Economic Development

Walmart Makes Its Urban Debut

In the past, cities have resisted big-box stores. But now, government leaders from New York to New Orleans are actively courting places like Walmart and Home Depot to move in.
by | June 2012
 

As Chicago Alderman Howard B. Brookins sees it, Walmart isn’t perfect, but at a time when unemployment in the city still hovers around 10 percent, it makes sense to embrace the world’s largest -- and perhaps most controversial -- retailer. “People can no longer say that not having a job is better than working at Walmart,” says Brookins, whose support for the store has made him a political target of some of the city’s labor unions.

Walmart opened its first Chicago store less than six years ago. Today, it’s up to five stores, having just opened one in the city’s West Chatham neighborhood in Brookins’ ward. Construction is slated to begin this summer on a sixth store in the East Lakeview neighborhood, and another three Chicago stores are in the works. The company hopes to eventually have dozens of stores throughout the Windy City.

Walmart, one of the most recognizable symbols of modern suburbia, is going urban.

In addition to its push in Chicago, the store is expanding its footprint in Atlanta. It’s hoping to enter New York City and Boston for the first time. And in perhaps its most aggressive move, Walmart last year announced plans for six stores within Washington, D.C., a city that currently doesn’t have any. Walmart isn’t the only store that’s expanding into central cities. In recent years, Target, Best Buy and Home Depot, among others, have been turning their focus to urban markets, which for political reasons (like labor opposition) and more practical concerns (like tighter land-use regulations) have posed a challenge for the big-box market in the past.

But times have changed. The country’s largest retailers have oversaturated rural and suburban America, and companies view urban centers as huge, largely untapped markets. Meanwhile, cities are desperate for the property and sales tax revenue the stores can generate, not to mention the jobs they’ll create and the access to fresh food they can provide at a time when the issue of food deserts has become a national concern. To be sure, there’s no lack of opposition to the big-boxification of cities. Most recently, the federal investigation into alleged government bribes by Walmart’s Mexican subsidiary has threatened to slow the retailer’s urban growth campaign in the United States. And there are still plenty of very vocal opponents who say that big-box retailers will hurt urban livability by driving away smaller independent businesses. Nevertheless, city leaders from Atlanta to Chicago and New York to New Orleans are now actively courting Walmart and other mega-retailers. Is it time to learn to love the big box?

Over the last half-century, the volume of retail in the country has grown at an astonishing clip. In the 1960s, the nation had about 4 square feet of retail per American; by 2000, that figure had increased nearly 10 times over. Most of that growth occurred in suburbs, as central cities emptied out. When the recession hit in 2008, retail took a massive hit, leaving an estimated 1 billion square feet of space vacant, much of it in suburban areas. Meanwhile, cities have become increasingly attractive destinations for many of the same types of people who historically left for the suburbs.

Today, big-box retailers look at urban centers like Washington and New York as “oases in this recession” with relatively strong economies, says Winston Orzechowski, research director at commercial real estate investment brokerage firm Calkain Companies. These companies don’t just want to move to the city -- they have to in order to survive. Cities, which for so long were one of the few places in America ignored by major retailers, have now become their final frontier. “It’s not like they have anywhere else to go,” says Ed McMahon, senior resident fellow with the Urban Land Institute. “They’ve already saturated every suburb and small town in America.”

Yet moving to the city hasn’t been easy. Building suburban stores is simple: A Walmart Supercenter in the suburbs of Houston, for example, is basically identical to one outside Orlando. Urban markets, however, force retailers to adapt to existing spaces or lots, and sometimes require other creative steps. In Chicago, a Target is slated for the landmark Carson, Pirie, Scott and Company Building, designed in 1899 by Louis Sullivan. In Washington, several of the proposed Walmart buildings include plans for apartment housing above the store.

Walmart has also created new formats that seem particularly well tailored to the urban environment, like the Walmart Express, with a typical footprint of less than 15,000 square feet, and the Walmart Neighborhood Market, measuring about 40,000 square feet. It’s not using those models exclusively in the city -- all of the company’s planned Washington stores will measure 80,000 to 120,000 square feet -- but that’s still smaller than the typical Supercenter, which can measure up to 180,000 square feet.

