Courting the L.A. Market : Series of Controversies Complicates Wal-Mart's Latest Effort to Expand

By GEORGE WHITE

July 16, 1993 12 AM PT

TIMES STAFF WRITER

Wal-Mart, the retail giant courted by many California communities, will open a store in Cerritos next January--renewing a stalled campaign to capture a sizable portion of the lucrative Los Angeles County discount market.

Project officials have disclosed that Wal-Mart will be the anchor store for a new retail complex at Cerritos Towne Center at California 91 and Shoemaker Avenue. It will be Wal-Mart’s first store opening since 1991 in Los Angeles County--a key region in the retailer’s ambitious expansion plans.

However, as Wal-Mart begins to expand in the fiercely competitive Los Angeles market, it will face its greatest challenge ever amid controversies involving its pricing claims, use of foreign suppliers and equal opportunity practices.

“Los Angeles is probably the most competitive area in the country for retailers,” said Ira Kalish, a retail economist at the Los Angeles offices of Management Horizons. “Wal-Mart is just beginning to move close to Los Angeles, and they’ll find the going very tough.”

Despite economic troubles, Los Angeles County is still a coveted market. The area’s retailers rang up about $68.9 billion in sales last year--more than any other U.S. county--accounting for about 60% of all the retail spending in the Southland’s five-county region.

Since establishing a presence in California three years ago, the retailer has opened 47 stores in the state, but only two are in Los Angeles County: one in Lancaster and another in Palmdale.

The Southland is key to meeting a goal set in 1990 by Wal-Mart’s late founder, Sam Walton, to generate $100 billion in annual sales by the year 2000. Wal-Mart, which has about 1,900 stores nationwide, had sales of $55 billion in 1992. It hopes to reach its $100-billion goal by expanding in California and the Northeast.

The Arkansas-based retailer has opened three stores in Riverside and San Bernardino counties this year and plans to open another in Oxnard in Ventura County. City officials in Orange County’s Laguna Niguel and Anaheim say Wal-Mart will be setting up shop in their communities as well.

Real estate sources say the retailer is also considering sites in Canoga Park, Valencia, Paramount, Long Beach and Los Angeles. In addition, the city councils in Duarte, Covina and Glendora have been trying to lure Wal-Mart. The company has confirmed that it is looking for Los Angeles County sites, but it won’t discuss specifics.

“Los Angeles County has a huge population--and it’s growing rapidly,” said Jack Kyser, chief economist of the Economic Development Corp. of Los Angeles County. “It’s a market that national retailers can’t ignore--but companies have to be careful in approaching the county. The key to success is finding locations--finding the gaps in the market.”

The search for profitable locations in the highly competitive Los Angeles market is especially daunting for Wal-Mart.

“With all the discount retailers in the area, it’s very difficult to find an available site,” said Dick Carter, senior sales associate at Los Angeles-based Beitler Commercial Real Estate. “Wal-Mart is fishing all over for possibilities.”

Wal-Mart says it has already had success at its current California sites--primarily smaller communities. However, many observers say it faces a special challenge in Los Angeles County and may have to develop special strategies for the area to compete effectively.

“Wal-Mart has had an easy time in California thus far,” said James Slayden, a marketing professor at USC. “But they’ve never seen the kind of competition they’ll find when they try to expand in Los Angeles.”

The company has succeeded in and around some of the nation’s larger cities, but small-town America--with little competition and an abundance of potential sites--has been the foundation of Wal-Mart’s retailing empire.

Indeed, as Wal-Mart prepares to march toward the state’s most populous city, it faces rivals already well entrenched. Kmart has 29 stores in Los Angeles County and Target has 28.

These three discount giants have been waging price wars throughout the nation, but a price comparison campaign in California and other states has generated new heat between Wal-Mart and Target. At issue are Wal-Mart store posters comparing their prices to those at Target.

“The so-called Target price Wal-Mart posts is often higher than the actual price at the local Target store,” said Gail Dorn, a spokeswoman for Target.

Target has sent letters to Better Business Bureau offices across the nation accusing Wal-Mart of misquoting prices, said Ronald Graham, who coordinates trade disputes involving the bureau’s member companies.

Target also took out full-page newspaper ads saying: “This Never Would Have Happened if Sam Walton Was Alive. . . . The obvious intent of these price postings is to imply that Wal-Mart’s prices are lower than those of Target. But when the comparison is false, the consumer has been misled.”

Wal-Mart has denied any wrongdoing.

“In an industry where spirited but fair competition is the norm, the strident tones and unfounded allegations of the Target ads are well beyond the boundaries of fairness and decency,” Wal-Mart President David Glass said.

Linda Kristiansen, a New York-based industry analyst, said she conducted a survey in April and found that Target’s Lancaster store had lower prices than its Wal-Mart rival.

“Nationally, Target wants to be within 1% to 2% of Wal-Mart’s prices,” Kristiansen said. “They’re closing the price gap.”

Low prices have been Wal-Mart’s primary selling point nationwide, but Wal-Mart has also promoted itself as a company that cares about Americans--touting its efforts to buy from U.S. suppliers.

However, the United Food and Commercial Workers union says Wal-Mart relies heavily on foreign vendors and calls the retailer’s “Buy American” campaign misleading. The union also claims that Wal-Mart purchases garments produced by child laborers in Bangladesh and is urging a boycott of the retailer. The union picketed Wal-Mart stores in California and many other states last May and says it plans to take similar action again soon.

Wal-Mart has said its suppliers do not use child labor. And the company defends the “Buy American” campaign.

“Sam Walton believed that retailers are purchasing too many goods from overseas and that too many Americans are out of work as a result,” Wal-Mart spokeswoman Jane Arend said. “We don’t have all the answers, but we work with American manufacturers.”

Wal-Mart is also contending with a group of shareholders who want the retailer to adopt an affirmative action plan for supplier firms owned by minorities and women.

The request was made last month at Wal-Mart’s annual meeting by the Amalgamated Clothing and Textiles Union and the Interfaith Center on Corporate Responsibility, an organization representing several shareholder church groups. The dissident shareholders also sought support for a proposal urging Wal-Mart to report on employment and purchasing policies.

However, Wal-Mart said a report on employment practices was unnecessary and that affirmative action for vendors was inappropriate--positions that were backed by a shareholder majority.

Dissident shareholders will continue their campaign, said Diane Bratcher, spokeswoman for the Interfaith Center.

“If the company is perceived as not being a good corporate citizen, that will hurt Wal-Mart with women and minority shoppers,” she said.

Indeed, David Stewart, a marketing professor at USC, said there are many Southland activists who might campaign against a company over such issues.

“If there’s any place where social issues are likely to come to the surface, it’s Los Angeles,” Stewart said.

Dueling Discounters

Despite the sluggish California economy, the Big Three discount chains--Wal-Mart, Target and K mart--have been expanding rapidly in the state.

New Discount Stores in California

1990: 18

1991: 36

1992: 40

In Southern California, Wal-Mart still has a lot of catching up to do.

Stores per county as of July, 1993: Wal-Mart: