By  on September 20, 2006

Until Wal-Mart opened there four years ago, residents of Dixon, Calif., a city of more than 17,000 people southeast of Sacramento, traveled at least 10 miles to shop for anything but groceries.

The world's largest retailer was welcomed in Dixon, nicknamed "Lambtown U.S.A." for its sheep industry, because it is "a small, rural place…with very few shopping opportunities," Mayor Mary Ann Courville explained.

Dixon's embrace of Wal-Mart, as well as the jobs and tax revenue it generates, is not business as usual in California.

In 2002, Wal-Mart announced plans to open 40 supercenters in the state by the end of this year — the company's most aggressive U.S. development, with the potential to produce billions of dollars in sales, about 15,000 jobs and $20 million in tax revenue annually.

Twenty units have been built, and at least 10 sites have been formally proposed or are being considered. Wal-Mart has 199 stores in California, including 35 Sam's Clubs.

The retailer's opponents — union members, environmental and church groups, and some elected officials — want to stall or block the expansion. Their tactics have ranged from passing ordinances intended to prohibit supercenters to seizing land by eminent domain. Los Angeles, which doesn't have a Wal-Mart, was the first U.S. city to require a favorable economic impact report before any big-box store could be built.

"California is obviously vital to their performance," said Bob Buchanan, retailing analyst with A.G. Edwards. "It's really hard for any big-box retailer to get all the sites that they want….with Wal-Mart, when you layer on the community opposition, it makes it even tougher."

California's economy, ranked in the world's top 10, and population dwarf those of other states. Among its almost 37 million people, 34 percent are Hispanic, a group Wal-Mart president and chief executive officer H. Lee Scott said is a prime business target, particularly as the Bentonville, Ark.-based retailer faces mounting challenges at home and abroad.

In May, Wal-Mart retreated from South Korea, where it sold its stores to a local rival for $882 million. The company also reported "moderately below plan" profits for its Asda supermarkets in Great Britain.Wal-Mart last month posted its first decline in profits in more than a decade because of losses tied to its July withdrawal from Germany, where it failed to capture a consumer base. The company sold all 85 stores there to local competitor Metro AG, taking a $1 billion loss.

And days later, Andrew Young, a former Atlanta mayor and U.N. ambassador hired by the company's publicity arm to improve the retailer's image, resigned after telling an African-American newspaper that Jewish, Arab and Korean shop owners had "ripped off" urban communities. He then apologized and retracted the comments.

In the U.S., the $312 billion company has been stymied as it tries to expand in New York and other major cities, and has come under pressure to improve employee benefits and wages.

Counterattacking with a vigorous public relations effort, Wal-Mart says it creates jobs, generates tax revenue and provides value to millions of customers. The company has boosted health benefits and wages for new hires (while capping pay for veteran employees), and is trying to offer higher-end merchandise to lure affluent customers and polish its image.

California is an opportunity for Wal-Mart to open in communities not yet served by big-box retailers. In Texas and Georgia, where Wal-Mart has 559 units, the company often builds stores in close proximity to each other. The retailer says this saturation strategy boosts total market share in an area, but some Wall Street analysts have questioned how long the company can profitably cannibalize stores. Units that open in existing markets average annual sales 2 percentage points lower than those that open in untapped areas, according to the company. Though prime sites are difficult to find in every state, California has more space for expansion than most. The retailer needs more than 20 acres to open each average supercenter, which range from 99,000 to 261,000 square feet.

"Wal-Mart is in a situation in California where it's really going to be a tough fight," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., which specializes in economic research and consulting.

The company doesn't release sales figures per state, but "California on a per-store basis does exceptionally well," said Kevin McCall, a company spokesman based in Los Angeles.In Dixon, Wal-Mart may have a community model it wants to replicate.

Mayor Courville said she meets with the store's manager over coffee at least once a month to "talk about how Wal-Mart can help with community events and issues. They've been a very good community-minded business to have. Whenever we need something, we know we can count on Wal-Mart to help us out. They give money to our local charitable organizations….when we have an Easter egg hunt, they donate candy."

In April, the Dixon store, located about 30 miles from the state capital, was expanded into a 183,000-square-foot supercenter. There was no organized opposition to Wal-Mart in 2002 or to the expansion. A handful of residents spoke out against the retailer during the initial public hearings.

