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Wal-Mart's long-standing plans to come to Washington, D.C., are now up in the air. The City Council passed a living wage law that would require the world's largest retailer to pay $12.50 an hour, more than the city's current $8.25 minimum wage.
So Wal-Mart is saying it will abandon three of the six stores it planned to build in the District and is evaluating whether to forge ahead with the remaining stores currently under construction. The case highlights some of the difficulties — and opportunities — big-box stores sometimes face entering urban markets.
D.C. Councilman Vincent Orange is not a big-box-store hater. "I was very instrumental in bringing Home Depot and Costco to town, and back then we had to provide incentives to give entities to come into town," he says.
But Orange, who is chairman of the council's business and regulatory affairs committee, says Wal-Mart can afford to pay employees more. A decade ago, D.C. courted retailers and offered tax incentives. Now, the city's population is growing and is well-to-do — and Orange says that gives Washington the upper hand.
"Whereas before, back in 2002 and 2003, we were begging entities to come to the city, we wanted what they had. And now they want what we have," he says.
Indeed, cities are a key growth area for big retailers. Rob Grossman, a partner in Deloitte's real estate consultancy, says the exurbs and suburbs are already saturated with big-box stores.
"The landscape is such that the market is pretty much covered, leaving the urban markets as kind of the last untapped market," he says.
But cities — especially older cities along the East Coast — are challenging for the large-scale-retail format. For one thing, it's hard to find enough space — for the store, parking and traffic access. Grossman says sites are typically smaller, which means they require frequent visits from 18-wheelers to restock.
But retailers like Wal-Mart have strong business reasons to want to be in D.C., Boston and New York, where they don't have stores now. Grossman says it enables them to ship online orders more efficiently.
"The store going forward will not focus just as a place to buy stuff. It will have a couple of different purposes — it'll be place you can buy stuff, it'll be a place like a showroom to look at things, and it might also serve as a mini fulfillment hub," he says.
Wal-Mart spokesman Steve Restivo acknowledges there's money to be made in Washington.
"There's a reason we wanted to open six stores in Washington, D.C.," he says.
But, he says there are many urban myths, if you will, about Wal-Mart's relationship with cities. Including the idea that the giant retailer has trouble getting in.
"Today Wal-Mart has stores in places like Los Angeles and Chicago and Philadelphia and Baltimore," Restivo says.
Wal-Mart publishes its wage data online and says its pay is competitive. Restivo says the D.C. Council is acting against consumers' interests.
"From Day 1 we said we thought the legislation was arbitrary, discriminatory and most of all discouraged investment in D.C.," he says.
Restivo cites Chicago's experience: Seven years ago, the City Council there passed a similar bill that was vetoed by the mayor. Stores were eventually built, consumers voted with their wallets, and now Wal-Mart is building more stores there.
Lamont Blackstone, an urban developer and retail consultant, says anti-big-box sentiment is usually strong because the incumbent stores fund those campaigns. That was the case in the 1990s when Blackstone fought to bring a Pathmark supermarket to Harlem. The store eventually prevailed.
"Practically any observer in the economic development scene would testify to the fact that that Pathmark full-service supermarket that got built up in East Harlem has contributed to the revitalization and the redevelopment of East Harlem, and one might argue Harlem in general," Blackstone says.
And he says D.C. shouldn't kill a possible golden goose.
Washington Mayor Vincent Gray must now either approve or veto the living wage bill. A decision is likely by next month.