Commentary: Who Says Wal-Mart Is Bad For Cities?

Underserved neighborhoods welcome its jobs, low prices, and tax revenue

The Wal-Mart at the Baldwin Hills Crenshaw Plaza in South Central Los Angeles sits across the street from the kind of stores you'll find in any struggling big-city neighborhood. There's Lili's Wigs and King's Furniture and Mama's House, which promises the "Best Soul Food in Town." Last year, Wal-Mart Stores Inc. (WMT ) took over a space that had been vacant since Macy's (FD ) left five years ago. Since then, it has lured black and Latino shoppers with low prices on everything from videos to toothpaste. And now that people can stay in the neighborhood for bargains, something else interesting is happening: They're stopping at other local stores, too.

"The traffic is definitely there. We're seeing more folks," says Harold Llecha, a cashier at Hot Looks, a nearby clothier. The same is happening at other nearby shops, say retailers. They acknowledge that these shoppers don't always buy from them. On some items, Wal-Mart prices can't be beat. And a handful of local shops have closed. But the larger picture is that many that were there before the big discounter arrived are still there. There are new jobs now where there were none. And a moribund mall is regaining vitality. In short, Wal-Mart came in -- and nothing bad happened.

Opening a Wal-Mart in neighborhoods underserved by retailers should be a no-brainer. Yet opposition to Wal-Mart is fierce. In June, the Los Angeles City Council considers a law that will ban big-box retailers with grocery stores (read: Wal-Mart Supercenters) from poor neighborhoods. There, the issue is Wal-Mart's low wages and benefits. But opposition comes for other reasons, too. In April, Inglewood (Calif.) voters shot down Wal-Mart when it wanted to circumvent local zoning laws. In Chicago, the issues are wages and land use. In New Orleans, design was a flash point.

But for hard-pressed urban neighborhoods, having a Wal-Mart is probably a good idea. People like the bargains -- and the jobs. And with fewer small-town sites left, Wal-Mart's march into cities will only pick up. Ten years ago, it had only 13 stores in cities with more than 1 million people. Today it has 38, with more on the way. Even Los Angeles Councilman Eric Garcetti, prime backer of the L.A. bill, says: "We're not saying to Wal-Mart that we don't want you under any condition. But we want to bring them to Los Angeles in a way that supplements the economic development policies we have." He fears that supercenters could put local supermarkets, often the key to neighborhood upgrades, out of business.

A new Wal-Mart can indeed gut a small burg's downtown. But urban big-box retailing is so new that economists are just beginning to get a handle on it. A 2003 study by Emek Basker at the University of Missouri found that five years after the opening of Wal-Marts in most markets, there is a small net gain in retail employment in counties where they're located, with a drop of only about 1% in the number of small local businesses. That is consistent with what seems to have happened in Baldwin Hills. Basker has also found significant price benefits: Retail prices for many goods fall 5% to 10%.

While Big Labor blasts the discounter for its nonunion workforce, where a Wal-Mart worker might earn half what a union counterpart makes, even critics suggest that a Wal-Mart job might pay no worse than one at a local mom-and-pop. "Many small businesses are comparable in wages to Wal-Mart," says Stacy Mitchell, a researcher at the Institute for Local Self-Reliance in Minneapolis.

In Austin, a poor area of Chicago, the employment Wal-Mart would provide looms large. "It's real simple: we need those jobs, and we need them bad," says Alderman Emma Mitts, in whose ward a new Wal-Mart (without a supermarket) may go. She knows unions dislike Wal-Mart. But for her, the bottom line is this: "I can't monitor them unless they're here." Finally, there is the tax benefit. Urban stores capture sales taxes that might end up in the suburbs. Even so, some critics say that offering incentives to land a Wal-Mart may yield only a small return for a city. San Diego gave Wal-Mart $9.5 million to open a store in an old mall. A study by the Center on Policy Initiatives found that the city reaps tax benefits of only $250,000 annually. It isn't a lot, but as co-author David Karjanen puts it: "The question becomes whether something is better than nothing."

It probably is. Nothing is wrong with more jobs, lower prices, and more tax revenues. Wal-Mart's critics should acknowledge that. But Wal-Mart could improve the handling of its urban engagements with more flexibility and a keener ear for local concerns. The company should not be saying, as it does, that it has no urban strategy.

That's a mistake. Wal-Mart needs a well-thought-out plan to ease its entry into cities. One idea: It could take the bold step of revising its wage scale. Costco Wholesale Corp. (COST ), for instance, is mostly non-union. But it offers better pay, so it rarely provokes the ire a Wal-Mart does. The company would do well to consider more flexibility in its store design, too. What looks O.K. in a former cornfield can set a city dweller's teeth on edge. Most important, it needs to talk early and often with the communities it wants to be in -- a lesson Wal-Mart seems only now to be learning. "I think there was a point in the company's history when we were less sensitive to local needs, but we have gotten better," says Robert S. McAdam, Wal-Mart's vice-president for state and local government relations. Many observers would argue that it could do a whole lot more.

By Robert McNatt

With Ronald Grover in Los Angeles and Wendy Zellner in Santa Barbara, Calif.

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