"You have to understand that our situation is very different than other cities," Courville said. "Other cities have a lot of retail and commercial development; we don't. This was the beginning of attracting other retailers. We just got an application for a Home Depot to come to town, which we're excited about."

Some retailers deliberately locate near Wal-Mart to take advantage of the spillover of consumer traffic.

"California is the most challenging and fiercely competitive real estate region in the U.S….It's the place retailers want to be," said George Whalin, a retail management consultant based in San Marcos, Calif.

Although Wal-Mart has opened in cities such as Palmdale, Palm Desert and Santa Clarita, the retailer has usually faced opposition. In many locales where it wants to open — places like Pajaro, Merced, West Hills and Marina — anti-Wal-Mart organizations have formed.

"California is a hotbed of Wal-Mart activity," said Al Norman, founder of Sprawlbusters, a nonprofit group that works with communities seeking to block big-box franchises. "In many cases, these areas have had strong unions and are urbanized. And land use is a very competitive business."

Nu Wexler, communications director for Wal-Mart Watch, said the supercenters are "clearly their growth vehicle, and they're well off their mark in California."

Wal-Mart spokesman McCall said the slowed pace of expansion is attributable to the time it takes to build a store in urban areas because "people in [urban areas] don't necessarily know what a supercenter is."The city of Inglewood, in Los Angeles County, has been a major battlefield. Inglewood voters in 2004 defeated by referendum a proposal for a superstore that would have circumvented city oversight and public review.

Still, Wal-Mart bought the 60-acre property and has held onto it.

In July, the Inglewood City Council passed an ordinance mandating that developers of stores in excess of 100,000 square feet, with more than 10 percent of sales area dedicated to nontaxable goods (groceries are nontaxable in California), must finance and submit a cost-benefit analysis of the proposed store.

"They keep going into places like Inglewood because it fits the exact demographic they want — lower- to middle-class people of color," said Tracy Gray-Barkan of the Los Angeles Alliance for a New Economy, a nonprofit organization that acts as an advocate for low-wage workers.

Another superstore ordinance, which also requires big-box retailers to submit an economic impact report, was passed in Alameda County in April. The county, which encompasses Berkeley and Oakland, has three Wal-Mart stores.

In Vallejo, 30 miles north of San Francisco, residents are mobilizing to stop Wal-Mart from opening a second unit — a supercenter near the center of town. Vallejo's existing Wal-Mart is 1.5 miles from the new site.

"The company's goal is [to have] a mixture of a supercenter" and a smaller store "to best serve our customers," McCall said.

Vicki Gray, chairwoman of Vallejoans for Responsible Growth, said a Wal-Mart in the town's core would discourage upscale businesses from opening and decimate the surrounding retail landscape.

"There is a shopping center across the street with a store called Seafood City that sells fresh fish," Gray said. "It's attracted Asian consumers from satellite communities. Some [residents] say Wal-Mart won't carry seafood. But that's exactly what they'll carry."

The retailer has announced plans to retool its U.S. stores over the next two years to customize merchandise and store layouts for six delineated populations, including Latinos, African-Americans and affluent customers.

"The company does not take a one-size-fits-all approach to communities," McCall said. "What might sell in one community that's more Latino-focused wouldn't sell well in a more Asian neighborhood. In the new store in Rosemead [Calif.], we've made a very focused effort to take steps to look at what goods and services are in the Asian market because the population is 50 percent Asian."The newest supercenter opened Saturday in Rosemead, the closest Wal-Mart has gotten to Los Angeles — 12 miles from downtown. The Rosemead City Council approved Wal-Mart in 2004. So strong is the debate that on Tuesday, voters were to decide whether to recall the two remaining council members who voted in favor of the retailer.

Hercules, a city of 20,000 people about 20 miles northeast of San Francisco, in May became the first municipality to stop the company from building a supercenter by seizing land through eminent domain. The city took back 17.3 acres Wal-Mart purchased from a local company that was developing a retail center in the blighted downtown. The land was part of a larger plot that was designated for city-led redevelopment.

"One of the powers present in a redevelopment project area is eminent domain," said Stephen Lawton, community development director of Hercules. "There was no organized group of citizens here [to oppose Wal-Mart], but the council heard from the community and citizen activists. Wal-Mart was not intending to submit an application that was compliant. They submitted an application and then withdrew it. Then they submitted another that was found to be noncompliant."

Wal-Mart has said it would fight any ruling that allows seizure by eminent domain. McCall said the company is looking at its options in Hercules.

