Wal-Mart to Enter Urban Markets

By Ylan Q. Mui
Washington Post Staff Writer
Wednesday, April 5, 2006; D01

Wal-Mart Stores Inc. yesterday revealed plans to expand into the nation's cities, where it has encountered widespread opposition from unions and small businesses that accuse it of forcing wages down and driving out competition.

Wal-Mart said that over the next two years it would build more than 50 stores in blighted urban areas, accompanied by promises of help for local businesses and donations to chambers of commerce. The proposal is a major shift in strategy for a company that became the nation's largest retailer by dominating rural and suburban America.

So far, its efforts to move into cities have been controversial. When the retailer tried to open in Southern California two years ago, it prompted the longest supermarket strike in the region's history. In Chicago, the debate stirred racial tensions.

And in the District, plans for a store in the Brentwood neighborhood collapsed after critics argued that the chain would provide city residents with low wages and poor benefits, destroy small businesses and overwhelm the surrounding neighborhood with traffic.

But if Wal-Mart wants to continue to grow in the United States, it must find a way to make peace with its urban opponents.

"That's the most untapped market," said David Neumark, a senior fellow with the Public Policy Institute of California.

That strategy comes with a new set of tactics. Wal-Mart chief executive H. Lee Scott Jr. said the company would create "jobs and opportunity zones" around 10 of its new urban stores, beginning with a store under construction on Chicago's West Side.

The zones, he said, would help small businesses withstand competition with Wal-Mart by teaching them how to do business with the company, offering grants to benefit communities and featuring small businesses on radio ads played inside the store, among other things.

He announced the plan at a conference of the Newspaper Association of America in Chicago but declined to identify the other nine zones. The company did not disclose where the other new urban stores will be built but said it is looking at markets where it has no presence.

"We see that we can also be better for communities than we have been in the past, if we're willing to stretch ourselves and our resources a little bit," Scott said during a conference call with reporters.

But Neumark speculated that the effects of Wal-Mart's support will be limited. He released a study last year at a conference about the retailer's impact on the economy -- which was hosted by Wal-Mart itself -- that found its stores reduce retail employment by 2 to 4 percent in the markets where they open. There also was some evidence that suggested payrolls per worker declined.

"You have to believe [that] under the best of circumstances, they have to compete with some business and drive them out," he said. "That's what competition is all about."

Wal-Mart has not been one to give its rivals a helping hand. The company runs 3,800 stores across the country and has built its name around its focus on low prices. Employees secretly shop at rival stores and then slash their own prices.

But recently, as the retailer has come under attack for its health care benefits or sluggish sales, it has tried to show a softer side. It has pledged to reduce fuel emissions and hosted an online concert by R&B singer Ne-Yo.

Scott said yesterday that he thinks the job and opportunity zones will allow Wal-Mart and other businesses to feed off one another; a cottage industry of private consultants who teach companies how to compete with Wal-Mart has already emerged.

"We think we can coexist with people because there's a different model," Scott said. "As you lessen their fear and give them more courage to commit to their business, it empowers them to do better."

Union-backed Wake-Up Wal-Mart campaign director Paul Blank criticized the effort as a "public relations stunt" that detracted from more pressing issues. Nelson Lichtenstein, editor of "Wal-Mart: The Face of Twenty-First-Century Capitalism" and a professor at the University of California at Santa Barbara, was slightly less skeptical.

He said the initiative would likely benefit some businesses and even suggested that Wal-Mart might allow smaller retailers to set up shop inside its stores -- a local restaurant could replace the McDonald's found in some stores, for example. But Lichtenstein predicted that the concessions would stop short of substantial changes to wages and benefits and allowing unionized labor.

"They'll say, 'We'll do all sorts of things, but we won't do that,' " he said.

Beyond the rhetoric, however, Wal-Mart faces a more basic challenge as it tries to reach out to the community: trust.

Janna Naylor runs a chain of five hardware stores, A.D. Naylor & Co., based in western Maryland and founded by her great-grandfather. In 2001, a Wal-Mart opened two miles from her flagship store in Oakland. Sales dropped by nearly a quarter -- the first decline in her 20 years of operating the store, she said.

Since then, she has rebuilt her business by changing her merchandise. She cut back on Rubbermaid products because Wal-Mart carries them and stocked up on high-end items, such as Weber grills and Carhartt work clothes.

"You can't beat them at their game," Naylor said. "You've got to out-service them, which we do, hands down."

Before Wal-Mart moved in, Naylor said, local officials brought in consultants who helped her evaluate her business and develop a strategy to survive in the shadow of the retailer. But if Wal-Mart offered her the same advice, as it is intends to do in its new job and opportunity zones, Naylor said she would find it tough to swallow.

"I frankly find it hard to believe that Wal-Mart's going to do what they say they're going to do," she said. "I think they're trying to get rid of the black eye that they've got."