Wal-Mart is dressing up for the Bay Area

SF Business Journal cover

Wal-Mart is dressing up for the Bay Area

New store designs, new philanthropy signal an urban push

San Francisco Business Times - June 23, 2006 by Sarah Duxbury

Wal-Mart is working hard to earn the smiley-faced image of its longtime yellow-dot mascot.

The $312 billion Bentonville, Ark.-based discount retailer, which has been decried for driving mom and pop under while promoting a new class of working poor, is on a charm offensive -- one that may have some teeth.

From a $60,000 sponsorship of a San Francisco lesbian, gay, bisexual and transgendered employee advocacy nonprofit to store redesigns and tailored merchandising, Wal-Mart seems to be trying to recreate itself in Target's image. That Minneapolis-based retailer has played well in the Bay Area, where many continue to oppose Wal-Mart's big city dreams.

Wal-Mart has made no secret of its urban ambition and that California will play a starring role. While it is waging, and sometimes losing, battles to grow in California -- nearby Hercules recently voted to seize through eminent domain 17 acres where Wal-Mart plans to build, and Wal-Mart shelved plans to open a store in a Los Angeles neighborhood in January -- the company is changing from the inside out in ways that might appeal to urban, affluent Californians.

Wal-Mart CEO Lee Scott said at a shareholders meeting earlier this month that the company is undergoing a five-pillared transformation that includes broadening Wal-Mart's appeal to different customers, making the company a better place to work and supporting the communities where it operates.

Each of those pillars, done right, could help build the market for Wal-Mart in urban California. Already,Wal-Mart has 144 discount stores and 17 supercenters state-wide. It employs over 69,000 Californians and paid over $20 billion to California suppliers. It is currently building in Richmond, Fremont and American Canyon.

First Wal-Mart must overcome the hostility it faces here.

Back in February, Wal-Mart announced that it was expanding employee health benefits to include part-timers' children. In April, it announced the creation ofa program to offer small business owners in urban areas financial aid and training on how to co-exist with Wal-Mart. That same month, Wal-Mart announced "Acres for America," its commitment to preserve one acre of wildlife habitat for every acre it develops.

"This is all part of what we call the store-of-the-community concept, from merchandising to architecture to our associates," said Kevin Thornton, a Wal-Mart spokesman.Promoting diversity is a major part of that ongoing effort.

Motives for change

HSBC analyst Mark Husson said it would be "cynical" to consider Wal-Mart's changes as a PR stunt to win the hearts, minds and dollars of shoppers in regions like the Bay Area, Southern California and New York City where the retailer has under 2 percent of market share and fierce community resistance. Though Husson acknowledged "there's clearly a lot less to dislike about Wal-Mart now."

(Wal-Mart is an investment banking client of HSBC, but neither HSBC nor Husson owns stock in Wal-Mart.)

Foes of the company dismiss the announcements as hype.

"The company is in a serious public relations crisis and is desperately trying to crawl its way out of it," said Chris Kofinis of WakeUpWalmart.com, a grass-roots opposition group. "They have not changed whatsoever in terms of their basic culture and you could even say they've gotten worse because they're more disingenuous now. Last year they just said: this is the way we do business. They realized that didn't sell well and now they are trying to PR their way out of it."

Newness on order

Wal-Mart insists that real change is afoot.

The company plans to focus on five store formats based on demographics and location: suburban affluent, urban multicultural, Hispanic, baby boomers and rural markets. Four of those five describe the Bay Area. Each market will be merchandised accordingly.

If the changes now being tested in stores in Chicago, Kearny, N.J. and Plano, Tex. do find their way into the Bay Area, they won't come cheap. But they could pay off big by opening up new markets.

Wal-Mart's sponsorship of the Out & Equal Workplace Summit can be seen as an effort to woo homosexual shoppers much as it has begun courting African American, Hispanic and female shoppers.

According to statistics from Harris Interactive and marketing firm Witeck-Combs, LGBT purchasing power will grow from $610 billion in 2005 to $641 billion this year.

Wal-Mart is a $60,000 plenary sponsor of September's Out & Equal Workplace Summit in Chicago. The company signed on to support the workplace advocacy group just two years after Ken Pearson, a Wal-Mart executive, attended his first Summit and reported his findings to Bentonville.

Those close to the company and this sponsorship say it is not just a façade and reflects a growing commitment by Wal-Mart to 'do the right thing.'

"I think the company, with it's mission and focus on diversity, really wanted to make an impact, knowing that the support would be well-received within the LGBT community," Pearson said. Wal-Mart "has been making great strides in moving the needle in LGBT workplace equality."

Out & Equal Executive Director Selisse Berry sold Wal-Mart executives on Out & Equal in two days of meetings on LGBT issues in Bentonville last December.

"What struck me about that was that the culture at Wal-Mart is changing," Berry said. "They were eager to learn and kind of catch up."

While $60,000 is "a drop in the bucket" compared to Wal-Mart's $200 million corporate philanthropy budget, Berry said it's "a way of putting a toe in the water around LGBT equality and being able to say to this concentrated group of people: This is important to us."

Telling its story

Thornton, the company spokesman, said that Wal-Mart isn't implementing a radical culture change so much as telling its story better. He said a commitment to workers and communities is nothing new.

But going urban is new.

Building urban Wal-Marts in the Bay Area is no guarantee they will succeed.

"I'm not sure of the return on investment, if you charge an ultra-low price and pay ultra-high rent," Husson, the HSBC analyst, said. "It's not just a question of labor costs. Can Wal-Mart actually charge more for Tide in a more affluent area?"

Wal-Mart is now testing the answers to these questions, bolstered by sales data on more "luxury" items collected by Walmart.com, based in Brisbane.

What is certain in the near term is that Wal-Mart will market all changes, small and large, and its involvement with diverse community partners, from the United Negro College Fund to Out & Equal.

Sarah Duxbury covers retail for the San Francisco Business Times.

SF Business Journal logo