Leon Worden

(Again ... and Again ... and Again)

By Leon Worden

Sunday, January 30, 2005


    "We'll lower the cost of living for everyone, not just in America, but we'll give the world an opportunity to see what it's like to save and have a better lifestyle, a better life for all."

    — Sam Walton, 1918-1992

    If bigger is better, Wal-Mart is best. With annual sales of $265 billion and climbing, Wal-Mart isn't just America's biggest retailer. Measured by sales volume, it's the biggest company in the world. It's bigger than British Petroleum. Bigger than ExxonMobil. Bigger than General Motors. Ford. DaimlerChrysler. Toyota. General Electric.
    Dollar for dollar, Disney is a Mickey-mouse operation.
    Among retailers, Wal-Mart does more business than No. 2 Home Depot, Target, Lowe's, Sears, Costco and Best Buy — combined.
    F.W. Woolworth Co., originator of the discount chain-store craze a century ago, capitulated in 1997 when it shut its doors, laid off its employees and lost its status as a component of the Dow Jones Industrial Average. The Dow replaced it with Wal-Mart.
    A majority of Wall Street analysts give Wal-Mart stock their strongest "buy" recommendation. Past performance may not guarantee future results, but they're enthusiastically anticipating a return of 14 percent or better through 2007.
    The company that Sam Walton built more than 40 years ago opened its 5,260th store Wednesday, give or take a dozen. It was the second of an eventual four Wal-Mart stores to open in the Santa Clarita Valley, and the first of three to come inside city limits by late 2005.

Photo Illustration
Photo Illustration by Ketti Phillips,
Eddie Sadiwa and Leon Worden
[Click to enlarge]
    Local municipal leaders, long indignant over the loss of sales-tax revenue to the county's Valencia Marketplace outlet, are swooning in a stupor of vindication, dizzied by visions of chinking cash registers. To the devil with the divisive "Shop Santa Clarita" campaign. Shop Wal-Mart. With an outlet in the Rye Canyon Business Park, the city will capture shopping dollars from unincorporated Castaic and Tesoro del Valle; two more at Centre Pointe on Soledad Canyon Road will catch the remainder of Santa Clarita. We'll scarcely miss any money malspent across the freeway.
    Just how big are these new Santa Clarita Wal-Marts? One of the curiouser bumps along the road to the new stores has been the corporate prevarication over the name, "supercenter."
    Just what is a supercenter? In all published materials, Wal-Mart says a supercenter combines a large general-merchandise store with a full-service food market. In a word, groceries.
    Wal-Mart Supercenters are the bane of organized grocery workers, 59,000 of whom went on strike or were locked out for five months when Kroger (Ralph's), Safeway (Vons) and Albertson's slashed pension benefits because they couldn't compete with non-union Wal-Mart, which passed Kroger in 2001 as America's biggest grocery retailer. (The unions don't have a similar problem with Costco, which contracts with the Teamsters.)
    Would these new Santa Clarita stores be supercenters, or would they not?
    "I wouldn't call it a supercenter," the Rye Canyon developer told our reporters in November 2003 when he sold Wal-Mart an 11-acre pad.
    "(It will be a) straight, normal Wal-Mart," a city official told us in January 2004.
    "No," a Wal-Mart spokesman told us as recently as November 2004 when asked if Santa Clarita was slated for a supercenter.
    SBC's Smart Yellow Pages came out two weeks ago. Look under "W" and you'll find a listing for "Wal-Mart" in Stevenson Ranch (even though it's technically in unincorporated Valencia) — and a "Wal-Mart SuperCenter" in Rye Canyon, complete with "Wal-Mart SuperCenter Pharmacy," "Wal-Mart SuperCenter Vision," and "Wal-Mart SuperCenter 1-Hour Photo."
    If Wal-Mart mistook the Valencia Marketplace for Stevenson Ranch, might it also have goofed in calling its new store a supercenter no fewer than four times in the phone book? Perhaps. But perhaps not.
    A year ago, the company hired the Los Angeles County Economic Development Corp. to analyze the potential impact its supercenters would have in Southern California. The study said Wal-Mart planned to capture just under 5 percent of the grocery market initially, eventually growing to a 20-percent market share.
    After meeting so much resistance in other communities when it started to make good on its plans to open 40 supercenters in California — among the 1,000 new supercenters it says it will open nationwide in the next five years — Wal-Mart may actually have changed its mind about selling groceries in Santa Clarita, and elsewhere in Southern California, until the dust settles. But that's just a guess.
    When it opened Wednesday, the Rye Canyon store didn't have a full-service food market.
    Groceries or no, Santa Clarita is getting some big, new Wal-Mart stores. "Normal" Wal-Marts average 98,000 square feet; supercenters average 187,000 square feet. The Rye Canyon location is in the middle at 141,000 square feet.
    Center Pointe will see a 144,000-square-foot Wal-Mart store and a 152,000-square-foot Sam's Club for a combined total of nearly 300,000 square feet at the intersection of Soledad Canyon Road and the cross-valley connector. Maybe they'll call it a SuperDuperCenter.

