apparel is a possible exception, since Wal-Marts carry an
extensive line of clothing. Of course, overall trade capture in
general merchandise (department stores) increased dramatically, since Wal-Mart stores are classified as general
merchandise stores.

Specialty stores and food stores in Wal-Mart communities

performed poorly relative to communities of the same size
without a Wal-Mart. Specialty stores include drug stores,
sporting goods, and gift shops which often are in direct
competition with Wal-Mart. Food stores may lose sales in
goods that compete directly with Wal-Mart, such as health
and beauty aids, cleaning supplies, and paper products.

percent loss for communities of the same size. This suggests that neighboring communities feel the competitive
impact of Wal-Mart, without receiving any spillover benefits
from increased traffic.
Stones findings have important implications for rural communities and suggest that research in Illinois might be fruitful.
The current retail environment in many Illinois communities
differs from the Iowa communities at the time of Stones
study. First, generally there is a denser concentration of
towns/cities in downstate Illinois than in Iowa, providing
consumers with more retail outlets from which to choose
within 20 miles of their residence. Second, there has been a
rapid proliferation of discount stores in Illinois putting nearly
all communities within 20 miles of a major discount store. In
contrast, the Iowa communities, at the time of Stones study
were among the first small communities to have a discount
store. These differences imply a more competitive retail
environment in Illinois in which the effects of a discount store
may be less pronounced.

The retail market for building materials changed at approximately the same rate for Wal-Mart communities and samesize communities without a Wal-Mart. This category includes lumber yards which are expected to gain from a
discount store and hardware, paint and glass stores which
generally carry merchandise similar to Wal-Mart.
Stone reports that discount stores negatively impact the
retail trade of neighboring communities. Smaller communities within 20 miles of a Wal-Mart location had average
cumulative losses of 23.5 percent in total retail sales, in the
four years after the Wal-Mart opening compared with a 10.8

Illinois Study
Our study focuses on 15 downstate Illinois communities
(with 1990 populations from 5,000 to 22,000) in which a large
discount store opened in the period 1986-89. Six additional
large discount stores opened in the period, but were not
included in the analysis because they were located either
contiguous to the metropolitan areas of Chicago or St. Louis
or in cities with populations larger than 50,000. The study
took place during an expansionary phase of the business
cycle, and therefore, downturns in retail activity because of
business recessions do not complicate the analysis.

The interpretation of pull factors is straightforward. A pull

factor greater than 1.0 means that the community is attracting customers from outside its boundaries, or local people
are spending more in the selected category than the downstate average. For example, if residents are assumed to
spend the downstate average for apparel, then a pull factor
of 1.5 suggests that the community attracts 150 percent of its
population as retail customers. A pull factor of less than 1.0
means the community attracts less than its population.
Analyzing changes in pull factors before and after the
opening of a discount store indicates whether trade capture
is expanding or contracting.

Raw data were obtained from retail sales tax reports of the
Illinois Department of Revenue. Sales taxes were converted
to current dollar retail sales by using the appropriate local
sales tax percentage. Data were collected from 1984 to the
first half of 1991. Comparable sales tax data are not available
prior to 1984. By selecting communities with store openings
between 1986 and 1989, at least two years of data were
available prior to store opening.

Seven retail sales tax categories of the Illinois Department of

Revenue are used in the analysis: general merchandise,
automotive and filling stations, eating and drinking places,
apparel, food, furniture and household, and lumber and
hardware (Table 1). Unfortunately, some of the Illinois
Department of Revenue categories are broad and do not
permit identification of particular types of stores, such as
hardware or appliance.

Aggregate retail sales, in current dollars, are not a good

basis for comparison over time or between communities.
Retail sales are affected by changes in population, income,
and prices. Pull factors screen out the effects of these
variables. A pull factor is the number of customer equivalents
divided by population. For example, if Town A has 1990
apparel sales of $1,500,000 and downstate apparel sales in
1990 are $100 per capita, the number of customer equivalents for apparel in Town A is 15,000. With a population of
10,000, the 1990 pull factor for apparel in Town A is 1.5.

Pull factor changes after the opening of the discount store

show the impact of the discount store. Of course, it is not
appropriate to attribute all changes in retail trade in a
community to the presence of a large discounter. Other
variables unrelated to the presence of a large discount store,
such as the growth of a nearby regional shopping center and
the quality of local store management, also affect pull fac-

tors. However, when a consistent pattern of pull factor

changes occurs after the opening of a discount store, the
connection becomes more likely.
Table 1. Retail Trade Classification
Trade Category

Major Types of Stores Included

General Merchandise
Automotive and filing stations
Eating and drinking places
Apparel
Food
Furniture and household
Lumber and hardware

Variety stores, department stores, general discount stores

Motor vehicle dealers, tire shops, gasoline stations, auto repair shops
Restaurants, taverns
Family clothing stores, shoe stores
Grocers, retail bakeries, fresh fruits and vegetables, retail meat markets
Furniture stores, floor covering stores, musical instruments, TV and radio, household appliance stores
Lumber, plumbing and heating, electrical, paint, glass, tools

Source: Illinois Department of Revenue, revised August 1984.

