Deal or No Deal, Wal-Mart Coming to Chicago
It’s a tale of two stories. One told by labor leaders in
Chicago has them finally getting Wal-Mart to sit down and agree to basic principles
that will enable unions to support the retailing giant’s efforts to build stores
in the city. The other is Wal-Mart claiming it has not compromised one iota
and has managed to get previously staunch opponents to step aside as it continues
on its inexorable path to growth in urban centers across the land.
Whatever story
is the truth seems to make little difference because aldermen in Chicago have
voted to rezone land on the south side of the city to allow Wal-Mart to build
its second store in the city. And, by previous accounts, it will be the second
of perhaps dozens of stores the company will open in Chicago.
The Chicago
Tribune earlier in the week, citing Hank Mullany, executive
vice president and president of Wal-Mart’s northern U.S. division, reported
the chain was looking to build dozens of stores, from 25,000 square-feet up to
140,000 square-foot supercenters. The smaller stores –presumably Neighborhood
Markets, although that format typically runs 42,000 square-feet –would be set
up in neighborhoods that no longer have a grocery store.
Mr. Mullany said that
Wal-Mart’s plan for Chicago would "eradicate the
food deserts" within the city and create up to 12,000 new jobs. The unemployment
rate in Chicago was at 10.5 percent in May, compared with 9.7 percent for the
country.
Leon Nicholas, a director at Kantar Retail, told Bloomberg News, "Chicago
could very well be a model for how Wal-Mart expands into urban areas — a multiformat,
localized approach that leverages Wal-Mart’s growing community-relations
skills to capture urban market share. Chicago opens up the opportunity for
small-store urban expansion that they’ve been talking about for a while."
The
nature of the compromise made (or not made) by Wal-Mart to gain access to Chicago
was that the retailer would pay workers at least $8.75 an hour, 50 cents more
than minimum wage in Illinois, and agree to a minimum raise of 40 cents an
hour for workers who stayed with the retailer for a year. The retailer also
agreed (or not) to use union workers in building its stores in Chicago.
Discussion Questions: What challenges will Wal-Mart face
as it seeks to implement its plan of building dozens of stores in Chicago? Is
this a blueprint for how Wal-Mart will capture urban center market share
across the country?
It looks like the agreement on base pay was a necessary compromise on Walmart’s part. Without it, the push into urban markets like Chicago was likely to remain stalled. Now that there is apparent agreement on moving forward, it will be fascinating to watch how Walmart approaches a marketplace like Chicago with varying footprints ranging from “big box” to smaller formats focused on food and consumables.
It will also be a challenge for Walmart to find a balance between the lower margin categories likely to drive small-format stores and the higher costs (wages, logistics, shrinkage) associated with an urban market. Will Walmart be able to maintain its “price leader” position given these kinds of competing pressures on the bottom line?
With stores in urban Chicago, Wal-Mart will gain market share but at what “unmentioned” price?
Chicago’s unrelenting unions and Chicago’s powerful aldermen sing, “My kind of town, Chicago is…”–“and those Arkansas dudes coming to our town isn’t going to change things much.” So if Wal-Mart can stand some unique new arrangements in its operational affects, they can gain SOM and some unserved areas will be served. But this looks like a “stay tuned” situation.
The results were always inevitable in this economic climate. Chicago needs the jobs and the low priced goods. The unions were fighting against building job growth and lower prices for the city population. The Alderman’s decision went to where the votes were.
For Wal-Mart to pay 50 cents per hour above the minimum wage is hardly a concession. The challenges for Wal-Mart are minimal. For most of their business, it is business as usual into a market that will provide them with a significant increase in revenues.
But, it also provides them with a laboratory on how to exploit the opportunities in high-density neighborhoods that have been all but abandoned by traditional retailers. If they can refine this model, then additional opportunities abound throughout the country.
It is very unusual to see a major operator be as innovative as Wal-Mart has been. They are very aware of marketplace opportunities and do not insist on solving every problem with the same solution. Few retailers have any desire to be as nimble as Wal-Mart has quietly been.