Low-price Leader
    The biggest problem with "supercenter," of course, is the connotation. To many, the name symbolizes the rise of an impersonal Corporate America that thrives on homogeneity, and the decline of the heartland's mom-and-pop store whose owners bank locally and reinvest their earnings in their community.
    And yet, the balance sheet shows that most consumers set aside nostalgia long enough to "vote with their feet," feeding their salaries into the gaping maul of the corporate beast. Some are lured by the scent of a bargain; others, because they can't reasonably afford not to.
    And what's wrong with that? some ask. Wal-Mart is the great American success story, an icon of capitalism, a logical outgrowth of our free enterprise system.
    Raised on farms in Oklahoma and Missouri, Samuel Moore Walton worked his way through the Great Depression. A job at J.C. Penney helped put him through college, where he studied economics. Marrying a business major in 1943, after the war he borrowed $25,000 from his bride's daddy, a successful banker and rancher, and purchased a Ben Franklin variety store in Newport, Okla.
    Buying groceries and consumer goods in bulk, his centrally located store was the town's low-price leader and the six-state chain's best performer. He sold out five years later, pocketing $50,000, and bought another Ben Franklin franchise in Bentonville, Ark., renaming it Walton's 5 & 10. He quickly opened a second Walton's store, unrelated to the Ben Franklin chain, 20 miles south in Fayetteville. To build loyalty, he offered managers what's now known as profit sharing.
    With more financial help from the in-laws, Walton opened more and bigger stores. By 1962 he owned 16 in Arkansas, Missouri and Kansas, now calling them "Wal-Mart." Fanning out across rural America, he took the company public in 1970.
    Unlike Ben Franklin, he never franchised.
    By the time he died in 1992, Wal-Mart had become the No. 1 U.S. retailer and Sam Walton had been the richest man in the world.
    "There's a lot more business out there in small town America than I ever dreamed of," he once said.
    Enough to where today, as of Dec. 31, the company operates 1,363 traditional Wal-Mart stores, 1,672 supercenters, 550 Sam's Clubs and 76 Neighborhood Markets in the United States, plus 1,585 outlets in Mexico, Great Britain, Canada, Brazil, Germany, Puerto Rico, China, South Korea and Argentina.
    One day, "Shop Wal-Mart" may be more than a slogan. There may be nothing else left.
    Is this a good thing or a bad thing for Santa Clarita?
    The memory of vexatious state tax-grabs still fresh, City Hall is banking on Wal-Mart to supply it with bigger sales-tax receipts to pay for the things that maintain and improve the quality of life for local residents — parks, recreation programs, police and fire services, municipal infrastructure.
    And, certainly, consumers can expect to come out winners. The LAEDC study found that once Wal-Mart captures 20 percent of Southern California's grocery market — which "will take a long time," it acknowledged — "shoppers would save an estimated average of 15 percent relative to what they would have paid under the current status quo." Wal-Mart's food prices are 8 to 27 percent lower than Kroger, Safeway and Albertson's, even factoring in store coupons and club-card discounts, it found.
    Non-food savings aren't as dramatic, but they're there.
    "Increased competition in non-grocery items will lead to price reductions averaging 3 percent at general merchandise and apparel competitors," the study said. Non-Wal-Mart shoppers win, too, when other stores lower their prices to compete.
    Overall, the study said, consumers throughout the seven-county Southland "are conservatively estimated to save at least $3.76 billion annually, or $589 per household, per year."
    How will the city of Santa Clarita's general fund be impacted on a per-capita basis if consumers are spending 3 percent less on taxable non-food items that they're now buying at other Santa Clarita stores for a little bit more money? If you follow the LAEDC's logic, it would be a wash — but only if all 3 percent of the savings are spent on other taxable "stuff" in the city.
    Where City Hall comes out ahead is on a direct, Wal-Mart to Wal-Mart shopping level. It wins if the Rye Canyon Wal-Mart sucks enough business away from the Valencia Marketplace store; and if enough people from Palmdale — where the company is adding two Wal-Marts for a total of three — stop and shop at the Centre Pointe Wal-Mart when they're passing through town on the cross-valley connector.
    The northern San Fernando Valley also has three Wal-Marts — in Panorama City, Porter Ranch and West Hills.
    If Santa Clarita keeps pace with other nearby cities in its number of Wal-Marts, it won't continue to lose sales tax dollars spent elsewhere by the "traditional" Wal-Mart shopper.