Retail Market Changes for Discount Store Communities

This study addresses two basic questions:

In contrast, trade capture was stagnant in the year prior to the

store opening (average change .26 percent), suggesting
that large discount stores expand the trading area and
stimulate increased retail traffic.

Do retail customers increase in a community after the

entrance of a large discount store? Does a large discount
center protect the retail trade capture of small communities?

The second question, the impact on existing merchants, is

addressed in subsequent figures. Figure 2 shows the
changes in retail capture in general merchandise. Of course,
general merchandise gained dramatically since it is the
category in which discount stores are classified.

Which business categories gain or lose customers after the

opening of a discount store?
Figure 1 clearly answers the first question. Figures in this
report show cumulative changes in pull factors, measured
from two years prior to a discount store opening. Retail
customers, as measured by pull factors, generally increase
after the opening of the discount store. In particular, trade
capture increases by an average of 15.25 percent. The
finding is consistent among the communities studied, with
nearly all communities showing increases in trade capture.

Figure 2. Changes in General Merchandise Sales

Percent Change in Pull Factors

Figure 1. Changes in Total Retail Sales

Percent Change in Pull Factors

Years Before and After Store Opening

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

Changes in automotive and filling stations (Figure 3) and

eating and drinking places (Figure 4) clearly gain after the
entrance of the discount store. Improvements in automotive/
filling station and eating/drinking places are consistent with
Stones finding and reflect the increase in retail traffic resulting from the discount store. The increased retail traffic brings
more demand for gas stations, automotive services, and
restaurants.

Years Before and After Store Opening

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

discounter. This may be due, as Stone suggests, to declines

in products that compete directly with discount stores, such
as paper products, cleaning supplies, and health and beauty
aids.

Figure 3. Changes in Automotive and Filing Station Sales

Percent Change in Pull Factors

Figure 5. Changes in Apparel Sales

Percent Change in Pull Factors

Years Before and After Store Opening

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

Figure 4. Changes in Eating/Drinking Place Sales

Years Before and After Store Opening

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

Percent Change in Pull Factors

Figure 6. Changes in Food Stores

Percent Change in Pull Factors

Years Before and After Store Opening

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

The impact on apparel (Figure 5) is less clear. Apparel

customers fell by 14.41 percent in the year preceding the
discounter. The rate of decline in apparel after the opening
of the discount store was actually less than the rate of decline
before the discounter. The capture of apparel customers is
higher in the presence of large discount stores, consistent
with Stones finding.

Years Before and After Store Opening

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

The decline in furniture and household (similar to the category of household furnishings in Stones study) is severe
and inconsistent with Stones results. Stores in this category
gained customers prior to the discounter, but lost customers
afterwards (Figure 7). This category is broadly defined to
include several types of stores. Furniture stores are expected to gain from spillover effects of large discounters,

Some retail categories, however, decline after entrance of a

discount center. Food stores (Figure 6) continue to expand
their customer base after a discount store opening. However, the gains are smaller than in the year prior to the

of the discount store. However, other stores in this category,

such as hardware, plumbing and heating, electrical, paint,
glass, and tool stores face direct competition from discount
stores. Overall, in this category, an increase in customers in
the year prior to the large discounter, and declines afterwards show that the overall impact is negative (Figure 8).
Again, with these data, we cannot determine which specific
stores gain and lose.

while stores selling small appliances, televisions, radios,

and other household items face direct competition and are
expected to lose customers. Unfortunately it cannot be
established, with these data, which particular stores gain or
lose, only that the net effect is negative.
Figure 7. Changes in Furniture and Household Sales
Percent Change in Pull Factors

Figure 8. Changes in Lumber and Hardware Sales

Percent Change in Pull Factors

Years Before and After Store Opening

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

Years Before and After Store Opening

Similarly in the lumber and hardware category, lumber

stores are expected to have spillover benefits, particularly if
more home improvement projects are undertaken because

The year -2 (two years before opening) is the base year. Changes shown are average cumulative
percentage change since the base year. Year 0 is the year that the discount store opened.

Evaluating the Local Retail Environment

Presence of other discount stores. When the first discount store opens, it is likely to impact local retail trade more
than if there are pre-existing discounters. The first discount
store is likely to be a major draw and attract consumers
locally as well as from neighboring communities. This point
is verified by examining the experiences of the Illinois study
communities. Communities without another discount store
experienced a larger increase in total retail capture (10.7
percent after three years) than communities containing a
discount store already (3.9 percent).

