Wal-Mart Revisits Urban Expansion
By
Tom Ryan
With
new formats, its success in food and a buffed-up image, Wal-Mart appears
to be making a renewed effort to open stores in major urban markets.
Although labor unions remain a huge obstacle, the hunt for savings
in the recession may quell some local opposition.
An
article last week in the Washington
Business Journal indicated
Wal-Mart is looking for enough land to accommodate an 80,000- to 100,000-square-foot
store in Southeast D.C. for its first in the district. A separate article
in Crain’s
New York in
early August found that the retailer was searching for its first store
in New York City’s five boroughs.
Meanwhile,
Wal-Mart was said to be looking to open a half-dozen or more stores
in coming years in Chicago after getting rebuffed by city leaders,
according to an article earlier this year in The
Wall Street Journal.
The Chicago stores, according to the article, are expected to serve
as an urban model that it could help open up access to other tough-to-crack
markets, including New York and Los Angeles.
The
moves are apparently part of a longstanding, albeit highly frustrating,
strategy to open stores in low-income, urban areas.
When
Wal-Mart’s first store in the West Side of Chicago was being built
in 2006, then CEO Lee Scott announced plans to open 50 stores in areas
heavily populated by minorities and in need of jobs and tax revenue.
That led to some stores on the outskirts of cities but also many frustrated
attempts to land inner city locations. After getting continually rebuffed
in New York City, Mr. Scott said in 2007, “I don’t care if we are
ever here." It still operates only one store in Chicago.
But Crain’s
New York implied
that Wal-Mart may benefit from its efforts in recent years to improve
its image around the environment and employee health care.
The
discount formula and broader food offerings is also said to make it
more appealing in today’s climate. Wal-Mart has also been opening multi-story
stores to fit into more congested areas as well as smaller supercenters
to bring food savings to tighter markets. Conventional discount stores
in Bloomington, IN, and White Plains, NY, are adding fresh food to
their mix.
"We’re
working toward a format that’s more efficient and a smaller prototype,” Wal-Mart
spokesperson Amy Wyatt-Moore, told the Minneapolis/St.
Paul Business Journal. “It’s
about utilizing and reusing our existing footprint to be able to deliver
a Supercenter experience for customers in urban markets without adding
any square footage."
Nonetheless,
Wal-Mart will face fierce opposition from organized labor.
"While
Wal-Mart claims to have improved corporate practices, these efforts
appear to be little more than window dressing," said New York City
Council Speaker Christine Quinn in a statement released to Crain’s.
"Until they make actual changes, providing a living wage and ending
the practice of preying on small businesses, I will block any attempt
to locate in the five boroughs."
Discussions
Questions: What’s the likelihood that
the recession and Wal-Mart’s success in food will help it enter significantly
more major urban markets in the U.S.? Has urban opposition has lessened?
What do you think of the potential of smaller supercenters for urban
markets?
The time appears right for Walmart to push its urban initiative again. It’s harder for cities to argue against the sort of economic development and job creation that Walmart represents during a recession, even if many of those jobs are less than ideal in terms of high wages. And Walmart has been smarter in the last few years lining up on the “right side” of some social issues (such as greentailing and health insurance reform), making it harder to paint the company as a pure corporate villain.
City governments would be smart to consider the long-term gains of more aggressive central-city retail development, whether by Walmart or other big boxes that follow in its wake. Private employment to build and then operate big retail stores is probably the healthiest way to keep the economic recovery on track.
Conventional food stores are pretty much extinct from the hard core inner city areas. If Wal-Mart wants to give it a shot, why not? The resistance only comes from those who are not getting a financial handout from Wal-Mart, so Wal-Mart may have to grease the palms of local politicians but it should be a small and manageable expense.
I’ve visited a few urban Wal-Mart Supercenters and they are run a bit differently to help control shrink. First, no open 24 hours. Open 8am to 10pm is the norm. Next, no self checkouts. Then of course, a strong security presence.
