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Walmart Renews Push Into New York City with Smaller Scale Stores

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By Daniel Massey
First published by Crains NY, Nov. 7, 2010

To close an analysts meeting last month, a choir of Walmart associates belted out “New York, New York.” A few days later, the Arkansas retail giant announced that it had hired Bradley Tusk, Mayor Michael Bloomberg’s former campaign manager, to bolster its efforts to open a store in the Big Apple.

Four years after failed attempts in Queens and Staten Island led former Chief Executive H. Lee Scott to write off New York City as not “worth the effort,” Walmart is indeed singing a different tune. Five straight quarters of same-store sales declines in the U.S., disappointing forays abroad and bold moves into the city by such competitors as Costco and Target have forced Walmart to push harder than ever for a foothold here and in other urban areas.To close an analysts meeting last month, a choir of Walmart associates belted out “New York, New York.” A few days later, the Arkansas retail giant announced that it had hired Bradley Tusk, Mayor Michael Bloomberg’s former campaign manager, to bolster its efforts to open a store in the Big Apple.

“They’re looking all over,” says Faith Hope Consolo, chairwoman of Prudential Douglas Elliman’s retail group. “This is aggressive now. This is not just thinking about it and dabbling. They’re dancing around the city.”

And the retailer might find a real estate partner this time.

Last month, Walmart announced that it would consider stores far smaller than its typical 150,000-square-foot supercenter. With no shortage of 30,000- to 60,000-square-foot spaces in the city, the “Smallmart” strategy could nullify longtime opponents’ most potent weapon—the City Council’s zoning hammer. No matter how loudly labor and political foes shout about Walmart’s potential impact on nearby small businesses, its antiunion policies or its alleged discrimination against women, the downsized approach makes for a smoother entry into New York.

Ms. Consolo says a team of at least a dozen Walmart real estate experts is looking at space all over Manhattan—from East Harlem to the Sixth Avenue Ladies’ Mile strip. And she says the company has not ruled out entering the local market via pop-up stores, as Target did. It could also purchase an existing big-box chain, such as Pathmark, whose parent, A&P, is choking on $1 billion in debt. Walmart is sitting on $10 billion in cash.

In a down economy, Walmart hopes to build community support by highlighting its potential economic impact. Last year, the company spent $5.7 billion with 835 New York City suppliers, and its foundation has given more than $9 million in grants to nonprofits here in the past three years.

Though smaller formats are likely, Walmart isn’t giving up on stores of 80,000 to 150,000 square feet, says Director of Community Affairs Steven Restivo. It’s looking “across the entire city,” he says, and will probably zero in on poor neighborhoods, where unemployment is high and fresh-food options are limited.

“We can be part of the solution in terms of addressing unemployment and improving access to affordable, healthy food,” Mr. Restivo adds.

Walmart has a stalwart local supporter in the mayor, who said last week through a spokesman that “we shouldn’t tell businesses that want to invest and create jobs in New York City that they can’t.”

Working the community angle

In Chicago, Walmart eventually won over ministers, community leaders and construction unions by focusing on jobs, and it will use the same strategy in New York.

Already, the Hip-Hop Summit Youth Council and community leaders have launched Walmart 2 New York City, arguing that the retailer would create jobs. Walmart officials say it has no ties to the group, but it has partnered with Russell Simmons’ Hip-Hop Summit Action Network, a sister organization of HHSYC.

Meanwhile, leaders of the city’s building trades are still irritated that the retail union engineered the defeat of a proposed mall at the Kingsbridge Armory last year, killing 1,000 construction jobs. With its members facing 30%-plus unemployment rates, the trades have little incentive to join the retail unions in fighting Walmart, which said it will build with union labor. The Building and Construction Trades Council declined comment.

Walmart’s competitors are thriving here. Costco has five stores in New York and wants additional locations in the outer boroughs. The stores averaged sales of $185 million in fiscal 2010, 35% more than the company average, Costco says.

Target has 10 stores in the city, and supermarket union officials say its growing food and beverage operations could make the company a focus of labor opposition. Each Target store here brings in an estimated $25 million a year in grocery sales alone, says Burt Flickinger, a retail analyst with Strategic Resource Group.

Brian Sozzi, a retail analyst at Wall Street Strategies, says, “Walmart’s desperately trying to ramp up growth, and urban areas [in the U.S.] are the next frontier.”

All eyes on East New York

But many labor leaders and their political allies, worried that the non-union retailer will erode the shrinking market share of unionized stores in New York, are equally desperate to stop Walmart.

“When you look at the places [it] has gone, they’re just pushing out the longtime mom-and-pop jobs and replacing them with their jobs in a cannibalistic way,” says City Council Speaker Christine Quinn.

The fight has begun in East New York, Brooklyn, where Walmart is eyeing 180,000 square feet at The Related Companies’ Gateway II complex. The City Council OK’d plans for a 630,000-square-foot shopping center there last year, but the vote didn’t take into account the “higher order of environmental impact” of a Walmart, says Richard Lipsky, a lobbyist for the Retail, Wholesale and Department Store Union. Mr. Lipsky is preparing a legal challenge to the initial approval.

