Wal-Mart's urban strategy stumbles in Chicago
(Monday, 14 January 2008)
By Sandra M. Jones
Last fall, Chicago was Wal-Mart's hope for the future.At the time, the retailer was planning to open a handful of stores in
the city in one swoop, a blitzkrieg that would have established Chicago as its urban beachhead after failed attempts to blanket major cities as Wal-Mart has done in rural and suburban areas.A year later, the world's largest company is still stuck on the shore.
Its single store on Chicago's West Side is doing "good but not great," a Wal-Mart official concedes. Local business
owners say they are disappointed with a program Wal-Mart launched aimed at helping them survive in the shadows of
its new store. And the retailer's efforts to open a second Chicago store are bogged down.
"We want to focus on one site at a time," said Todd Libbra, regional general manager and vice president of operations in
Illinois. "There are no plans to put up a whole bunch of stores at once."
If Wal-Mart can't succeed in Chicago, the retailer's urban strategy will have suffered a critical blow at a time when
investors have grown increasingly frustrated with Wal-Mart's lack of growth. Its stock now trades around $45, down 25
percent from March 2004 compared with a 35 percent gain in the Standard & Poor's 500 index in the same time period.
"At this point, the areas they haven't cracked have been the urban areas," said Patricia Edwards, managing director at
Wentworth Hauser & Violich, a Seattle-based investment firm that has dramatically cut its Wal-Mart holdings to 38,000
shares from more than 1 million shares three years ago. "That has been their weak spot. They have to be successful in
going into urban markets or they're not going to be able to continue to grow at the rate they have in the U.S."
After saturating rural and suburban America, the Bentonville, Ark.-based retailer began to target America's big cities to
recharge growth. Instead, Wal-Mart has largely become the enemy at the gates.
Los Angeles, after allowing one store to open, threw away the welcome mat. Boston shut its doors. And New York, the
nation's largest city, spurned the retailer's overtures so forcefully that Wal-Mart CEO H. Lee Scott Jr. said publicly
earlier this year that he didn't care if Wal-Mart ever opened there.
Not so Chicago. Or so it seemed at first. With a pro-business mayor, vast food deserts, and an abundance of shuttered
manufacturing sites ideal for building supercenters, Chicago was expected to become a shining example of Wal-Mart
cracking the urban frontier.
But the retailer encountered stiff resistance from organized labor, which poured at least $2.6 million into Chicago City Council elections earlier this year, in part to support aldermen likely to block Wal-Mart's march into the city.
Ald. Howard Brookins (21st) hosted a series of closed meetings late last month with City Council members and Wal-Mart
officials to drum up support for Wal-Mart's second city store at a former industrial site in his ward, but the project is
caught in a political quagmire. "I don't know how I can push it any further than I already have," Brookins said. "This is the easiest store to get. If they can't get this one, how will they get other ones?"
The council voted to rezone the property for retail in 2004 after then-developer Monroe Investment Partners LLC stated
in a letter to aldermen that Wal-Mart wouldn't be a part of the shopping center. Monroe is now a minority investor and
Archon Group LP, a unit of Goldman Sachs Group Inc., has taken the lead role.
But the letter remains a sore point among some aldermen, who said they wouldn't have approved the zoning change if
they thought Wal-Mart was coming. The city's planning department could technically give the green light for Wal-Mart to build there, but Arnold Randall, the newly appointed planning commissioner, has yet to say if he will do so.
Mayor resorts to veto
Wal-Mart scored a big victory last year when Mayor Richard Daley, in his first-ever veto, overturned a city ordinance
aimed at Wal-Mart that would have mandated minimum pay for workers at big-box stores. The controversy cost the
mayor a big chunk of political capital, and aldermen now say the mayor doesn't want another public fight.
It wasn't supposed to go down like this. Last year, Scott said he was positioning Wal-Mart as an "urban pioneer."
"To be honest with you, I really haven't felt an effect," Prayer said. "I thought I would have seen more of a commitment
from them, but there doesn't seem like there was any follow-through."
Prayer isn't alone in his criticism.
"It's just a front to say Wal-Mart is trying to help small business," said Lawrence LeBlanc, owner of LDL Furniture and
Appliance, a second-hand store down the street from Wal-Mart, who hadn't heard of the zones program until a reporter
told him about it. "How is it going to help me when Wal-Mart is selling things for cheaper and cheaper?"
