Wal-Mart launches program to aid its small competitors

Retailing giant hopes to reduce opposition to its move into large cities

April 05, 2006|By NEW YORK TIMES NEWS SERVICE

Wal-Mart Stores, whose all-in-one retailing model has forced scores of competitors to close over the past 40 years, is turning to an unusual plan: helping its rivals.

The giant discount retailer, under assault as never before by critics, announced a wide-ranging effort yesterday to support small businesses near its new urban stores, including the hardware stores, dress shops and bakeries with which it competes.

Wal-Mart said it would offer those businesses financial grants, training on how to survive with Wal-Mart in town, even free advertising inside a Wal-Mart store.

Wal-Mart acknowledged the program is not altruistic. The company is trying to open 50 stores in blighted urban neighborhoods over the next two years, and aid to small businesses could help build support in cities such as Los Angeles and New York where it has met strong resistance.

"We see we can be better for communities ... if we are willing to stretch ourselves and our resources," Wal-Mart chief executive H. Lee Scott Jr. said in a conference call with reporters yesterday from Chicago, where Wal-Mart plans to open its first urban store.

Criticism of Wal-Mart's wages, health insurance and pricing strategy has risen in the past year, with the release of a feature-length film attacking the company and the passage of a law in Maryland that, unless struck down, would force the retailer to increase spending on health care.

And there is growing evidence that the negative publicity is hurting. An internal Wal-Mart report, prepared in 2004, found that 2 percent to 8 percent of consumers surveyed have ceased shopping at the chain because of "negative press they have heard."

On a confidential company Web site, Scott recently wrote that criticism of the chain has slowed its expansion. Community opposition has foiled efforts to build stores in Chicago, Los Angeles and New York, which are crowded with small businesses.

In response, Wal-Mart has issued a flurry of announcements meant to burnish its image, among them expanding its health insurance to more employees and investing in businesses owned by women.

Wal-Mart "jobs and opportunity zones" are to be set up in the 50 metropolitan areas where the chain wants to build stores. Wal-Mart said it would choose sites traditionally overlooked by retailers - urban neighborhoods with high unemployment, contaminated land and old shopping centers in need of revitalization. The new stores are expected to create at least 15,000 jobs.

The first zone will be the West Side of Chicago, where Scott announced the program yesterday. The company would not say what other cities it is considering.

In the zones, the company will identify local businesses to spotlight in newspaper advertisements and to feature on Wal-Mart's in-store radio network, which plays throughout the day. (Scott said "it would not be healthy" to leave out competitors.)

Wal-Mart will hold seminars that coach the businesses on how to compete with the giant discount stores - by, for example, intensifying customer service, for which Wal-Mart often receives low marks. An annual report on trends in Wal-Mart's business will be distributed exclusively to those companies.

At the same time, Wal-Mart will invest $500,000 in local chambers of commerce, to be used for small business Web sites and business improvement seminars. "This is a commitment to reach beyond our stores," Scott said.

He said Wal-Mart would not lose money on the program because urban stores are expected to attract more shoppers - and profits - than suburban and rural outlets.

Critics claimed that the proposed jobs and opportunity zones are an effort to divert attention from the company's negative impact on local economies.

A study conducted by several economists, and presented at a conference held by Wal-Mart last fall, found that after the company's arrival in a county, total earnings per worker, retail and nonretail, fell 2.5 percent to 4.8 percent. One reason for the decline is that Wal-Mart pressures its suppliers to cut their costs and that might lead to lower wages for the workers of suppliers.

A different study, conducted by an economic research firm hired by Wal-Mart, found the retailer's pricing strategy has made industries more productive, creating hundreds of thousands of jobs and increasing net consumer purchasing power by $118 billion last year, or about $401 per American.

Chris Kofinis, a spokesman for Wake-Up Wal-Mart, a union-backed group prodding the company to improve wages and benefits, said the new program is "bitterly ironic" because it is "asking Wal-Mart to help solve the problems it created."

He said it leaves major issues such as Wal-Mart's average wages, less than $20,000 a year, unaddressed. "What this is," he said, "is another P.R. stunt in a litany of P.R. stunts."

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