Readers should realize that although the findings are generally true for the Illinois study communities, the specific
impacts of a large discount store depend on the local retail
environment. To better evaluate the impact of a large discount store opening in their town, community leaders should
consider each of these factors.
Local purchasing power. The economic impact of a large
discount store on local merchants depends, in part, on the
demand characteristics of the community. If the population
and per capita income of the community are growing rapidly,
the ability to absorb additional retail activity is also increasing. If population and per capita income are stable or declining, the discount store must pull new customers into town.
Otherwise its trade will be at the expense of existing businesses. The Illinois communities included in this study
generally had stable or declining economies. Ten of the 15
communities lost population between 1980 and 1990 and all
had per capita income growth less than inflation from 1979
to 1987.

After the first discounter enters, there is an adjustment

process during which local merchants change product mix
and services. As another discounter enters, the local merchants are better positioned and less likely to be adversely
affected. Merchants in apparel, furniture and housewares,
and lumber and hardware conducting business in Illinois
communities with pre-existing discounters lost fewer customers than their counterparts in communities without other
discounters.

The mix of retail stores. The impact of a discount store

likely depends on the types of existing retail businesses.
Stores offering similar products as discounters will face
more competition in a static market. However, if existing
businesses have products and services distinct from the
discount stores, the effects will be more positive. When a
discount store draws more people to town, existing businesses will be better positioned to enjoy spillover benefits.
Merchants can work together to avoid unnecessary competition among themselves and to identify new businesses that
complement the retail district and the local discount store.

Accessibility of larger communities which are retail

trading centers. Many small-town consumers travel to
shopping malls or discount stores in nearby towns or cities.
Merchants in communities with rapid highway access to
larger towns are accustomed to competition from large
retailers. These merchants probably have already shifted
their merchandise and service into areas not in direct competition with discount stores. Therefore, the opening of a
large discount store in these communities will have a less
adverse effect on existing merchants than in more remote
communities.

Summary
Discount stores are a major force in the retail environment of
small communities. Local government officials, chambers of
commerce, merchants, and others interested in development need information on the effects of discount stores on
local retail trade. This study has shown effects of opening a
large discount store in 15 Illinois communities in the late
1980s.

are likely to gain customers because of the discount store.

Third, merchants in other categories, including furniture and
household, lumber and hardware, and possibly food, are at
risk of losing customers due to the discount store.
Perhaps most importantly, the impacts of a new discount
store depend on the attitude and actions of local merchants
and community leaders. Merchants and local leaders are
well-advised to prepare for the impacts of a discount store
even before it opens. The news that a discount store will
open can be viewed as an opportunity. Merchants must think
creatively and be willing to change their product mix, inventories, and service. Merchants and community leaders working together can develop an identity for the downtown
shopping district and provide a reason for customers to shop
downtown.

The findings reveal both positive and negative effects. First,

a discount store boosts local capture of retail sales; an
average increase of more than 15 percent two years after
opening. This increase brings other benefits, including more
retail jobs and an increase in retail sales taxes, an important
source of revenue for local governments. Second, merchants in some categories, including automotive and filling
stations, eating and drinking places, and possibly apparel,

References
Davies, R. L. and D. S. Rogers. Store Location and Store Assessment Research. New York: John Wiley and Sons. 1984.
Kline, Steven. Competing with Rural Discount Centers, Rural Research Report, Summer, Vol. 2, Issue 10. Macomb, IL: Illinois Institute
for Rural Affairs. 1991.
Rawn, Cynthia Dunn. Wal-Mart vs. Main Street, American Demographics, June, pp. 58-59. 1990.
State of Illinois, Department of Revenue. . Kind of Business 360 Reports: Receipts from County/Municipal Retailers Occupation Tax;
County/Municipal Service Occupation Tax; and County/Municipal Use Tax -- Amounts Collected from State Tax Excluded, Calendar
Year Reports 1984-1991. Springfield, IL: Department of Revenue. 1984-1991.
Stone, Kenneth R. . The Impact of Wal-Mart Stores on Retail Trade Areas in Iowa, unpublished manuscript, Ames, IA, Iowa State
University. 1989.
The True Look. Discount Merchandiser, June, pp. 48-72. 1990.
Wal-Mart Stores, Inc. 1991 Annual Report, Bentonville, AK, Corporate and Public Affairs Division, January 31, pp. 1-20. 1991.

The Rural Research Report is a series published by the Illinois Institute for Rural Affairs to provide brief updates on
research projects conducted by the Institute. Rural Research Reports are peer-reviewed and distributed to
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Printed on recycled paper

Large Discount Stores

in Downstate Illinois, 1991

There has been a rapid

proliferation of discount stores in downstate
Illinois putting nearly all communities within 20
miles of a major discount store.

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