First of all, I don’t think Wal-Mart wants to build any stores in the blighted urban ghettos of Chicago. They might build one as an act of good faith to get the city government off their back.
The best thing that the Chicago city government could to is to step aside and green-light all of Wal-Mart’s requests. Don’t tell Wal-Mart who to hire to build stores, don’t tell them where to build, and don’t tell Wal-Mart they should overpay employees. I suppose paying some employees $8.75 and hour won’t be the end of the world for Wal-Mart.
Wal-Mart is already using multi-formats in other cities like Phoenix, Dallas and Houston (Suprercenter, Wal-Mart, Neighborhood Market, Marketside, and Division One). I’m sure what Wal-Mart wants to do is build stores in the nicer neighborhoods of Chicago where the higher volume Jewel and Dominick’s stores are located. Those stores are no match for Wal-Mart and Wal-Mart will make sport of them in short order.
I’m with Gene on this one. “Stay tuned.” The unions may be willing to back off for a little while, but a year or two down the path, there will be rumblings and further demands, I’m sure. It seems worth a try, from Walmart’s standpoint, but I’d be testing the waters before launching any big plans.
Walmart wanted to have a go,
But Chicago’s aldermen all said “no.”
Then ‘da ma’re’ stepped back in,
And now the Walmart stores are in.
My deepest apologies to Gene Hoffman, who would have done a much better job with the verse. But in Chicago there is only ever one real story, and that’s “What does the mayor want?” Everything else is just posturing, blustering and positioning one’s self for a better seat on the gravy train.
Walmart’s concession to pay 50 cents per hour above the minimum wage in Chicago is actually fairly significant for Walmart, all things considered. Walmart will thrive and do well in Chicago. Don’t lose any sleep worrying about the politics.
Walmart faces similar struggles entering even smaller markets than Chicago and has to commit significant legal resources in the process.
In a suburb of Buffalo, NY, Walmart needed 3 years to gain court approval of a new store to be built in Amherst. See the story here.
It is interesting to me that Walmart has to adopt a somewhat brute force method of expansion. Have they considered the consistent resistance they face from all sizes of communities as indicators of how their brand might need to evolve?
Gene Detroyer summed it up well. The only thing I would add is that hold-out anti-Walmart areas like New York City and parts of California will be painted as Luddites (I wouldn’t insult Neanderthals) for not allowing their “food deserts” to bloom and their poorer residents to have a place to work and shop.
Wal-Mart always (did I say always?) gets what it wants. Maybe not what we think it wants, but it gets what IT want. Period.
Even when we think they don’t, they’ve already moved on to something else.
They are (willing to admit it or not), nimble, innovative, powerful, and not the least notable–persistent. Chicago is just a sideline battle that they will eventually win and eventually succeed in dominating the market.
Make no mistake, if the unions think they can lay back and take action once they are in, they are making a serious error in judgment. Once the lots are full and the customers are in–Wal-Mart is in. It will be over. It will be business on Wal-Mart’s terms.
While the unions and city leaders squeak and squeal now, Wal-Mart is busy doing other things. They’ll eventually take Chicago, just like anywhere else. No union or city/community group has stopped them anywhere they want to be. Chicago won’t either. While no one will likely say ‘What’s good for Wal-Mart is good for the country” as they did at one time with GM, it shouldn’t be mistaken that Wal-Mart thinks in those terms and has a greater level of determination than any other.
In the meantime, while they start a bank, grow into categories unimagined, and grow in stores elsewhere, they’ll pay attention to Chicago as well. They know they’ll win. It’s a given they will win. No worries on their part.
When it’s over, there may be grumbling, but they’ll be shopping. It’s what happens everywhere they go.
So the question is, when you know you can’t stop the retailer that you supposedly don’t want, why aren’t you making it easier for the retailers you do want to do business there? Why not redirect your energies in supporting policy that would make an environment for retailers that do the things you’d prefer to be successful. Nah, that would mean that you’d be pro-business. A position untenable for unions and community activists. In the end, it’s a lose – lose. But, it’s the fight that matters, right? What about the results?