It’s hard to overstate how much these kinds of innovations represent a reversal from just a decade ago. When Walmart and other big-box stores tried to crack urban markets back then, they were largely unsuccessful. Experts say their inflexibility on design issues was too big a hurdle to overcome. “Trying to do something that seems appropriate for the outskirts of Las Vegas … in a big city like San Francisco or New York or Chicago is not going to work,” says John Norquist, a former mayor of Milwaukee and current head of the Congress for the New Urbanism. “I think they’ve finally figured that out.”

There are other questions they’re being forced to answer, mostly for the first time: where to put loading docks, how many underground parking spots to have and how to incorporate transit stops. If done right, urban big-box stores could actually help foster the goals of the smart growth crowd by creating retail opportunities that are easily accessible to pedestrians and transit users, instead of forcing them to drive to the suburbs to shop. Advocates for the trend also cite the “transformative effect of retail” and believe the stores could help improve transitional neighborhoods.

Casey Chroust, executive vice president for retail operations at the Retail Industry Leaders Association, a trade group that represents just about all of the country’s major big-box stores, points to the 40,000-square-foot Whole Foods Market that opened in Washington’s Logan Circle neighborhood in 2000. Less than 20 years ago, the area was a hub for prostitution and other crime; today, it’s one of the city’s most desirable locations, replete with high-end furniture stores, gourmet restaurants and expensive real estate. Many observers say the Whole Foods (which originally opened under the name Fresh Fields) was a catalyst for change in the area. “It’s like having an anchor in a shopping mall,” says McMahon of the Urban Land Institute. “It’s bringing people into the neighborhood.”

Each city is taking a different approach to the big-box movement. While Mayor Michael Bloomberg of New York City has welcomed the prospect of Walmart, many local leaders like New York City Public Advocate Bill de Blasio and some City Council members vigorously oppose the retailer. As it stands, Walmart doesn’t have firm plans for a single store in the city, even though it’s aggressively eyeing the market. In Washington, D.C., Mayor Vincent Gray has welcomed the retailer; some City Council members have questioned the merits of the stores, but their criticism has generally been muted. Walmart’s first store is expected to open in the district next year. In both New York and D.C., labor groups and activists have loudly criticized the entrance of big-box stores -- and Walmart in particular -- into urban markets.

Stacy Mitchell, a senior researcher with the Institute for Local Self-Reliance, a national group that advocates for local businesses, says Walmart’s strategy is to saturate urban markets. She believes the company’s announced plans for cities like Chicago and Washington are merely the earliest stages of a broader effort. Cities, she says, should start developing plans now for how they will address the rapid expansion of Walmart and others so they’ll be prepared. She and other advocates argue that the economic benefits to a city from stores like Walmart have been overstated.

Both Walmart and city leaders often cite “leakage” -- money that a city’s residents spend in Walmarts outside their city limits -- as one of the primary reasons cities should embrace the stores. Residents are shopping at Walmart anyway, the logic goes, so why shouldn’t their own city get a piece of the action through property tax and sales tax revenue? “People are shopping the brand,” says Walmart spokesman Steve Restivo. “Our goal is to make access more convenient.” According to Walmart, Chicagoans spend nearly $500 million each year at Walmart stores outside the city; New Yorkers spend $200 million; and Washingtonians spend $40 million.

But Mitchell and other big-box opponents argue that the money isn’t significant enough to compensate for the negative impact Walmart could have on a local economy. A given market only has a limited amount of dollars to spend, and if residents start spending those dollars at Walmart, they’ll necessarily spend less at smaller, local retailers, causing job losses at those businesses. That’s particularly bad news, critics say, because a dollar spent at a local store will be more widely circulated in the local economy than one spent at a national chain with headquarters elsewhere. Opponents of Walmart’s urban endeavor like to cite a 2009 study of the chain’s first store in Chicago, which identified 82 stores that closed in its wake. (That study, notably, did not look at any new businesses that may have been created as a result of Walmart moving in, ignoring the “transformative effect” cited by Chroust and others.)

