It's no secret that Wal-Mart is running into resistance from communities all over California. But is Wal-Mart getting discouraged?
Far from it. The nation's largest company has plans to open a half-dozen “supercenters” (200,000+-square-foot stores that sell groceries) in California this year, and another 30 in the years ahead. The chain is honing political and economic arguments about why Wal-Mart is good for communities and why opponents represent a threatened “special interest.”
More important for planning and development, Wal-Mart is also experimenting with the “Urban 99” store - a 99,000-square-foot superstore designed to fit on smaller urban sites and circumvent many local ordinances that prevent retail/grocery combinations of more than 100,000 square feet. In other words, Wal-Mart is going to counter attacks on “big boxes” by becoming a “small box” retailer.
In fact, Wal-Mart is so eager to get a foothold in California that the company is paying a premium to do so. According to a Morgan Stanley analysis presented at a recent retail conference in Long Beach, Wal-Mart is now spending more money per incremental square foot to open stores than its archrival, Target. The cost per incremental square foot simply means how much money a retail chain spends for every new square foot of store that is opened. According to Morgan Stanley, Wal-Mart is now spending $275 per incremental square foot, compared with $250 for Target.
Why is Wal-Mart hanging in there - and why is the world's most efficient cost-cutter willing to pay a premium to do so? The answer is simple: In order to keep growing, Wal-Mart has no choice.
According to retail analyst Greg Melich of Morgan Stanley, almost one-third of all retail spending in the nation occurs in two concentrated areas - the Northeast Corridor and California. With 23% of its overall sales in these two areas, Target has good penetration. But Wal-Mart, with its rural “red state” base, does not. Only 8% of Wal-Mart's sales occur in California and the Northeast Corridor. Of 1,700 Wal-Mart supercenters, only seven are in California or the Northeast Corridor. “There is no part of California we are not looking at,” Bob MacAdam, Wal-Mart's head of corporate affairs, said at the Long Beach retail conference, which was sponsored by the International Conference of Shopping Centers.
The potential payoff is staggering. Maybe Wal-Mart has only seven supercenters in these areas, but the ones that exist are extremely successful. Three of the four highest-grossing supercenters in the chain are in California. The one in Hemet, for example, ranks third. And as the nation's largest retailer, Wal-Mart is not about to surrender the richest retail markets in the nation to Target. The bottom line: Wal-Mart will pay any price to open lots of stores in California.
In the wake of Inglewood voters' rejection of a supercenter and Los Angeles's adoption of an ordinance that requires economic impact reports for certain big-boxes (seeCP&DR In Brief, September 2004, May 2004), Wal-Mart has shifted to a more political strategy. The company has clearly spent a lot of time on what political consultants call “message.” The emerging message is that Wal-Mart is good for the typical community, and that Wal-Mart's opponents - most particularly unions - are simply special-interest dinosaurs trying to stop change that is good for most people. Here are some aspects of the message Wal-Mart is sending:
o Wal-Mart is really just a “commission buying agent” - a kind of co-op representing a vast number of consumers. It protects them against manufacturers, unions and others who seek to keep retail prices high for their own purposes.
o Wal-Mart helps average folks have more money for other things. Spend less on retail products and you can spend more on tuition, medical care, and the other things that are so expensive.
o Wal-Mart aids mom-and-pop stores by creating an enormous amount of retail traffic that adjacent businesses can feed off of.
o By dominating the bottom of the market, Wal-Mart is creating niche opportunities for other businesses that provide specialized products and services Wal-Mart doesn't provide. (It's pretty clear that as Wal-Mart gets into the grocery business, the big chains such as Albertsons and Safeway/Vons are going to cede the bottom of the market and go upscale instead.)
o Wal-Mart's presence is a boon to other California companies that supply the chain with products. The chain claims that it buys $16 billion in merchandise annually from 4,600 suppliers in the state.
So that's the political message, and Wal-Mart can be expected to get more and more aggressive in pushing the message throughout the state. But there's more to the Wal-Mart strategy than message. In addition to being the biggest retailer in the country, Wal-Mart is also one of the biggest and savviest real estate developers in the United States.
Wal-Mart has clearly concluded that its real estate ace-in-the-hole is a more flexible store model. Hence the “Urban 99,” Wal-Mart's small box solution. Retail analysts say Wal-Mart might build as many as 1,000 small boxes in the next decade - and that by 2013 or so, virtually all new Wal-Mart supercenters will be small boxes, not big boxes. The Urban 99 - which has not yet been seen anywhere in California - has both an economic and a political rationale.
The economic rationale is obvious: A supercenter takes 20 to 25 acres of land, which in most parts of urban California (and the Northeast) is both vastly expensive and hard to find. An Urban 99 is less than half the size of a classic supercenter. It's a way to take the basic Wal-Mart product - think of it as a huge Target plus a big Albertsons with really low prices - and squeeze it into a more urban location.
The political rationale is obvious too. Many anti-Wal-Mart ordinances function by limiting the size of retail stores that also sell non-taxable merchandise (groceries) to less than 100,000 square feet. So the Urban 99 model gets around the typical anti-Wal-Mart ordinance. It also opens up lots of opportunities, especially as Wal-Mart picks up 100,000-square-foot sites in existing urban areas from K Mart and other troubled retailers. Wal-Mart opens a store identical to the one that was there before - and then later on converts it to an Urban 99.
What does all this mean for local planners struggling to deal with large-scale retail? In the inland areas, especially the Central Valley, it means more conventional Wal-Marts and lots of supercenters. However, in crowded urban areas, the small box trend is good news for local planners in many ways. It will not blunt the social and economic opposition from unions and community activists who don't like Wal-Mart's business practices. But it will give local communities more leverage.
The small box trend means that Wal-Mart clearly expects to build a store in every town. This means that the chain won't be able to play adjoining jurisdictions against each other. It also means - like many in retail chains before them - Wal-Mart's architects and real estate folks will have to become more flexible in site planning and design.
The small box's guts will look the same everywhere. But on the outside, the Old Town Pasadena Wal-Mart is going to look very different from the City of Orange Wal-Mart or the Rancho Cordova Wal-Mart. That is not to say that Wal-Mart is going to start building Urban 99s in downtown parking garages with apartments on top - at least not tomorrow. But if Wal-Mart wants to build a store in every town, then Wal-Mart will have to go native. And that's good news for local planning.