LOS ANGELES — Wal-Mart, which is seeking to expand in urban areas, may be headed for a setback in Los Angeles when the City Council votes Tuesday on an ordinance that would make it harder for the world’s biggest retailer to build a Supercenter there.
The proposal, which doesn’t identify Wal-Mart by name, requires retailers to prove that so-called big-box stores of more than 100,000 square feet will not harm communities. The measure has been unanimously approved by two Council committees, and Mayor James Hahn supports it.
“We seek not to interfere with the marketplace, but we want to protect neighborhoods and the impact of blight,” Councilman Eric Garcetti said last week.
Wal-Mart has faced opposition in cities such as nearby Inglewood, Calif., where voters in April rejected a ballot initiative to allow construction of a 60-acre Wal-Mart shopping center and make it exempt from most state and local regulations. Opponents of the retailer, which wants to build 40 Supercenters in California in the next four years, have said the projects harm small businesses and lead to increased crime and traffic, among other issues.
The stakes are high, as Los Angeles is the core of a vibrant retail market with a population of 14 million. Wal-Mart’s Supercenters, typically 200,000 square feet or more, with 20,000 square feet of grocery, drive the company’s bottom line. The company’s 1,500 Supercenters in the U.S. reportedly accounted for as much as 40 percent of its $250 billion of revenue in 2003.
Many cash-strapped municipalities have welcomed Supercenters because they generate millions of dollars worth of sales taxes and employment. Six weeks after Wal-Mart lost its bid in Inglewood, the company won City Council approval in Chicago for zoning changes that will allow it to build its first store there.
The Los Angeles measure, proposed by Garcetti and Councilman Ed Reyes, has evolved over the past two years from an initial outright ban on retail giants. The latest version would require retailers to pay for an economic analysis to determine whether such projects would depress wages, damage mom-and-pop stores or contribute to blight. The city would approve or deny plans submitted by an applicant depending on the outcome of the report.
This story first appeared in the August 9, 2004 issue of WWD. Subscribe Today.
Membership warehouse clubs, such as Costco, are excluded from the ordinance based on a scale of impact that is thought to be less than that of a Supercenter, Garcetti said.
Although Wal-Mart has not yet made a formal proposal for a Supercenter in Los Angeles, many city officials said the retailer might seek to challenge such an ordinance in court or push for a voter referendum.
“Until we see what the final ordinance is, we have not made any decisions as to what actions we would take,” said Wal-Mart spokesman Pete Kanelos.
The company in March opened its first California Supercenter in La Quinta. If approved, the ordinance “would not prohibit a Wal-Mart Supercenter from being built in the city of Los Angeles,” Kanelos, said, noting that the company contributes more than $5.8 million in sales taxes to the city from its Baldwin Hills Crenshaw Plaza store. “It puts on various restrictions, of which most were in place, which is why we feel it is redundant. We oppose it simply on the basis that we think it is anti-consumer and anti-competitive.”
Adrienne Tennant, senior retail analyst at Wedbush Morgan Securities, said she doesn’t believe the ordinance would damage the retailer. “Wal-Mart has been around long enough to see opportunity, and where the opportunity exists, I think business will find a way to come to a mutual resolution,” she said.
Still, there are inherent difficulties in opening a Supercenter in an urban area. The biggest is finding large enough parcels of land for the behemoths. The traffic congestion that plagues Los Angeles is another issue. Wal-Mart could decide to build smaller stores that would fly under the radar of the ordinance. A Merrill Lynch analyst report in July said Wal-Mart has the capacity to build 850 smaller Urban 99 superstores in the next decade.
California is among the last states in the country to get Supercenters, though it is not alone in its resistance to them. An estimated 200 communities have fought the projects in the past 16 years, analysts said.
In California, two more Supercenters will bow next month, in Hemet and Stockton, which are anticipating revenues close to those of the La Quinta Supercenter, which could do between $75 million and $80 million worth of business this year, translating to more than $5 million in sales tax revenues.
“We’re well on our way to meeting our goal of Supercenters in California,” Kanelos said.