Wal-Mart does not save families $3,100 a year

By Felix Salmon
November 10, 2009
Jim Ledbetter, it's very easy to avoid getting into idiotic arguments with Dennis Kneale on CNBC: just stop going on CNBC. But at the same time, it's worth pushing back much more on the ludicrous claim that Wal-Mart saves the average American family $3,100 a year:

" data-share-img="" data-share="twitter,facebook,linkedin,reddit,google" data-share-count="true">

Jim Ledbetter, it’s very easy to avoid getting into idiotic arguments with Dennis Kneale on CNBC: just stop going on CNBC. But at the same time, it’s worth pushing back much more on the ludicrous claim that Wal-Mart saves the average American family $3,100 a year:

Beginning in 2005, Wal-Mart commissioned the research firm Global Insight to produce a report measuring the impact of Wal-Mart on the overall American economy. Its methodology is, of course, open to debate, but the study tested 26 markets and measured the impact of a variety of economic factors on prices, going back to 1985. Not surprisingly, the study found that the widespread existence of Wal-Mart dating back to 1985 has resulted in about a 3 percent reduction of prices (3.6 percent in the most recent study, which is where the $3,100 figure comes from).

Ledbetter responds:

I don’t reject that finding. But it doesn’t mean that Wal-Mart is the only, or even the largest, economic force responsible for lower prices. As you would guess, the study also measured the impact on prices of many things that have little to do with Wal-Mart: energy costs, population growth, and unemployment. As I read the study, those factors combined are responsible for 89 percent of price variation. Wal-Mart and other factors are crumbs by comparison.

He should reject the finding. Because it’s only Ledbetter himself — and CNBC — who is saying that Wal-Mart is claiming to save the average American family $3,100 a year. If you look closely at the report, it never actually says that*. Instead, Global Insight talks about measuring the “cumulative price impact” of Wal-Mart since 1985. If the average American family has saved $3,100 over that time, that’s about $129 a year, not $3,100. Big difference.

Here’s the CNBC screengrab:


If Wal-Mart were honest, they would have phoned up CNBC and said that the bit about $3,100 a year was completely untrue, by a factor of 24 (the number of years since 1985, which is the base year from which the cumulative savings are being calculated). But of course they didn’t. Which is just another reason not to give them the Nobel peace prize.

*Update: It turns out that Wal-Mart itself is making the claim that it saves the average family $3,100 a year. Astonishing. How can they possibly justify saying this, when their own report says that the figure is cumulative, not annual?

Update 2: OK, this is getting a bit confusing. Various readers are saying that the savings are being claimed to be $3,100 per year, and that they’re growing by about $120 a year. Can you really subtract this year’s consumer expenditures from 1985′s consumer expenditures and call it an annual savings, even though the year you’re subtracting from was 24 years ago? That seems to be the claim.

Update 3: I think this is worth clarifying a bit further. Wal-Mart seems to be saying that the average family spends about $86,100 per year (which itself seems dubious to me) and that were it not for the cumulative effect of Wal-Mart’s low prices over the past 24 years, those expenditures would in fact be $3,100 higher, at $89,200. Or something along those lines. But does that mean an annual savings of $3,100 a year? Not really. According to the report, Wal-Mart reduces consumer price inflation by about 0.15% annually. So if the average family spends $86,100 this year, then next year its expenditure will be about $129 lower thanks to Wal-Mart. That’s what I consider to be an annual savings. Not $3,100.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

i’m curious and don’t have time to dig into this: i agree that wal-mart has contributed to better pricing for consumer goods, but at the same time, wal-mart has also contributed to lower real household income. did the study attempt to net that out?

Posted by howard | Report as abusive

Actually, if there has been a cumulative price decline of 3.6%, it would mean that currently the annual savings is $3,100. This value has increased by $129 per year, but the savings from last year don’t go away this year.

The methodology of the estimate can still be questioned, but you’re math is misleading.

Posted by Dan K | Report as abusive

So that’s why Americans are in so much debt, they have been spending $86K per year, even though the median family income is about $50K per year. They’ve been borrowing $36K per year! Does this mean that Walmart has also been responsible for reducing the cost of housing and health care and cars by 3%, since a big chunk of that $86K is for those items?

Felix asks “How can they possibly justify saying this”? Easy, they learned it from the Bush administration, which would say anything it wanted, regardless of whether it was true. You guys in the media make such a big deal about reality (well, some of you do) – movies don’t have to be true, why does the news? It’s just another form of entertainment to most news companies. And advertisements – nobody believes them anyway, so why can’t they lie?

I first saw this post before the updates and was astonished at how lazy Salmon was in not bothering to research Walmart’s very active ad campaign touting its $3,100 savings claim (I know the wine-swilling Bobo probably rarely goes near a TV to see what “Real America” is being subjected to on a daily business).

