Wal-Mart’s Urban Problem

Why does Wal-Mart struggle to open stores in America’s largest cities?

In an April 2006 speech in Chicago, former CEO and current Wal-Mart board member Lee Scott declared that his company wanted to be an "urban pioneer" and that Wal-Mart "has never been afraid to invest in communities that are overlooked by other retailers." [Chicago Tribune, 5/8/08]

Yet for years, Wal-Mart has tried and failed to build stores in Chicago, New York and central Los Angeles - as well as Detroit, Washington, DC, and Boston. Building stores in these great urban centers represents one of the last few rich avenues for domestic U.S growth open to Wal-Mart - and possibly the company's greatest challenge. Together, the populations of Chicago, New York and Los Angeles alone are almost 15 million people, or nearly 5% of the U.S. population.

Just 11 months after his bold statements in Chicago, Wal-Mart's urban frustrations were summed up best when, amidst unyielding opposition in New York City, Lee Scott said, "I don't care if we are ever here" and "I don't think it's worth the effort." [New York Times, 3/28/07]

For more information, check out our reports on Chicago, New York and Los Angeles below:

		Chicago Chicago is undoubtedly ground zero in Wal-Mart's battle to crack the urban frontier. Despite repeated attempts since 2002, Wal-Mart cannot gain a stronghold in the Windy City. At first Wal-Mart hoped to build as many as 20 stores in the city. Yet today, the company has only built one store and has been blocked in every other attempt.
		Los Angeles Today there are more Wal-Mart Supercenters in Kansas (48) than there are in the entire state of California (33), despite the fact that Orange County alone has more people than the Sunflower state. Because of its large, diverse population and economic importance, Wal-Mart has always known that to grow in the U.S. it simply must be in California.
		New York New York is the largest city in the United States, home to 8.3 million people - 27,147 persons per square mile - and zero Wal-Mart stores. Masters of rural and suburban growth, Wal-Mart still has yet to be able to circumvent the city's strong labor presence, activist population, and restrictive zoning laws.

Read the entire report: "Wal-Mart's Urban Problem"

Reasons for rejection

Why do these urban centers reject Wal-Mart expansion? Most opposition to Wal-Mart has focused on the company's poor labor practices, tax avoidance schemes, and reputation for destroying small business - all of which are a tough sell for the citizens of America's largest cities. City leaders have pointed specifically to the fact that Wal-Mart jobs offer poverty level wages and limited health care benefits. Put simply, Wal-Mart does not deliver the high-quality jobs that cities need to remain competitive in the 21st century.

America's big cities have feared that bringing Wal-Mart in will destroy the fabric of what makes these cities great - locally owned businesses that give something back to the community and its citizens. Local businesses keep much needed money in the city's economy and pay higher wages, on average, than national chains like Wal-Mart.

• "We have almost adopted the position that if some community, for whatever reason, doesn't want us in there, we aren't interested in going in and creating a fuss. I encourage us to walk away from this kind of trouble...Wal-Mart wants to go where it's wanted." - Sam Walton [From Sam Walton: Made in America]
  
• "If they don't want Wal-Mart in their community, then just say it. Don't hide behind all this malarkey." - Lee Scott [CNN Money, 4/5/05]
• According to the UC Berkeley Labor Center, "There is strong evidence that jobs created by Wal-Mart in metropolitan areas pay less and are less likely to offer benefits than those they replace. Controlling for differences in geographic location, Wal-Mart workers earn an estimated 12.4 percent less than retail workers as a whole, and 14.5 percent less than workers in large retail in general." [Center for American Progress, 10/16/05]
• Civic Economics, in its report "The Andersonville Study of Retail Economics," concluded that, "For every $100 in consumer spending with a local firm, $68 remains in the Chicago economy...For every $100 in consumer spending with a chain firm, $43 remains in the Chicago economy. [From "The Andersonville Study of Retail Economics" (February 2005)]
• Kenneth Stone, an emeritus professor of economics at Iowa State University, first coined the term "Wal-Mart phenomenon" in his 1995 study, "Competing with the Discount Mass Merchants.'' Stone found that when Wal-Mart came to a town, stores selling different products than Wal-Mart survived, but those selling the same products struggled. In Iowa, Stone found that 84 percent of all sales at the new Wal-Mart stores came at the expense of existing businesses within the same county. 
• Retail Forward predicts that for every new supercenter Wal-Mart opens, two local supermarkets will close. [BusinessWeek, 10/6/03]
• Wal-Mart could increase its minimum wage to $10 per hour and greatly boost the well-being of its low-income workers with little financial impact on most shoppers. According to the Berkeley Center for Labor Research, even if Wal-Mart fully passed on costs to consumers, the average impact on a Wal-Mart shopper would be a 0.9 percent increase in product prices. [The Berkeley Center for Labor Research and Education (December 2007)]
• If Wal-Mart's average wage reached $10 per hour, nearly half (46.3%) of the wage income gain would accrue to workers living below 200% of the federal poverty level, while less than one-third (29.3%) of the impact of the price increase would be borne by shoppers with incomes below 200% of the federal poverty level. Poor and low-income Wal-Mart workers could expect to earn an additional $1,020 to $4,640 a year in pre-tax income, depending on what they earn now and whether they work part-time or full-time. [New York Magazine, 8/8/05]
  

This year, Wal-Mart has been using the current recession as leverage to again try to build stores in New York, L.A. and Chicago. So far, they remain out of luck.

A case for EFCA

America's big cities have made it clear they are not willing to accept Wal-Mart under the current circumstances. If these cities do decide to permit Wal-Mart to build stores they should require an assurance that the company will, among other things, bring good paying jobs and provide its workers affordable access to quality health care. Given that Wal-Mart has demonstrated strong opposition to both of those things, the Employee Free Choice Act offers the best way to insure both are accomplished.

The Employee Free Choice Act is a piece of legislation that could truly turn the tables for Wal-Mart‘s workers and the communities in which it operates. It would put the choice to join a union in the hands of the workers, and eliminate much of Wal-Mart's ability to intimidate or fire workers who choose to do so. A collective bargaining voice will guarantee Wal-Mart workers a seat at the table with their managers to determine their pay, benefits and working conditions. Such power will help lift up the poorer and middle classes - and their communities with them. The passage of this bill has the potential to transform cities like Chicago, Los Angeles, and New York with higher wages and a new standard of living.

The time is right to change Wal-Mart for good - and EFCA is the best way to do it.