$10.37 An Hour
    Money saved equals more jobs, the LAEDC study said. It expects 36,400 new jobs to be created outside of the grocery sector when consumers redirect their saved (primarily grocery) shopping dollars to other purchases such as entertainment, transportation, health care and housing.
    But push here, pull there. The study anticipates that every seven new jobs will cost one unionized grocery job — 3,000 to 5,100, throughout the seven-county region — and over time, union grocery payrolls will be $307 million to $529 million lower than they would be without Wal-Mart Supercenters.
    Within Santa Clarita, Wal-Mart will directly create more than 300 jobs at each of its three new stores, in addition to about 375 at the Valencia Marketplace location.
    What kind of jobs will they be? They might not be in line with Santa Clarita's average household income of $75,000; but then, not every resident is a doctor, lawyer or Indian casino chief.
    "Wal-Mart pays competitive wages," the company said in a recently and widely published response to attacks over wages and benefits. "In California our average wage is $10.37 per hour — a rate that is in line with comparable retailers. Nearly 80 percent of our California (employees) work full time. Many of our jobs are held by working retirees, working spouses supplementing a family income, and students working through school."
    If $10.37 is the average among all employees including managers, entry-level employees earn considerably less than union scale.
    "Unionized grocery workers earn $2.50 to $3.50 per hour more, on average, than supercenter employees in Southern California could expect," Wal-Mart's own LAEDC study said.
    An October 2003 report from the AFL-CIO went farther. "Wal-Mart's bottom-of-the-barrel wages averaging $7.50 to $8.50 an hour leave workers well below the federal poverty line for three- and four-person families," it said.
    The low wages make Wal-Mart's health plan unaffordable for more than half of the company's 1.4 million workers. Wal-Mart pays two-thirds; workers pay one-third. Just 41 to 46 percent are enrolled, versus a national rate of 66 percent of large-firm employees who are covered by their company health plan, the AFL-CIO said.
    Who pays when workers aren't insured? Taxpayers, to the extent the uninsured and underinsured turn to publicly funded medical programs; and other hospital users, when individual workers don't pay their bills.
    For Wal-Mart to offer better benefits, it would have to raise consumer prices a bit. That would violate its corporate ethos and blow its business plan, eventually eroding market share.
    That's why Wal-Mart backed the California Chamber of Commerce's successful fight last year to block a state law that would have forced employers to cover 80 percent of their employees' medical costs.