“The problem with the big-box stores is they have such economic clout in the marketplace that they’re able to undercut local businesses,” says D.C. Councilman Phil Mendelson. He’s pushed for legislation -- so far, unsuccessfully -- that would require big-box stores in his city to pay a living wage and benefits. The intention, he says, is to prevent a race to the bottom in terms of wages. Theoretically, if a big-box store offering low wages had a large enough presence in a city, it could drive down wages across the entire retail sector. Mendelson’s legislation would only apply to big-box stores; other businesses could still pay the minimum wage. His argument? Big-box stores can afford it. Supporters of Walmart say that the very fact that its stores have employees proves the company pays the market rate wage.

Still, Mendelson says he isn’t entirely anti-Walmart, just very skeptical. “I would say, superficially, having the world’s largest retailer interested in locating in the city when we’ve lost almost every other department store over the last four decades -- that’s a good thing,” Mendelson says. “Having an economic competitor who underprices the market and causes a descent to the bottom, in terms of wages -- that’s not a good thing.”

There’s also a debate within cities about whether they should use their planning and zoning regulations to block the store. In many urban markets, Walmart isn’t seeking tax incentives, making it difficult for city leaders to make demands. That’s a stark departure from what big-box stores have historically done in the suburbs, where they often play jurisdictions off one another to see who will offer a lucrative package of tax abatements and incentives.

With that dynamic removed, cities may see that the best way to exercise leverage is through the zoning process. But even that’s a difficult situation. In Washington, Planning Director Harriet Tregoning says the only way the city could block Walmart -- even if it wanted to -- would be essentially to make the store illegal, since its plans generally comply with existing zoning regulations. In New York, the city has had a bit more flexibility with a Brooklyn site that Walmart is rumored to be considering, because part of the development’s land is titled to the government.

Big-box supporters say it’s a gross misuse of the planning and zoning process to try to block a store on political grounds. In a free market, they argue, a big-box store such as Walmart shouldn’t face roadblocks so long as it operates legally. Others see it differently. “We’re in a highly regulated system,” says Tom Angotti, an urban affairs professor at Hunter College in New York. “I’d love to see where this free market is. Show me a municipality that doesn’t have zoning regulations, that doesn’t have taxes, that doesn’t have a regulatory structure that limits what businesses can do all the time because of an overwhelming public interest.”

There’s a bigger, less quantifiable argument against big-box stores’ move to the city, and that’s the question of whether the widespread urban expansion of these major chains will have profound changes on the character of city life. Urbanist Jane Jacobs wrote that “the trust of a city street is formed over time from many, many little public sidewalk contacts” at places like the bakery, the newsstand, the grocery store and the drug store. “We’re in danger of obliterating those things if we greenlight these retailers,” says Mitchell of the Institute for Local Self-Reliance.

Could those places really disappear if Walmart and other big-box stores come to dominate city life? Maybe. But that might not necessarily be a bad thing. “Cities are evolutionary,” says Tregoning, the D.C. planner. “New uses replace old uses.” As Tregoning sees it, Walmart doesn’t offer any meaningful shopping experience. It competes solely on price and convenience. She doesn’t sugarcoat her message to small businesses afraid that they can’t compete. “If Walmart can beat you,” she says, “then you are in the wrong business to begin with.” Instead, she says businesses that offer something Walmart can’t -- like bars, restaurants and stores selling specialty goods or offering personalized levels of service -- will continue to thrive.

Washington has less than 9 square feet of retail per resident, while the national average is more than two dozen, according to Tregoning. Anything that gives residents more shopping options -- especially affordable ones -- is a good opportunity in her book. Other city leaders appear to be embracing that philosophy. In Chicago, Alderman Brookins sees Walmart filling a similar void. “It may not be right for everybody, but in our community, it works,” Brookins says. “In our community, the mom-and-pop stores have long since left.”

In many ways, the notion of major retailers opening huge stores in central cities is a return to the way things were half a century ago, says the Urban Land Institute’s McMahon. “It was 1960. We called it a department store.”

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