Strolling the Agora: How–And Why–The “Chicago Deal” By Wal-Mart Will Impact On That City And The Shopping Center/Retail Chain Industry

This column of Strolling the Agora appears in the July 5th, 2010 issue of SHOPPING CENTER DIGEST
“Of course it's going to impact on the shopping center industry,” said a seasoned dealmaker. “Wal-Mart is so big that whatever it does is going to affect those specifically within this small real estate niche, and it will expand out to touch thousands of others not directly related.”
He was referring to the recent decision in Chicago where, after six years, the city council finally approved a zone change to permit the discount operator to build a store in a mixed-use project on the South Side, due to open in 2012. This, the chain said, would grow to dozens of stores within the next five years.
There's no question that the stimulus behind the approval is the severe recession responsible for high unemployment in this city and across the nation, resulting in severe cutbacks of municipal services caused by reduced tax revenue and high deficits. Wal-Mart's promise to hire 12,000 workers and to pay above minimum wage has softened the primary objections of the established unions; its estimate of paying some $500 million to the city in sales taxes, the expectation of its making available some space in its stores to small businesses, and to contribute $20 million to city charities also softened local opposition from community groups and independent retailers.
The discounter is talking of constructing units with union labor, stores as small as 8,000 sq. ft. in addition to its superstore concept, formats concentrating on groceries, and online services enabling customers to pick up merchandise at the stores. Also, some Chicago officials pointed out, a lot of local citizens are spending millions of their dollars and paying their sales taxes to benefit communities containing Wal-Marts that circle the city.
The Bentonville, AR, behemoth grew to be such a dominator force on the retail side by concentrating its growth in small towns and suburbs; essentially, it saturated this market.
Industry Reaction
According to Hank Mullany, who heads the Wal-Mart's stores in the Midwest, Northeast, and mid-Atlantic regions, “We have very small market share in the large cities within the United States, so we see a big opportunity for us to grow in those urban markets.”
The reaction of many in the shopping center/retail chain industry is mostly strongly in favor of this new direction being taken.
Said Peter D. Morris, CEO at Greenstead Group: “Wal-Mart is simply watching the demographic and trend curves which indicate a new 'urbanism' as boomers move away from the burbs and back to the amenities of urban life. Smart developers should be watching this as many retailers have successfully clustered around [its] draw. The other side of the impact of urban Wal-Marts will be felt on unorganized business improvement districts and urban area merchants associations because these organizations typically lack [the] resources and management of a shopping center under a unified ownership.”
Brian Spray, owner/sr. project manager at Integrated Engineering, pointed out that large cities have become more accepting of big-box stores. “Most cities face budget short falls as they do not have enough tax revenue. Big boxes generate massive ratables for the city, provide affordable items to the residents, and create jobs for local residents who do have personal transportation.”

The Philadelphia Example
He pointed to an example of strong unions losing their hold on the city politic. “Here in
Philadelphia the Mayor had to beat the union into submission when MTV came to town a few years back to film a season of The Real World. The city needed the revenue generated from juniors who would now want to visit the city, go to school here and possibly work here. The unions drove MTV out of town as they were not the winning bidders on the project. The city had to work very hard to get MTV to come back.”
Relating to this city, Michael Fisher, who is a local developer at RealMarq and a faculty member at University of Phoenix, said Wal-Mart's entry there had “little impact on the local retailers” and pointed to an opposite example in New York's borough of The Bronx where strong union opposition helped kill development last May at the Kingsbridge Armory. There demands that tenants in the project pay $2.75 per hour above minimum wage forced developer Related Companies to drop plans for the shopping center.
Fisher pointed to other big box retailers – COSTCO, Home Depot, IKEA, Target, Lowes – who have successfully entered urban areas with the cooperation of local politicians and community groups. “Retailers need to look at these big boxes as a benefit; they bring a lot more people to that corner of the world. What can they do to benefit from those new entries to the market? Change is the only sure thing; Wal-Mart may seen to change the marketplace but in reality it adds to vibrancy of marketplace.” 
Not One-Sided
The discounter, agreed Marsha Getto-Aikens, principal of Regoup Consulting, is “very much aware of the changing demographics, our aging population, the declining birth rate. Even more important, the movement of certain age/ethnic groups from suburbs to the cities, and vice versa… Cities have to decide if tghey want to foster and be differentiated by the smaller, uncommon, vibrant, retailer tht crerates a far more interesting shopping environment, combined with better residential, and a resugence of community-centgric components that increase the attractiveness of urban living, or NOT.”
It's tough for a city to turn their back on the increased tax revenue Wal-Mart would generate, she continued, “however, you have to believe there are other ways to create revenue that does not involve the addition of more hardscape and less individuality.”
Susan Schulte, president of Schulte Real Estate Resources, doubted the Wal-Mart deal in Chicago would have much effect on the larger shopping centers and malls. It could however, “have a negative impact on the smaller, less occupied strip centers that may already be struggling. I think it will have a greater impact on grocery stores and some of the smaller independent businesses. Hopefully our economy will be stronger by the time these stores actually start to open for business. With the additional jobs there should be benefit to most retailers, even at lower wages.”
Some in the industry were uncomfortable about outside pressure being exerted to control wages paid by companies. 
“Last time I checked,” said one dealmaker, “we were in a capitalistic free society. A merchant should be allowed to go to the market and hire at a rate a worker is willing to work for. Should no workers be available at those wages, they need to pay higher wages. That's the nature of capitalism.
“The do-gooders have one fallacy in their reasoning. Paying a 'living Wage' doesn't assure higher productivity. Therefore in order to attain desired ROI, the retailer is forced to raise prices – to the inner city consumer. That's a lose/lose proposition.”
Another asks about where would be the cutoff point, where do you draw the line?
“A guy with 6 McDonalds? Patio.com? Once you get the biggest over a barrel, then the next smaller, then the next smaller, until everyone had to do it.? It unevens the playing field. I'm not in favor of leveling the field by punishing and penalizing the most efficient player!”

Question Of Dominance
Several also pointed to Wal-Mart's history as a retail giant who trampled independent operators in small communities. Veteran dealmakers related historical anecdotes where the discounter cut prices below cost to force local merchants to close, and then raised their prices when they became overwhelmingly dominant in a small market.
“These problems experienced in small town USA,” warned one, “when Wal-Mart dominated those areas – will repeat itself in the urban retail landscape.”
The immediate impact of what has taken place – and will take place in Chicago– said one local real estate maven, “will mean many more deals and commissions going to those able to put together these packages, for individual freestanding Wal-Marts and as anchors in small strip centers. There are a number of these with substantial vacancies caused by the demise of Circuit City, Linens-N-Things, and other well-known retailers.”
Another pointed out that due to these vacancies, rents being sought by cash-strapped landlords are about one-third less than that being asked three years ago.
It is understood by many in the industry, that Wal-Mart is expected to continue this direction in many other urban markets where it had been rejected in the past: Los Angeles, New York, the corridor between Boston and Washington, DC. And the chain's strategy, said Mullany, “would be to get our stores as close as possible, so in urban markets we'll be doing that with multiple formats.”
Other real estate veterans pointed out that the impact will have substantially positive effects on many in the workforce, in addition to those stocking the shelves and cash registers at Wal-Mart, or helping to build these stores.
“It will mean income for those involved in leasing, financing, administrating and designing the facilities, those in the service industries involved in the stores. And then look at the real estate values around these Wal-Marts. Don't tell me,” he continued, “that those residential and commercial properties are not going to appreciate in value and also return substantial ratables to the city and their owners.”

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Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts.  A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.
About Murray Shor:
Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.
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