Made in China
    Sam Walton was still around for "Buy America." When the company launched the promotional campaign in 1985, Walton estimated foreign imports at just 6 percent of Wal-Mart's non-food inventory. Since his death in 1992, foreign imports have steadily grown. That year, Wal-Mart abandoned the slogan.
    But with more than 20,000 suppliers in the 1990s — 30,000 today — the growing company was buying more goods overall, including from U.S. suppliers. Some economists say Wal-Mart alone is responsible for as much as 25 percent of all U.S. productivity gains from 1995-99, and they credit its across-the-board cost-consciousness — from its integrated distribution network to its low wages and benefits — for helping hold down the U.S. rate of inflation.
    Anyone who realized gains in the stock market in the late 1990s, whether directly invested or through a pension plan, gained from Wal-Mart's success.
    But the 1990s also saw Wal-Mart change its marketing slogans to match the changing realities. "Buy America" morphed into a farcical "We Buy American, Whenever We Can," and then, "Bring it Home to the USA."
    By late 2004, Wal-Mart was "bringing home" an estimated 50 percent of its entire non-food inventory from foreign countries. China had become one of its most important manufacturing centers.
    In fact, in 2002, Wal-Mart purchased nearly 10 percent of all Chinese exports to the United States — $12 billion worth. The figure may have doubled last year.
    Certainly, Wal-Mart's purchasing practices didn't create the phenomenon of "outsourcing" U.S. manufacturing jobs to China. Sears and Kmart beat Wal-Mart to China by several years.
    But Wal-Mart dwarfs them, so critics point their chopsticks at Wal-Mart above all. They tell of Carolina Mills, a North Carolina textile manufacturer that supplies fabric to other companies that make apparel for sale by Wal-Mart. In the last four years, many of the apparel makers have moved offshore or quit. Carolina Mills had to lay off 1,400 of its 2,600 workers and shutter 10 of its 17 factories.
    And now, with the elimination Jan. 1 of quotas on textile imports by member nations of the World Trade Organization, Carolina Mills is hanging on by a thread — while China's share of the U.S. clothing market is expected to grow from 16 percent in 1995 to 50 percent.

Market Shuffle
    If Wal-Mart were to go the way of comparatively tiny Enron overnight, the U.S. economy would be in turmoil, and it could take years for the stock market to fully recover. And yet, as intertwined as Wal-Mart's and the nation's prosperity have grown, what is Wal-Mart to the individual communities in which it operates?
    In truth, it's little more — and no less — than a redistributor of wealth and a rearranger of the job market.
    Wal-Mart enters a community such as Santa Clarita and captures retail dollars that are already being spent in the community. It doesn't sell big-ticket items or provide services that aren't otherwise available here. Existing competitors adapt and survive by adopting new business strategies, or they lay off workers and streamline inventories and die a slow death.
    Discounting population growth — which you can't, because the LAEDC study ties Wal-Mart's gains to it — but discounting population growth, every dollar spent by a Santa Clarita resident at a Santa Clarita Valley Wal-Mart store is a dollar that would otherwise have gone to another store in the community, and every job Wal-Mart creates is a job that was either eliminated or not created by a competitor.
    If Santa Clarita consumers are saving $3 on every $100 they spend on general merchandise, they've still got $100 to spend — not $103. No matter how much "stuff" they buy for their $100, the city still collects $1 in sales taxes — not $1.03. And if they spend only $97 and have the discipline to save the leftover $3, the city collects just 97 cents.
    Santa Clarita's sales tax revenues increase with the population, with or without Wal-Mart. With Wal-Mart's "always low prices," they could actually decline slightly on a per-capita basis.
    And if more of the "stuff" people buy for their $97 is made in China, well, good for China.
    Truth be told, for all their bellyaching about their future loss of market share, the large grocery chains are probably the last ones who've got grounds to complain.
    "Not long ago," the LAEDC study notes, "the major supermarkets displaced many local butchers, bakers, vegetable stands and neighboring markets. Some of the supermarkets grew into enormous chains, with annual sales in tens of billions of dollars."
    Sound familiar? Remember when giant Kroger (Ralph's) bought out the family-owned neighborhood Hughes markets a few years ago?
    "The supermarkets ... have already begun adapting to the changing retail environment in earnest, and will not be easily displaced," the LAEDC said. "The chain supermarkets have been increasing the square footage of their stores and adding more general merchandise items such as toys, lawn furniture, and small appliances. They have entered alliances with pharmacy chains, banks, and coffee vendors to offer their customers greater convenience and meet the growing demand for one-stop shopping."
    They've even adopted some of the cost-cutting, less-labor-intensive business practices we've seen at Wal-Mart and Costco and Home Depot, such as self-checkout aisles, the study notes.

