WAL-MART PUSHES AHEAD IN ST. LOUIS, MO

Wal-Mart pushes ahead with St. Louis area supercenter expansion plans [St. Louis Post-Dispatch (Mo.)]

With gas and food prices soaring, Jan Stalley says she’s thrilled that the Wal-Mart on Telegraph Road is being expanded to a supercenter, adding a full-service grocery.

“I can’t wait,” said Stalley, who lives with her husband and two sons in south St. Louis County. “Wal-Mart is going to make Schnucks and Dierbergs run for their money.”

Those sharing Stalley’s sentiments will be glad to hear that the Bentonville, Ark., retailer is proceeding with expansion plans in the St. Louis area despite cutbacks in other parts of the country. The company plans to open eight of its supercenters through next year, the first being in Fenton next month.

“We have slowed down growth, but it hasn’t affected the St. Louis market,” said Carol Johnston, vice president and regional general manager. “It’s a fantastic market for us. … The time is so right.”

Consumers are finding their budgets increasingly squeezed by rising prices for food and fuel. Reports from the Labor Department on Thursday showed consumer prices have risen 5.6 percent during the last 12 months, and weekly earnings, when adjusted for inflation, are down 3.1 percent.

But while most retailers are being hit hard by the tough economic conditions, Wal-Mart reported a record 17 percent increase in second-quarter earnings on Thursday as shoppers turned to the discounter in search of the best deals.

“Yeah, I’m going to shop where it’s cheaper, and everything is cheaper at Wal-Mart,” Stalley said. Plus, she added, she can do one-stop shopping at a supercenter, helping her save on gasoline.

She’s far from alone in those sentiments, according to findings from a study released last week by Information Resources Inc., a Chicago-based marketing research firm. The study showed that consumers have changed their shopping patterns to increase trips to supercenters, particularly Wal-Mart, to try to save money on both their gas and consumer packaged goods.

The report said Wal-Mart is enjoying an increased share of consumer spending on 84 of the top 100 consumer packaged goods, based on data from the 52 weeks ended May 18.

While lower- and middle-income consumers stepped up spending at Wal-Mart early in the economic downturn, upper-income consumers significantly increased the share of packaged goods spending allocated to Wal-Mart during the past six months as gas prices skyrocketed, the report said.

“Low prices and one-stop shopping have proven to be an incredibly powerful combination at a time when consumers are forced to strategize to maximize gas usage and stretch budgets as far as they will go. Wal-Mart is exceptionally well-positioned for growth,” Thom Blischok, president of IRI Innovation and Consulting, said in a statement.

Yet the huge retailer is not immune from bleak economic trends.

Wal-Mart warned in its earnings report that tough times are ahead and expects same-store sales, an important measurement of a retailer’s performance, will rise as little as 1 percent to 2 percent in the third quarter.

The company has been planning ahead. As early as June 2007, it began cutting capital expenditures. Slowing spending on store growth boosts both the company’s cash flow and return to shareholders.

Despite this, Johnston said Wal-Mart is on track for planned growth in the St. Louis area. Next month’s Fenton opening will be followed by the store in Telegraph Hill and in Chesterfield. Next year, supercenters are planned for Arnold, St. Peters, Manchester, High Ridge and O’Fallon, Mo.

The supercenters planned for Arnold, Manchester and High Ridge will be new buildings, while the others are expansions of existing sites.

Wal-Mart supercenters have become a common site in the cities and counties around St. Louis; there already are 12 in the metropolitan statistical area. But development of the stores has been slower closer to the city.

Wal-Mart has faced opposition in many communities.

Wal-Mart is trying to obtain a zoning change to convert the discount store in Granite City to a supercenter. The expansion is being opposed by union groups and a list of about 3,000 area residents who believe a supercenter would hurt local businesses and take away union jobs.

The groups, however, have been unsuccessful so far. Last week, the city’s planning commission agreed to recommend the zoning change to the City Council, which is expected to consider the matter on Tuesday.

Wal-Mart also is hoping to build a supercenter in Godfrey. Although the plans drew objections from community groups, the retailer obtained rezoning and is waiting for approval from the Illinois Environmental Protection Agency.

While much of Wal-Mart’s area expansion has been outside of St. Louis County, industry experts believe that the retailer has plans to move closer to the city by converting existing stores, such as those in Maplewood and Kirkwood, and through new construction.

Johnston would not comment on potential supercenter sites that have not been specified by Wal-Mart.

However she did say, “We always want to move closer to St. Louis.”

St. Louis provides an opportunity for growth because Wal-Mart has been slower to expand here than in certain other parts of the country that are now more saturated with Wal-Mart stores, said Glenn MacDonald, professor of economics and strategy at Washington University’s Olin School of Business.

“We’re now on their radar screen because they’ve filled up everywhere else.”

There are a number of reasons why St. Louis had been on the retailer’s back burner, including the high cost of construction and the need for a lot of space, MacDonald said.

Most of the new supercenters will be 195,000 square feet in space, with 40,000 square feet devoted to grocery operations, Wal-Mart said. The Chesterfield and High Ridge stores will be smaller overall but will still have the same size grocery sections.

As the population and property development have grown in the western suburban areas, opportunities have opened up making St. Louis more attractive to Wal-Mart.

Resistance also seems to have lessened as opponents feel resigned to the fact they can’t beat Wal-Mart, said MacDonald.

However Al Norman, head of Sprawl-Busters Consultants based in Greenfield, Mass., disagreed. “The opposition (to Wal-Mart expansion) has never been greater than it is today,” he said. “All it takes is a shadow of a Wal-Mart to get people upset.”

Sprawl-Busters helps community groups wage campaigns to stop the spread of big-box stores and is involved in the Granite City fight against the conversion to a Wal-Mart Supercenter.

He said there have been groups in at least 400 communities that stopped or forced the delay of the construction of a supercenter at least one time. In some instances, these groups had a role in getting Wal-Mart to drop expansion plans. He said that last year, for example, Wal-Mart withdrew plans to expand its discount store in Glen Carbon’s Cottonwood Plaza to create a 24-hour supercenter.

The plans for the supercenter prompted a lawsuit against the village and its officials by a residents’ group called Glen-Ed Citizens for Fair Growth.

However, Glen Carbon’s mayor said the withdrawal was related to Wal-Mart’s reduction in supercenter growth and had nothing to do with the lawsuit.

When Wal-Mart wants to build a supercenter, it usually succeeds because consumers vote with their wallets, MacDonald said.

“They (Wal-Mart executives) win because they’re good,” he said. “People want good products at a low price, and that’s exactly what Wal-Mart produces. Wal-Mart consistently delivers.”

Many consumers believe Wal-Mart forces competitors to lower their prices as well.

However, a research paper published last year shows that other grocers have lowered their prices only modestly in response to the giant retailer’s expansion.

The study, written by Emek Basker of the University of Missouri-Columbia and Michael Noel of the University of California-San Diego, showed that Wal-Mart’s food prices are about 10 percent lower than those of its competitors.

“We conclude that the competitive effect of Wal-Mart Supercenter entry on the prices charged by other supermarkets and grocers is 1 percent to 1.2 percent,” they wrote. “We also find that the price effects are concentrated in smaller supermarket and grocery chains.”

Posted by Joel Nezianya on Friday, August 15, 2008

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