Spanish towns that allow large supermarkets to open nearby lose between 20% and 30% of their small grocery shops inside four years, according to a study by Maria Sanchez-Vidal, to be presented at the Royal Economic Society''s annual conference at the University of Bristol in April 2017.
But the research also finds that 70% of the retail units that the small grocers occupied were taken over by new, specialist retailers. This suggests that the change isn''t just a movement of trade out of town, but a reallocation of retail space.
The researcher uses Spanish retail regulation to show the effect of opening large out-of-town supermarkets on smaller shops. In many Spanish regions, big-box stores cannot open close to towns with fewer than 10,000 inhabitants, so comparing the effect on protected towns with just fewer than 10,000 inhabitants to that on similar towns with just over 10,000 residents reveals the decline in existing grocers.
The author concludes: ''My findings show that restrictive policies on the opening of big-box stores end up being very ineffective. They protect some small retailers, which do not necessarily have to be the most productive ones, while completely overlooking the capacity of the city centre to reinvent itself thanks to an increase in competitiveness.''
Are big-box stores emptying the city centre?
In recent years, many governments have adopted restrictive policies on the opening of big-box stores. Before 1990, many European countries underwent increasing market liberalisation, as a consequence of which the retail sector expanded greatly with the opening of many new supermarkets.
The economic consequences of the opening up of these new supermarkets, typically out-of-town big-boxes, became an important policy concern in most countries. In particular, the main concern was (and still is) the impact of these stores on the quality of cities and their commercial structure, especially in the city centre, where the traditional stores are located.
A few studies have analysed whether the opening of a big-box store harms the rest of stores in its area. Most have focused on the United States, where the retail sector operates completely different than in Europe. For Europe, only one study has focused on this topic, finding that supermarket chains adapted the size of their outlets to the regulation resulting in stores that compete even more directly with the grocery stores – and so they harm them even more than before the policy.
In my study, I look at a similar regulation introduced in Spain in 1997 to evaluate the rationale for these restrictive policies – that is, that big-boxes empty the city centres of commercial activity.
The key to this regulation lies in its definition of what should be considered a ''big-box store''. Spain''s central government opted to define a big-box as one with at least 2,500m2 of floor space. But nine out of Spain''s 17 regions chose to strengthen the law by further limiting the number of square metres in line with the population of their municipalities. Thus, in smaller cities a more restrictive definition was placed.
Here, I focus on those municipalities centred on the lowest population threshold as defined by most of the regions: namely 10,000 inhabitants. This means that, for all regions, municipalities below the 10,000-population threshold restrict the opening of big-box stores, while municipalities above this threshold are non-regulated.
Then, we can assume that those municipalities around the threshold are going to be similar in many dimensions and the only difference between them would be the big-box opening. Therefore, any change in the composition of the city centre''s retail activities will be a consequence of the big-box opening.
Identifying a big-box as a large supermarket opened between 2003 and 2011, the results show that four years after the first big-box opening, between 20 and 30% of the grocery stores in the city centre disappear, offering clear evidence of a commercial activity loss in the sector that competes the most with the bog-box.
But when focusing on other small retailers, the results indicate that most of the commercial premises that the grocery stores leave empty – almost 70% of them – are taken by other type of small retailers. These results point out that although a big-box store opening is a big threat to the small grocery stores (the direct competitors), the commercial activity in the city centre is not disappearing but only changing its composition.
These findings show that restrictive policies on the opening of big-box stores end up being very ineffective. They protect some small retailers, which do not necessarily have to be the most productive ones, while completely overlooking the capacity of the city centre to reinvent itself thanks to an increase in competitiveness.
Retail shocks and city structure