We've Seen It Before
    For 100 years, downtown Newhall was the Santa Clarita Valley's central business district. Then came Valencia. Agricultural fields gave way not only to new homes on what had been the outskirts of town, but also to new commercial centers. Then as now, consumers — newcomers and old-timers alike — voted with their feet, attracted by the newer housing tracts with their trendier shops and restaurants.
    Soon, people no longer turned to Newhall for local government services, either. The sheriff's station and courthouse moved to the new Civic Center on Magic Mountain Parkway; the county supervisor and assessor opened offices there to handle the new development; and a new regional library dwarfed all others. Other services followed. A new Valencia hospital precipitated the closure of Newhall's. Valencia, not Newhall, was picked for higher education.
    Downtown Newhall's businesses either moved or died. By the mid-1970s, the "big guns" — the Ford and Chevrolet dealerships that started on San Fernando Road in the 1910s — had fled to Creekside Road, shifting with the population. Even The Signal vacated Newhall in 1986 rather than languishing behind and trying to expand in a deteriorating downtown.
    Thirty-five years after Valencia, downtown Newhall is in redevelopment and the city of Santa Clarita is spending millions to bring it back to life.
    And what of Lyons Avenue? You might not find any official city study pointing directly to Wal-Mart or other west-side businesses, but eight years after the opening of the Valencia Marketplace, Lyons Avenue is in worse retail shape, square foot for square foot, than San Fernando Road after eight years of redevelopment. Vacancies are higher. Shop space is being replaced by nontaxable medical services. I doubt sales tax receipts are growing as fast as they are in other parts of the city.
    True, the bulk of the business for Valencia Marketplace and Stevenson Ranch retailers can easily be attributed to new population growth. And yet, common sense dictates that they, along with the Valencia Town Center mall and other new retail centers that have emerged in our growing valley, share some of the blame — if that's the right word — for Lyons' decline.
    Like the Valencia Marketplace Wal-Mart, the Rye Canyon store is entering a market area with high population growth. It will be looking to draw a lot of "new" dollars from new residents who are still moving into the expanding communities of Saugus, North Valencia and Castaic. It didn't plop down smack-dab in the middle of a fully built-out community that's already saturated with retail — so it might not have a tremendous impact on existing competitors at first.
    But what of the "SuperDuperStore" at Centre Pointe? How will it impact Soledad Canyon Road in Canyon Country? Will it kill off Canyon Country's main shopping street the way Valencia killed downtown Newhall?
    Put yourself on the corner of Soledad and Whites Canyon Road. What do you see? To the southeast, a Staples office supply store and a Food-4-Less (one of the best places in Santa Clarita for Mexican and other ethnic groceries, incidentally). To the southwest, Ralph's and Sav-On. To the northwest, Big Lots and other deep-discount retailers. To the northeast, not much.
    Now, put yourself on that corner a few short years ago. What do you see? Not two but four supermarkets. Three gas stations. A high-priced Western clothing retailer and other high-value stores. Once upon a time, a Builders Emporium and a Sam-Waltonesque variety store called Newberry's.
    Even without a nearby Wal-Mart, the Whites Canyon area is in decline. Home Depot pulled the hardware market down the road, Costco ate into the grocery market, and consumers flocked to the newer, trendier eateries in the Edwards Cinema and Darcy Library shopping centers. Two or the gas stations, gone.
    Today, even the deep-discount retailers at Whites and Soledad are struggling. Sav-On just finished reconfiguring its floor space with more efficient checkout counters, presumably to shave labor costs. Two supermarkets at the intersection — one, a discounter — can more than handle the grocery traffic.
    If you wonder why the area of Soledad bounded by Whites Canyon and Camp Plenty is more prone to crime and graffiti than some other parts of town, wonder no more.
    Remember the perception of downtown Newhall prior to redevelopment?
    At the end of the day, on a local planning level, it matters little whether Wal-Mart procures its merchandise from China or from the moon.
    The real question is, how much longer will the old heart of 1960s-era Canyon Country beat, as the free market rearranges the pieces, unchecked? How many sales tax dollars are we willing to spend, as a city, to make it pulse again?
    What will prove critical is our ability to gauge and assimilate the impacts of our changing retail landscape, and to deal with those impacts expeditiously — as consumers, as entrepreneurs, and as a city.

    Leon Worden is the Signal's opinion and multimedia editor. His column represents his own views, and not necessarily those of The Signal.

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