Wal-Mart's push into US cities

Both sides of the debate made their voices heard at a recent city council meeting in New York.

The world's largest retailer has long struggled to find a footing in America's urban centres, with their powerful unions and strong support for small business owners. But an economic recession finds cities struggling to create jobs and a fierce debate over Wal-Mart's potential presence is taking hold of city councils nationwide.

It is lunchtime on a crisp day in Lower Manhattan and people file into a former bank building a few yards from City Hall. New York's politicians have been invited to a public hearing to discuss Wal-Mart's potential impact on small businesses and communities.

"You cannot come to New York City and behave the way you have behaved in other parts of the country. New York City will simply not stand for it," says council Speaker Christine Quinn in her opening statement.

She laments the fact Wal-Mart has not sent any representatives to the meeting.

What the nation's largest publicly traded company has done is blanket the local media with ads - in print, on the radio and TV - and create walmartnyc.com, a website specifically targeting the country's biggest consumer market.

Start Quote

Alderman Brookins

With 33% unemployment, we need to get the much-needed jobs first and talk about wages later”

End Quote Howard Brookins Chicago alderman

Since 1963, the company from Bentonville, Arkansas, has spread across America's heartland and to 15 countries around the world, while reaping revenues in excess of $400bn (£248bn) a year.

But as its core customer base of low-income consumers continues to feel the squeeze in a tough economic environment, the company has seen revenue in its US stores decline for six straight quarters.

For a retailer looking to expand, America's large cities represent the "final frontier".

In the East New York section of Brooklyn, where unemployment has reached 20% in some areas, local Assemblyman Darryl Towns says he would welcome a store for his constituents.

His district used to specialise in small manufacturing - clothing and small appliances - and local leaders have been trying to find a replacement for this lost industry for years, says Mr Towns.

"Not only are we not making them any more, but we can't sell or buy them either."

Union outreach

In the days leading up to the city council meeting, the retailer struck a deal with a local construction union to have all its New York stores built by union contractors over the next five years.

A Wal-Mart store in California Wal-Mart says it has become more flexible and can cater to communities' needs

Building and construction unions have been hit especially hard during the economic downturn and are desperately looking for jobs, says Dorian Warren, a professor at Columbia University who is writing a book about the effects of Wal-Mart on large cities.

Using union contractors is an effective strategy for a retailer that has long been viewed as anti-union, and has a history of discouraging its US employees to organise.

"Wal-Mart drives a very strong wedge between the unions," says Prof Warren. "Now it can say 'we are built by unions'."

A similar deal came about in Chicago last summer when two stores on the South Side were approved by the city council.

"I don't think everyone got what they wanted, but neither did Wal-Mart," says Jorge Ramirez, president of the Chicago Federation of Labor.

Under the deal, the city insisted that Wal-Mart pay 50 cents above the Illinois minimum wage and double its commitment to community spending.

Start Quote

Now that they are in one city, other places will have a problem trying to turn them down”

End Quote Professor Dorian Warren Columbia University

Alderwoman Sharon Dixon voted to approve the new stores but did so "reluctantly", she says. "Two colleagues asked me for their vote, but Wal-Mart is still not paying a liveable wage."

One of those colleagues, Alderman Howard Brookins, says the arguments against Wal-Mart seem much less persuasive in the current economic climate.

"With 33% unemployment we need to get the much-needed jobs first and talk about wages later," he says. "I'd rather have a brand new shopping mall than an old warehouse."

Working-class communities with high unemployment and a lot of available land are the primary targets for entry into a city. The company has argued that abandoned land can be put to productive use through the construction of a Wal-Mart site.

"It does open the gate and is precedent-setting. Now that they are in one city, other places will have a problem trying to turn them down," says Prof Warren.

Wal-Mart argues that it is more willing than ever before to cater to communities' specific needs.

"What has changed is we have become more flexible in our approach," says Steven Restivo, Wal-Mart's director of community affairs.

He points to a variety of new store designs and sizes, with some models a fraction of the size of the average Wal-Mart.

Capital connection

In Washington DC, the retailer has announced that four stores will open by 2012, and local politicians acknowledge that times have changed.

"Five or 10 years ago there was such acrimony around Wal-Mart that it would have been very difficult for them to enter the city," says council member David Catania.

Mr Catania sees an opportunity for the city to save money in health costs if poorer patients use the Wal-Mart prescription drug plan, but he doubts a net increase in jobs will result.

Rendering of a proposed Wal-Mart store in Washington DC Wal-Mart plans to open four stores in Washington DC by 2012

Back in Chicago, a research team at the University of Illinois at Chicago studied the economic impact of the city's first Wal-Mart store, which opened on the West Side in 2006.

Professor David Merriman, who led the research, saw no evidence of an increase in sales in Wal-Mart's vicinity, based on tax revenues in the store's postal code area.

Of all the existing businesses within four square miles of the store, a quarter closed within two years of Wal-Mart's opening day.

"Adding Wal-Mart is not an effective strategy to increase employment or economic development," says Prof Merriman, and cites other national studies with similar results.

But politicians eager to deliver new jobs and revitalisation to their poorest neighborhoods seem to be winning the debate in many cities across the US.

Whether the venture into poor, urban neighborhoods will be a winning formula for the retail giant is unclear.

With many potential inner-city customers cash starved and unemployed, the strategy might not prove very sustainable.

"But if the economy turns around, they are in a great position," says Prof Warren.

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