California Is No Paradise for Wal-Mart


In recent months, Wal-Mart Stores (WMT) has faced a barrage of criticism for being too big, too powerful, too willing to shave a penny off its costs at the expense of workers' well-being. So when voters in two California communities went to the polls on Mar. 2, it was seen in some quarters as a sort of referendum on the giant retailer's growth strategy. If so, the split that resulted suggests that the Wal-Mart juggernaut will steam forward, but not without some strong headwinds.

In Contra Costa County, an increasingly upscale area near San Francisco, voters rejected by 53.8% an ordinance that would have blocked the development of Wal-Mart's giant supercenters, which combine groceries and general merchandise, in unincorporated areas. Farther south, in the immigrant-rich town of San Marcos, opponents overwhelmingly won their fight to reverse the city's approval of a second Wal-Mart discount store in that community.

AMBITIOUS PLANS. The mixed message reflects the love-hate relationship that some consumers have with Wal-Mart. Van Fredricks, who supported the Contra Costa supercenter ban, says, "If Wal-Mart is unregulated, they're going to get a monopoly. Do we want that?" Yet the 32-year-old bodyguard was shopping at a Pleasanton (Calif.) Wal-Mart with his mother and sister. Why? Because "I like the prices," says his mother, Joyce.

So you can bet that these latest battles won't be the last word on Wal-Mart's ambitious expansion plan for one of its richest growth opportunities. The Golden State, after all, is a place where voters regularly wield ballot initiatives to make their voices heard. Other communities face votes or court fights over efforts to thwart Wal-Mart's megastore rollout (see table below). And, undeterred by Wal-Mart's victories elsewhere, Los Angeles may soon consider its own anti-supercenter legislation. "California is on fire now with anti-Wal-Mart sentiment," says activist Al Norman of Sprawl-Busters, an outfit that helps communities resist "big box" development.

Certainly, Wal-Mart has faced opposition to its stores for years in other parts of the U.S. from unions, environmentalists, and community groups. Those battlegrounds are small potatoes, though, compared with what's at stake in California, which had $71 billion in grocery sales last year, according to Retail Forward Inc. Wal-Mart, already the nation's largest grocery chain, opened its first California supercenter, a sprawling 225,000-square-foot store, on Mar. 2 in La Quinta. It has 40 supercenters planned for the state over the next three to five years.

NOT EASILY DETERRED. Entrenched players such as Safeway (SWY), Kroger (KR), and Albertson's (ABS) and their labor unions are equally determined to block Wal-Mart. Indeed, grocery workers just ended a bitter four-month strike in California that was provoked by the big chains' efforts to cut wages and benefits to better compete with Wal-Mart.

The Bentonville (Ark.) behemoth has proven it's not easily deterred. Faced with an anti-supercenter law in Clark County, Nev., for instance, it forced local leaders to back down by gathering enough signatures to take the measure to voters. When it can't overcome local roadblocks, Wal-Mart sometimes moves to nearby communities. And it's developing smaller supercenter prototypes that, along with its downsized Neighborhood Markets, could help circumvent size restrictions.

Its new ad campaign paints the chain as a friend of local communities and a rich source of opportunity and good benefits for workers. Wal-Mart also plays up claims that critics are a vocal minority trying to protect union jobs at the expense of consumers' pocketbooks. A recent Wal-Mart-financed study by the nonprofit Los Angeles County Economic Development Corp. found that Southern California consumers could save at least $3.76 billion a year, or $589 per household, if Wal-Mart grabs a 20% share of the grocery market. And the savings would create more jobs than Wal-Mart might destroy, the study contends.

CIRCUMVENTING HEARINGS. However, opponents scoff at the chain's "consumer choice" rhetoric. They say Wal-Mart creates costly urban sprawl, displaces small businesses, and drives down living standards with its low wages and benefits. Plus, its deep pockets and hardball tactics, they argue, are undermining local control over land use in California. Contra Costa Supervisor John Gioia figures Wal-Mart spent more than $1 million on the campaign there, nearly double its opponents' budget. "It sends a chilling message that [Wal-Mart] will spend whatever it takes to come into a community on their terms," he says.

One of Wal-Mart's most aggressive moves has come in low-income Inglewood, Calif., near Los Angeles. It's taking its store plans directly to voters on Apr. 6 to avoid what it considers a hostile city government. That's because the city previously had passed an ordinance that would ban the giant supercenters, but it backed down when Wal-Mart threatened to take the issue to voters.

Opponents say the latest move is more alarming because it would circumvent the normal public hearings and environmental reviews that are typically involved in such a project. "It's a very scary example of a big corporation coming into a small, low-income community and pulling the wool over people's eyes in the name of democracy," says Madeline Janis-Aparicio, executive director of the Los Angeles Alliance for a New Economy, a community organization opposed to Wal-Mart.

DROP IN THE BUCKET. So far, the skirmishes in California and elsewhere appear to have had little impact on Wal-Mart's ability to meet its growth targets. It now operates nearly 1,500 supercenters in the U.S., which helped raise Wal-Mart's total sales by nearly 12%, to $256 billion, last year. And while community opposition certainly raises the cost of doing business, "it's not even a rounding error" for this goliath, says economist Carl Steidtmann of Deloitte Research.

But anti-big-box activist Norman warns that Wal-Mart may be underestimating the potential consumer backlash. "If they keep going down this path of 'my way or the highway,' they're going to see the impact on their net sales and their stock price," he predicts. Until that happens, though, don't expect Wal-Mart to back down.

Wal-Mart's Store Wars

Here are some other places where Wal-Mart faces opposition to its supercenters:

Turlock, Calif.: Wal-Mart on Feb. 11 filed suits in state and federal court challenging the city council's ban on supercenters.

Alameda County, Calif.: Wal-Mart sued in state court to overturn an anti-supercenter law approved in January.

Los Angeles: A city council committee in December approved an ordinance that would effectively keep Wal-Mart's supercenters out of the city. The full council has not yet scheduled a vote.

Calexico, Calif.: In March, 2002, voters overturned an anti-big-box law opposed by Wal-Mart.

Tucson: A state judge in September threw out Wal-Mart's suit attempting to rescind the city's limits on supercenters.

Clark County, Nev.: County commissioners repealed a '99 ban on supercenters in 2000 after Wal-Mart qualified to take the issue to voters.

Data: BW By Wendy Zellner in Dallas, with Peter Burrows in Pleasanton, Calif.


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