Even if opponents prevail in East New York, it’s just a matter of time before Walmart secures an “as-of-right” site—one without zoning hurdles-—which will reduce union leverage. In the end, labor might have to settle for more modest concessions. One blueprint is a deal Walmart agreed to at its Pullman neighborhood location in Chicago to pay workers up to $9.35 an hour after their first year on the job. But the price of admission in New York will be a lot higher.

“Walmart can say, ‘We have an as-of-right site and want to sit at the table and talk about how we can go into a community without the tremendous backlash we know is coming,’ or it can fight,” says Pat Purcell, assistant to the president of United Food and Commercial Workers Local 1500. “They want to fight, we’ll fight. They want to talk, we’ll talk.”

© 2010 Crains

Wal-Mart vs. a Million Angry Women

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By Greg Stohr 
First published by Bloomberg/Business Week, November, 2010

Chris Kwapnoski says she watched for 15 years as one male colleague after another leapfrogged over her into management jobs at the Sam’s Club in Concord , Calif. When Kwapnoski asked a supervisor what was holding her back, she recalls getting a curt reply: “Blow the cobwebs off your makeup and doll up.”

Kwapnoski’s lawyers say her experience is common—so common that they are seeking to sue Wal-Mart Stores, which owns the Sam’s Club chain, for discrimination on behalf of more than a million female employees. The suit would be the largest job-bias case ever against a U.S. employer. Wal-Mart is seeking a Supreme Court hearing , and the dispute could become the most important business case of the court’s nine-month term. It’s an “800-pound gorilla,” says Robin S. Conrad, who heads the U.S. Chamber of Commerce’s litigation unit.Chris Kwapnoski says she watched for 15 years as one male colleague after another leapfrogged over her into management jobs at the Sam’s Club in Concord , Calif. When Kwapnoski asked a supervisor what was holding her back, she recalls getting a curt reply: “Blow the cobwebs off your makeup and doll up.”

The high court will say as early as Nov. 29 whether it will review a ruling by a San Francisco-based federal appeals court , which in April let the case go forward as a class action for women working at the company since 2001. (The original lawsuit was filed nine years ago on behalf of six women.) The company, which has 4,400 Wal-Mart and Sam’s Club stores, says a case involving that many workers would be so unwieldy it would violate the Constitution’s due process protections, including the company’s right to defend itself against the charges. The plaintiffs’ legal fight has become a business unto itself, involving seven law firms and several million dollars in expenses. Lawyers built their case in part through online surveys that female workers submitted on a website devoted to the litigation.

The court, with a conservative majority led by Chief Justice John Roberts , has made little secret of its skepticism for what it views as lawyer-driven litigation. The court has already trimmed the federal securities fraud laws and required more specificity from plaintiffs when they file complaints. The Roberts court is “skeptical of litigation as a policy tool,” says Jonathan Adler, a business law professor at Case Western Reserve University .

As a testament to its significance, 19 companies, including Altria Group , Bank of America , General Electric, and Microsoft, are urging the court to take up the appeal. The companies say the lower court ruling makes it too easy for workers challenging employment practices to secure class-action status and then extract large settlements. Even with meritless claims, “class certification decisions are often tantamount to a decision on the merits,” the companies say in a court filing. Several companies have concrete stakes in the outcome. A suit on behalf of more than 700 women against Costco Wholesale is on hold until the Supreme Court resolves the Wal-Mart case. Altria and other tobacco companies say the Wal-Mart case may affect their challenge to a Louisiana court order requiring them to spend more than $270 million on a smoking cessation program.

For Wal-Mart, the case could mean billions in damages, though the lawyers for the women haven’t specified how much they are seeking. A multibillion-dollar award would be a blow, but one Wal-Mart could absorb. The world’s largest retailer had more than $400 billion in sales and $15 billion in profit over the past 12 months.

The complaint says women working for Wal-Mart have been paid less than men for the same jobs and received fewer promotions. Instead of posting management openings, Wal-Mart relied on a “tap on the shoulder” system that let managers steer jobs to male colleagues, says Joseph Sellers, a partner in the Washington-based law firm of Cohen, Milstein, Sellers & Toll who represents the women. “Wal-Mart’s promotion system departed very substantially from what virtually every other large company at this time was doing,” he says.

Wal-Mart, with 1.4 million U.S. employees, says any problem was isolated. Letting the case go forward would deprive the company of its right to contest the claims of each woman individually, says Theodore Boutrous, a partner with the Los Angeles law firm Gibson, Dunn & Crutcher who represents Wal-Mart before the Supreme Court. “To assume that every employee has been subject to discrimination flies in the face of the facts and really subjects the company to an extraordinarily unfair process,” Boutrous says. The company says it now posts management openings.

The women will press ahead, possibly in a series of smaller class actions , if the Supreme Court rules against them, Sellers says. Kwapnoski, for one, is eager to focus public attention on her employer’s treatment of female workers. Now an assistant manager, the 46-year-old says her $60,000 salary is less than half what she might be earning had she been promoted in step with her male peers. “I really, honestly would like to change the public’s view of Wal-Mart,” she says.

Stohr is a reporter for Bloomberg News.

© 2010 Bloomberg/Business Week