Nobody wants to touch those urban locations and cities are finding Wal-Mart is their last resort. Wal-Mart’s window dressing is helping as well and I would expect then to continue with the usual greenwashing press releases and touting that they offer a health plan.
Walmart’s prices and food success don’t appear to be the problem. The problem is the image and presentation to those communities in a footprint that is constrained. Walmart needs to focus more on their original plan of being a community supporter and a community builder. Yes, some small businesses barely hanging on will default but other strong, more unique niche businesses could move in like coffee shops, niche clothing stores, etc.
We all to often look at the negatives and forget the positives. Support for a new baseball field, new community leadership, involvement in community quality-of-life programs. Retail is about evolution; if you don’t evolve you become extinct.
Urban opposition has not lessened but the focus is on survival with city budgets and state budgets being cut. The threat of Walmart has dropped lower on the list. Hmmm…why not let Walmart pay some taxes?
If Walmart continues to emphasize the opportunity to open food stores in the urban areas, the cities will eventually give in and allow this to happen. The fact is, there are many article written about the fact that cities are experiencing a supermarket desert, where urban dwellers don’t have a super market within walking distance, or for that matter within a short ride on public transportation. So low-income dwellers state that it takes them over two hours to get to the closest full-featured supermarket.
Walmart seems to have the willingness to focus on these urban customers, and they certainly have the pricing that will allow these consumers to stretch their dollars. So why should city leaders stop them from entering the market? Walmart is offering selection, lower prices, and jobs. What more can the city leaders want? Unions? Absurd! The times have changed, and now is the time to allow Walmart to expand where they want to, and when they want to, and as long as they remain good corporate citizens, city leaders should not stop the growth.
There are places called “Urban Deserts” where there are very few actual grocery stores at all. No grocery stores perpetuates the cycle of poverty. So, from this angle, there are places where Walmart wouldn’t actually be taking business away from local grocers.
On the other hand, if Walmart gets a toe hold and begins expanding its offerings into clothing and housewares (depending on the square footage, etc), local businesses could suffer quite a bit. Perhaps the key issue is–what is Walmart trying to sell exactly, and to whom?
Wal-Mart is too big, powerful, and successful for anyone to keep them out of urban markets. The question is–is it profitable for them to open an urban format store? Home Depot has tried and failed with their “Village” format. Wal-Mart’s business model is based on massive stores, with virtually unlimited parking, mostly in areas where cheap labor and favorable rents can be obtained. Factor in the cost of doing business in any major metro area and how profitable does it become for Wal-Mart to do business there? Would a Wal-Mart work in NYC? Maybe not, but in the underlying areas I could think of several locations that they could be profitable. I personally don’t think Wal-Mart is for the “Upper East Side” crowd–but in the less affluent areas of major cities they could be extremely successful. I’m not a huge fan on the effect of Wal-Mart on small-town America, however, it would be interesting to see their affect on urban markets.
Really, the only question here is whether or not union opposition to Walmart will abate now that the unions are busy on a national scale influencing health care legislation and other issues with a favorable pro-union cast of characters in Congress and the White House.
Please, Walmart, come to DC!
Low-income Southeast DC does not have a single chain grocery store. Walmart would have a monopoly in that area.
We Washingtonians have to drive at least 15 miles to get to a Walmart. If the company opened a store in one quadrant of the city, people from all over would consider it a destination.
This scenario would be played out in most major cities! It’s a huge opportunity both for Walmart and for consumers.
The opportunities are huge, but the obstacles are tremendous. In addition to labor, Wal-Mart has to overcome expensive and limited real estate, as well as a difficult market from which to pull qualified, and focused employees. Add to this a lower ROI per customer visit, and the dollars do not make good business sense. Overall, this is not Wal-mart’s core competency and it may never be.
It’s long overdue and a shame really that it hasn’t happened already. Logistics aside, what could possibly be better than low prices in areas that need it the most? That’s why their tag line resonates so well–it’s accurate! The recession has put a nice halo on Walmart for sure, but in terms of the essentials, it’s always been there.
