How Wal-Mart Won Chicago

In a retail desert on the South Side of Chicago, amid vacant lots and signs promoting "affordable bankruptcy," sits a highly contested 200-acre plot that's the future of Wal-Mart (WMT). The company famous for low prices and high growth is nearly tapped out in the sticks and suburbs. Today, just 47 of its 4,300 Wal-Mart and Sam's Club stores are in big cities, and most of those are in Dallas and Houston. Urban America is the company's last frontier.

Since 2006 a single Wal-Mart has been homesteading in Austin, a mostly African American Chicago community with an unemployment rate of 40 percent, its alderman says. Now the company wants to put two dozen more stores in the city, including a 145,000-square-foot Supercenter on that 200-acre plot. In an area ravaged by poverty and desperate for the 400 jobs the Supercenter would provide, you'd think this would have been a slam dunk. It was not.

After the first Chicago Wal-Mart opened, unions and community organizations successfully lobbied the city council to pass an ordinance requiring Wal-Mart and other big box retailers to pay at least $10 an hour, with benefits. The legislation infuriated Wal-Mart and its chief advocate, Mayor Richard M. Daley. In response, Daley, the country's longest-tenured big-city mayor, exercised his first and only veto, then watched labor spend $3 million to elect a cadre of pro-union aldermen to the city council.

The mayor looked outside the city limits and saw that unions hadn't tried to stop Wal-Mart from operating in the suburbs. "Why didn't the unions object in the 'burbs? Suburbs are flooded with those stores," the mayor says. As for the argument that small businesses in the city would be imperiled, "go to New York and see all the small stores which have closed up. It's not because of Wal-Mart. It's because people are not spending." Daley also says Wal-Mart's management "got caught up in a national thing" by being too sensitive to attacks from unions.

The open warfare between labor and Wal-Mart showed no signs of ending until the recession forced both sides to reconsider. Chicago's political leaders realized the city couldn't continue to lose sales tax dollars to big boxes in the suburbs while failing to embrace the jobs offered by the Wal-Marts of the world. Wal-Mart had to feed the growth monster to keep shareholders happy. So on May 3 an unprecedented informal negotiation between company executives and labor leaders was held near O'Hare International Airport, according to three people who attended. The executives joked that Sam Walton would be turning in his grave if he knew about it, though the meeting itself hardly bridged the trust gap between the sides; the unionists, according to attendees, were required to sign confidentiality agreements, which they did.

With the door to rapprochement open a crack, Wal-Mart executives met Daley at a U.S. Conference of Mayors gathering last month in Oklahoma City to tell him about a "transformational" strategy. To win over Chicago, the company would build stores of various sizes, double its community spending to $20 million over five years, and ensure union construction of stores in the Chicago metropolitan area.

Starting wages were the final sticking point. First Wal-Mart signaled it would pay $8.75, or 50 cents more than the new Illinois minimum wage. When warned on the eve of a critical June 24 council vote that Wal-Mart was going to lose the Supercenter, negotiators agreed to a minimum 40 cents hourly hike after an employee's first year of service. Wal-Mart won't confirm any such deal, but according to union leaders, aldermen, and the mayor, the 45-0 council vote in favor was premised on those points. "I'm nervous about the camel's nose inside the tent, says Joe Moore, an alderman and Wal-Mart critic. "It's not a vote that was taken without mixed feelings. But the compromise on wages changed my vote."

Ultimately, Wal-Mart cracked Chicago by presenting a smart package of incentives and highlighting the lack of retail in the poorest communities, notably the absence of Chicago's two unionized supermarket chains, Jewel and Dominick's. The company may have blinked on wages—but so did labor, accepting an hourly figure it would have scoffed at a year ago. Everybody wins.

Except, not really. While unions were reflexively arguing that big box retailers are exploitative, Wal-Mart didn't endure much suffering. The unemployed did. So did shoppers on a budget. On a Monday trek to Chicago's current Wal-Mart, the parking lot in front of the store was packed by 10:30 a.m. Van Gooden, 56, a community representative for a nonprofit group, happily showed off his purchase: a white, button-down polo shirt slashed to $3.29 from an initial $12. Asked about Wal-Mart's impact on the impoverished ward, he said: "It's all about jobs and price."

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