What’s interesting in this story, to me, is that Walmart has made this decision to enter Chicago despite the difficulties and barriers in this market. Have they reached the end of their growth opportunities elsewhere so that even Chicago looks like a good investment to them today?
I would have thought they had better investment opportunities than to deal with all this Chicago crap…but maybe they don’t. That tells me something.
Chicago and Wal-Mart standing toe to toe. Who blinks first? It appears they both blinked; and the winner will be the fine citizens of the Chicagoland area. Isn’t this the way negotiations work? Neither side willing to give an inch and all of a sudden there is peace in the land with both sitting at the same table having a drink as best friends saying, “I never said that about them.”
Now Chicago is getting Wal-Mart in many models and sizes, jobs for the unemployed people, a higher negotiated starting salary and competitively lower prices forcing others to do the same. Is this a great country or what?
It would be naive to assume Chicago aldermen are serving anything other than their own self-interests. The city has a political culture that is always about making the alderman look good, helping them keep their jobs and sometimes lining their pockets. Oh…and yes, there’s the self-interest of unions in Chicago to consider. To assume anything about this agreement is straight-forward and in the best interest of the citizens would be denying everything about how this are done in this great city.
I understand this is cynical but all one needs do is to look at what has happened in Chicago for many, many years.
Walmart will get into Chicago, there’s no doubt about that. They bring jobs and better yet, affordable necessities. In a free market economy such as ours, why would anyone be opposed to that? Competition amongst retailers is a very, very good thing for consumers, right?
The more interesting question might be, where will they put these stores? You would think re-model would be the answer, but remodel what? Whatever’s existing out there would not exactly be the size, shape and condition of a Walmart superstore format, correct? So, we’re talking about Walmart NA having a multi-format portfolio at their disposal, edited merchandising and all…and does that exist? Do they have successful examples of that?
I guess we’ll soon find out. Interesting.
It will be interesting to see how this ends up. Corrupt Chicago politics versus one of the most powerful entities in the world.
Stay Tuned.
Perhaps a better question to ask is, “What is Chicago’s loss if they do NOT have merchants like Walmart in the city?”
Chicago, and the State of Illinois, is running on fumes economically. The city residents, particularly in inner-city neighborhoods, have been without adequate grocery or retail stores that offer value, selection, and quality for far too long. The building trades unions need construction jobs. The city needs to have property taxes that a developer can send there way. Citizens need to have jobs within their neighborhoods–and these retailers will provide thousands of them. Those jobs will create much needed cash for the City of Chicago.
That same pattern can be repeated in New York, Boston, and other inner city hubs around the country.
Richard M. Daley is finally following the job creating pattern of Papa, Richard J. Daley. It’s about time. The Unions had to step in line. Now they need to stay out of that line, seeking handouts. Let these merchants do their job of providing goods, services, and important jobs to improve the quality of life in these neighborhoods.
The unintended consequence of letting Wal-Mart enter the city is their higher sales per square foot productivity and larger trade areas will put other stores out of business and there will be more areas correctly labeled food deserts. Put on your walking shoes, grandma!
I’m starting to think Wal-Mart has no intention of rolling out stores all over the city of Chicago. Maybe a few but not a lot. There is no way Wal-Mart is going to operate in blighted areas and lose money. I think all this bold talk is just to get themselves a good deal on one or two locations.
Promises of filling up blighted food deserts with billions of dollars in new construction will probably never come to pass. After Wal-Mart gets some corporate welfare to open a couple of stores in strategic locations (where they can kill off the best of the Jewel and Dominick’s), they will make lot of excuses why they are not building more stores (the economy, environmental issue with the land, etc.) Wal-Mart is going to make all those Alderman and inner city ministers look like fools.
That doesn’t mean I don’t think Wal-Mart shouldn’t be allowed to open stores. But when some big company is promising jobs and help in cleaning up the ghettos, ask yourself, where is this happening elsewhere? It isn’t. What makes the ghettos of Chicago any different than any other inner city around the country that Wal-Mart has avoided?