Walmart continues to try a variety of strategies and consumers have mixed emotions about Walmart. So the answer to any question is–it depends upon which strategy and which consumers? Large cities have distinct areas and neighborhoods and the same strategy won’t work in every area or neighborhood. If Walmart matches the right strategy to the consumers in that area, they can be very successful.
Walmart’s interest in large urban markets is not too tightly connected to the present economy, I think. More likely, it’s a “last frontier” situation–the one significant part of the country where the great Wal hasn’t captured a large market share.
Someone told me recently that Walmart reaches in the neighborhood of 170 million unique shoppers–half the country. If we had the data handy, we’d probably find its penetration ranges from virtually 100% in its stronghold suburban and small town stores, down to 10% or less in the big cities of the northeast where they have been shut out.
The company’s stock price depends on presenting a continuing growth story. It has found (like virtually every other chain retailer ever) that geographic expansion drives top-line growth faster and more easily than any other strategy. Besides, that kind of growth is relatively easy to forecast, which makes the stock analysts feel secure.
If the big urban centers house the only large chunks of population left in the U.S. where shoppers aren’t within 10 minutes drive from a Walmart store, then as I see it, the company has no choice but to bull its way in. This is true even if it has to endure stubborn opposition from labor unions, local governments and community organizers.
Here’s the caveat: I’m not so sure that the classic Walmart store formula will translate easily within these urban locations. The prize is large enough that the company might want to consider developing a designated downtown format, optimized for shoppers who arrive by mass transit and who buy only what they can carry.
Except to the hard-core, Wal-Mart has done a lot to repair its image in an astoundingly short time. They have made tremendous inroads into nontraditional demographics during the recession. The attempt to move into urban areas that have long been abandoned by traditional supermarkets is a good move for them, as it both gives them new markets and further polishes their image. I wish them luck.
In some ways this would seem to be a natural fit: low prices for a low income populace, without the usual concern of “putting small businesses out of business” for the simple sad reason that (many of) these areas have few businesses left. The problems I see echo what others have mentioned: security and logistics (i.e. a car-centric business model in areas that have diminished car ownership, or at least the image of such); then again, being a car-centric business may ultimately prove a problem for them everywhere…will rising fuel costs ultimately be the dragon that slays WM?
Walmart has consistently registered its interest and willingness to serve Consumers in the urban core of cities. To this point, greedy local politicians with hands out, and union activists who have leverage with those and other politicians, have held back the initiative.
The fact that a Super Walmart would create 400 new jobs within an urban neighborhood, and construction/maintenance work would be created for those needing jobs, has escaped the logic of those politicians. In addition, local taxes have been lost, as Consumers have shifted their spend to adjoining suburbs/tax districts.
The time is right for Walmart to enter back into the discussion with city leaders in Chicago, D.C., New York, etc. The politicians will have to play the game straight–which is a challenge for a number of them. The winners will be local Consumers, the tax base, the appearance of the neighborhood, and the pride of the community, not to mention the value of real estate as this retailer comes to those neighborhoods.
Let free enterprise spring up. It will succeed. And, then, even the politicians can take pride in a sense of accomplishment.
I think the comment by the New York City Council Speaker highlights the biggest obstacle. The political environment within large urban areas remains hostile to Walmart. It is as much cultural as it is economic. My guess would be that Walmart is going to have to prove themselves in smaller urban markets before the politics change in the larger cities.
These urban deserts, where there are no supermarkets to serve the needs of the poor and elderly, are being addressed in several Northeastern states including NY, NJ and PA.
Aldi’s, for instance, has taken advantage of this program in PA, where the state provides incentives from casino proceeds to lure supermarkets into underserved urban areas.
NJ and NY has similar programs, which grocers like A&P’s Food Basics are taking advantage of in opening a new store in Atlantic City, NJ.
People need a supermarket in their urban neighborhoods that has low prices, fresh produce and meats and a fantastic selection. Stores with 40,000 square feet can provide these areas with a great supermarket experience, and preserve scarce re-developable urban land.