"We expect to get sued pretty hard by Wal-Mart," Lawton said.

In Atascadero, a city on the central coast with a population of around 26,400, residents last year formed Oppose Wal-Mart after a local developer, the Rottman Group, courted the company to anchor a 43-acre retail project called the Annex. Wal-Mart has since purchased 26 acres from the developer, but must apply for rezoning to build a supercenter.

"We believe that a supercenter will eliminate good-paying jobs and drain the character out of the town," said Tom Comar, an organizer of Oppose Wal-Mart. "We are not opposed to commercial development at the Annex, but we would like to see something that would fit the character of our community."

Wal-Mart has been as combative as the opposition.

In Turlock, a suburban city in the Central Valley with about 56,000 people, the retailer fought — and lost —in three courts between November 2003 and April 2006.Wal-Mart began planning a supercenter in Turlock in 2003. Before construction began, the city passed a zoning ordinance that banned stores exceeding 100,000 square feet that devoted 5 percent or more of sales area to groceries.

Wal-Mart sued Turlock on the grounds that the city had exceeded its power, arguing the legislation was passed specifically to stop Wal-Mart. A Stanislaus County court judge ruled that the city acted within its rights to "control and organize development within its boundaries as a means of serving the general welfare."

Wal-Mart then sued Turlock in state and federal court, alleging that the city was conspiring with area grocery stores to restrict competition. A federal court in Fresno sided with the city on July 3. The company is considering an appeal.

Gov. Arnold Schwarzenegger, a Republican who is seeking reelection in November, has routinely vetoed legislation targeting Wal-Mart, including a measure that would have required big-box retailers to conduct economic impact reports before construction. He broke from his party when he signed a bill Sept. 12 to increase the minimum wage in California to $8 per hour from $6.75 by Jan. 8, 2008.

According to public campaign finance documents, the family of founder Sam Walton has donated around $1 million to Schwarzenegger's political operation in the last two years.

In 2004, John Walton, son of Sam Walton, gave $200,000 to the governor's political arm, the California Recovery Team. John Walton's wife, Christy Walton, donated $250,000 to the organization on Oct. 7, 2005, the same day the governor vetoed a union-backed bill that would have forced the state to disclose names of companies whose workers receive government health services. (Wal-Mart reported in January that its health insurance covers only 43 percent of its employees.)

Weeks later, Rob Walton, Sam Walton's eldest son, donated $250,000 to the governor's proposition 77 campaign, and Wal-Mart Stores Inc. gave $100,000. The proposition, which was defeated, would have shifted the power to redraw congressional and legislative districts from the Democrat-controlled General Assembly to three judges.

A Schwarzenegger spokesman declined to comment.

Wal-Mart's proponents argue that supercenters boost California's economy.

"I think any community in the U.S. is making a serious mistake in not allowing Wal-Mart to open a store….My idea of a good time is not paying more for the same merchandise," said Buchanan of A.G. Edwards. "Historically, Wal-Mart has been poor at community relations, and people have long memories. But I think these communities need to realize that they've made a mistake."Kyser of the Los Angeles Economic Development Corp., who was part of a team Wal-Mart hired to compile an economic impact study for Los Angeles in 2004, said, "The basic thesis of the report was that once Wal-Mart captured a 20 percent share of the market, there would be an impact — some businesses would close. But overall, we found it would be beneficial to the economy because people would be saving money. We were very hard-nosed about it. We did not sugarcoat things."

Policy analyst Ted Balaker of the Los Angeles-based Reason Foundation, a nonpartisan organization that supports free enterprise, said, "Almost everywhere Wal-Mart opens, it's overrun with shoppers and job seekers. Consumers like Wal-Mart. Job seekers like Wal-Mart."

Wal-Mart's opponents acknowledge that while the company may be stymied in affluent areas, less economically privileged regions often are a different matter.

"A lot of the battles depend on the sophistication and experience of the people who are involved," said Danny Feingold, communications director for the Los Angeles Alliance for a New Economy. "[Communities] have to understand the politics. These things get very complicated."

Elliott Petty, an Inglewood resident who fought Wal-Mart during the 2004 referendum and now works as a community organizer for the LAANE, said the retailer is a tenacious foe.

"Early on, I couldn't see that Wal-Mart would spend so much money fighting us — I just didn't get it," he said. "As it went on, I started to understand."

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