Business has been slow ever since Wal-Mart opened, LeBlanc said. A $20 microwave at his store has been sitting on a
shelf for a year. A glass dining table with chairs is reduced from $400 to $250. Even on a 96-degree day, a $50 air
conditioner perched on the sidewalk failed to attract buyers. Before Wal-Mart arrived, it would have sold within two
hours, LeBlanc said. Now residents go to Wal-Mart where they find brand-new microwaves for as little as $46.42, a
dining room set for $169.88 and air conditioners for $96.
"People aren't buying the way they used to," LeBlanc said. "If I could find someone to take the lease, I'd close it up."
Even people who say they are sympathetic toward local business are drawn to Wal-Mart. Take Queenestra Harris, who
once operated a business in the neighborhood and who recently bought a cell phone charger at Wal-Mart when she
could have bought one at LDL. "I have to confess, I should have gone to Larry," Harris said. "So I'm guilty."
Smaller firms look for guidance
Some of the business owners in the zones program envisioned drawing on Wal-Mart's expertise. That has yet to
happen.
"I could use a CPA more than I could use that ad in the paper," said Rev. Curlie Anderson, owner of Curlie's Bakery on
North Avenue. "I was hoping to get some people to come in to help me reorganize my financial management situation.
I'm a business person but I really don't have the business skills."
Norman Delrahim, owner of B&S Hardware and a program participant, said he had hoped "one of the [Wal-Mart]
business employees could come to my store to tell me how to increase sales. I never went to school to do this. I did it
on my own."
Delrahim and Anderson said they declined offers from their local chamber to use Wal-Mart funds to pay for high school
students to work for them. Delrahim said he needed someone who knew how to make keys or repair broken windows,
while Anderson said he needed someone who knew how to bake.
Other business owners complain that Wal-Mart's free advertising, while a nice gesture, was ineffective.
"I'm a printer," said Sid Daniels, manager at JMX Media Group. "I would have loved to design my own ad. And I would
have put a coupon in the ad so I would know how effective the marketing is. The effort is appreciated, but the whole
point is getting results and getting help."
Still, Wal-Mart's arrival has invigorated the neighborhood's commerce.
Menards is building a 240,000-square-foot home improvement store across the street. Conway Stores, a small familyowned
discount chain with stores in New York, opened its first Chicago-area store down the street in August, banking
that Wal-Mart "might help us because they're attracting traffic," store manager Scott Bauer said.
Even an independent shoe boutique called Shu Diva opened in June just blocks away from Wal-Mart.
"I don't sell a lot of things that Wal-Mart sells," said Leandra Peters, a social worker who opened the shoe store partly to inspire young African-American women in the community to go into business for themselves. "I'm more fashionable, so I don't see Wal-Mart as a threat."
Panic eases, acceptance grows
At least one business owner, Francisco Soto, said he "panicked" when he heard Wal-Mart was moving into Austin.
Soto, who owns Midwest Audio, a car stereo and accessories store, said he opened a second store in Cicero, thinking
he needed another location in case his Austin location faltered. He overextended himself financially and now is closing the Cicero outpost to concentrate on the Austin store where business is better. He competes with Wal-Mart by selling
higher-end products and offering installation.
Today he embraces Wal-Mart's entry into the neighborhood. "Wal-Mart's got good pull," Soto said. "I've been in this neighborhood all of my life. I started working here when I was in high school. This neighborhood was terrible. Now that
Wal-Mart's here, there are planters, sidewalks, new trees. It's wonderful. Why did it take Wal-Mart to make it happen?"
Omar Duque, chief executive of the Illinois Hispanic Chamber of Commerce and a recipient of $75,000 under Wal-
Mart's zones program, also was encouraged by the retailer's presence.
"I believe there are things businesses can do to take advantage of that and generate more business as a result, as
opposed to having a negative impact. Clearly, thousands more people are going there to shop, and the surrounding
businesses can attract those customers," Duque said.
That is what Wal-Mart's Masten said the company is counting on. "For us it's important to have the small businesses do
well and be part of the economic development of the corridor. That helps all of us," she said.
Some observers wonder whether Wal-Mart might have been able to push its stores into other Chicago neighborhoods if
it had put more executive muscle into its Jobs and Opportunity Zones program.
William Marquard, president of Marble Leadership Partners, a Chicago consulting firm, and author of "Wal-Smart: What
It Really Takes to Profit in a Wal-Mart World," doesn't think so.
"Even if this program was successful, it wouldn't make the Wal-Mart debate go away," Marquard said. "The ultimate
criticism is driven by the unions, and even if Wal-Mart did a stellar job providing help to small businesses, the unions
would still be arguing about wage rates."
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