Supercenters in Southern California: Boon or Bane?

Date: 1 Feb 2004 | posted in: Retail | 0 Facebooktwitterredditmail

As Wal-Mart seeks out locations in central Los Angeles and the city council considers a measure that would ban supercenters from much of the city, a debate is brewing concerning the costs and benefits of supercenters for residents of low-income urban neighborhoods. Two dueling studies examining the impact of supercenters in southern California were recently released.

One, prepared for the Los Angeles City Council, concludes that big box stores harm low-income urban neighborhoods by reducing competition, creating blight, lowering wages, and forcing new costs onto taxpayers.

The study, "Final Report on Research for Big Box Retail/Superstore Ordinance," was produced by Rodino Associates, and contends that, by pricing groceries as "loss leaders" and using higher margin non-grocery items to make up the difference, supercenters often force existing chain supermarkets and independent grocers out of business.

Because grocery stores commonly anchor neighborhood business districts and shopping centers, their closure would harm many other retailers and likely lead to a spiral of vacancies in fragile areas that are only now beginning to recover from years of economic decline.

The resulting business failures and blight, according to the report, would negate much of the investment Los Angeles has made in economic incentive zones. The city has invested $44 million, and leveraging an additional $219 million in private investment, in these low-income areas, which cover about 40 percent of the city’s land area and account for almost all of the sites suitable for big box development.

The report finds that supercenters would negatively impact job opportunities by replacing union-wage supermarket jobs with a smaller number of lower-paying jobs. Fewer workers would have health care benefits, further burdening public hospitals and health care programs.

The report notes, "Big box retailers and superstores often destroy attempts to create. . . a sense of place and pride in low-income neighborhoods by use of unattractive building architecture and site layouts featuring huge expanses of black-top parking lots."

Wal-Mart fired back with its own study, "Wal-Mart Supercenters: What’s in Store for California?" conducted by the Los Angeles County Economic Development Corporation. The polished, $65,000 report concludes that southern California residents will save enough on groceries to more than make up for supercenters’ downward pressure on wages.

The report, written under close supervision by Wal-Mart, is largely framed as a response to a 1999 study by the Orange County Business Council that found that the arrival of supercenters in southern California would reduce grocery store workers’ wages by up to $1.4 billion annually.

The report concludes that Wal-Mart will save southern California households $2.78 billion on groceries, both by offering prices 15 percent lower and forcing competing retailers to drop their prices by 10 percent. The pricing information is based on surveys conducted when Wal-Mart supercenters first opened in Las Vegas. Given the company’s history of pricing entire departments below cost in order to gain market share (as it has done with toys, pharmacy goods, and gasoline), it’s unclear how long these initial low grocery prices will last.

The report also finds that the gap in wages between what Wal-Mart employees and unionized supermarket workers earn is only $2.50-$3.50 an hour, less than reported elsewhere, and concludes that southern California grocery workers will forfeit $529 million in wages once Wal-Mart enters the market.

But the report does not account for the difference in benefits—valued at $3.15 an hour in 1999. Nor does it discuss the career potential for unionized grocery store employees, who can earn $18-20 an hour after a several years on the job. Although Wal-Mart often promotes from within, there are relatively few management jobs to which low-paid workers can aspire.

The report focuses exclusively on prices and wages and does not venture into other areas, such as tax implications and environmental costs. Nor does it address the social and economic consequences of losing locally owned businesses and declining entrepreneurial opportunities in low-income neighborhoods.

The report ends with a threat by suggesting that, if barred from the city, Wal-Mart will form a "ring around Los Angeles" by building dozens of supercenters just beyond its borders.

— Rodino Associates report
Los Angeles Economic Development Corp. report
— Orange County Business Council report


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