This blogging business is obviously all about quick quips and the process thankfully allows for updates like Salmon eventually posted, but my goodness. Do some real work first.

Posted by So lazy Felix... | Report as abusive

Would it be fair to say that Walmart has contributed to exported jobs as well? They used to boast “Made in the U.S.A” and now everything you see is made in China.
Walmart= Made in China
Made in China= Exported Jobs
Exported Jobs= Unemployment
Unemployment= Less spending
Less spending= No money circulating
No money circulating= Shrinking Economy

Walmart needs to re-evalulate their strategy. I wish there was better competition. If there was a store that sold Items that were “made in the u.s.a. I would pay that little extra. That would mean there were jobs, families eating and paying bills, and money staying here.

Posted by Katie | Report as abusive

$86K per year is an extraordinary amount – I’d be surprised if after taxes, housing, transport and other non WalMart goods the amount is as high as $20K (given the median income of $50K posted above, which sounds about right).

There’s also the question of the impact of WalMart on wages and benefits. Can’t see making the case that that’s been positive. Race to the bottom, etc.

Posted by Andrew | Report as abusive

It’s hard to believe that Black Friday is just around the corner. The time has come by so quickly. We are less than a month away and shopping is already on the minds of many of us. Major retailers like Best Buy, Walmart, Kmart, Target, Amazon, Ace, Apple, JC Penney’s and more will be having their sales and you don’t want to miss out on what they can offer.

It is impossible to save money if you spend it no matter how much discount you are getting. My New England grandfather made this clear to me when I asked him for a dime when I was 5 years old. He looked down at me from a 6 foot plus height asking me, “What did you do with the one I gave you last year.”

Posted by Jim Abeel | Report as abusive

Dan K is right – the previous year’s savings don’t go away.
This is poor blogging.

The question is: what would the average family pay this year with WMT and without WMT? The delta is $3,100 according to the research – THAT is the definition of the saving.
Sure if you set the clock back to today and look forward one year it is $129 but the following year it would be $129+$129…

However, to suggest the average family spend $86k is a fact that can be readily checked, and of course turns out to be totally bogus.
Gross up that spend with say 30% tax takes it to $123k.
Two wage earners per family, means c.$60k each. If only. Average wage is closer to $30k.

Posted by Tiny Tim | Report as abusive

There are a lot of problems with the study.

First, when comparing identical products, there is evidence that Wal-Mart prices may not always be the lowest, particularly for electronics goods — see http://www.theamericanconsumer.org/2009/ 11/10/american-consumer-institute-releas es-study-finding-no-difference-in-consum er-electronics-prices-between-wal-mart-a nd-best-buy-study-calls-for-wal-mart-to- improve-on-shelf-labeling-to-ensure-shop pers/. Deutsche Bank and others have shown similar results. So, attributing all of the retail industry’s savings to Wal-Mart is certainly wrong.

When comparing products that are not identical in terms of quality, buying cheap goods does not mean lower prices. The Consumer Price Index (CPI) compares like items over time. So, if one retailer offers and sells a lot of low quality products, the price of the good (and the CPI index) does not have change. The Bureau of Labor Statistics, which measures the CPI, is responsible for considering this quality adjustment.

Also, comparing a cumulative savings (reported in the study) with annual family income is misleading — the reported 1985 savings is being counted 24 times, the 1986 figure 23 times and so on.

In addition, since the retail industry’s economic output consists mostly of intermediate sales, the use of total factor productivity to determine savings should be based “value-added” basis, not final sales.

Finally, translating productivity change into pure price reductions is also improper, since there are other factors to consider, such as the sector’s price recovery and its profits. (There has been no cumulative shareholder value?) There are other problems too, such as issues involving present discount value adjustments, but I will stop there.

Steve Pociask
American Consumer Institute

i agree, there is no one i know who spends half of 86,000 per year on food & walmart carried consumer goods

I agree with everyone’s comments here about the limitations of the study and the frank absurdity of using $86K as a base for Walmart applicable family purchases.

That said, Felix’s corrections still propagate incorrect math. For someone who’s complained about innumerate journalists, that’s somewhat egregious.

If you think the conclusions or methodology are wrong, and don’t pass a gut check, say that. Don’t post comments confusing an annual savings rate with the change in an annual savings rate.

Posted by Dan K | Report as abusive

A better question is, what’s the impact of Walmart on incomes? I would not be least surprised to find out that Walmart’s existence had an effect of a 3.6% cumulative decline in CPI that was evenly matched by a 3.6% cumulative decline in household incomes, every dollar “saved” by a shopper is a dollar not earned by a retailer or a producer. Walmart depressed prices, but it also squeezed out mom-and-pop stores and American manufacturers.

Posted by Eugene | Report as abusive