Wal-Mart Poised to Build Store in Valley as Part of Big-City Strategy

Wal-Mart Stores Inc. is close to a deal that would give the discount giant its first foothold in the city of Los Angeles, part of the chain’s strategy to boost earnings by increasing its presence in large cities.

Wal-Mart, which just suffered its first quarterly earnings decline in 25 years, hopes to move into the heart of the San Fernando Valley by acquiring the site of the former Broadway department store at Panorama Mall in Panorama City, sources familiar with the negotiations said. The building is owned by Federated Department Stores Inc., which has placed nearly half the Broadway retail properties on the sales block since acquiring the 82-store chain in 1995.

The Wal-Mart empire of more than 2,200 stores stretches from Arkansas to Argentina. But as Wal-Mart starts expanding into Los Angeles and the core of other metropolitan areas, the company may have to pay more dearly for real estate. Wal-Mart didn’t have a California store until six years ago and now faces real estate hurdles as a result of its late entry in the Southland.

The Southern California market is important to Bentonville, Ark.-based Wal-Mart because it has already saturated other parts of the country, said Ira Kalish, senior retail economist at the Los Angeles offices of Management Horizons, the retail consulting arm of Price Waterhouse. Los Angeles and Long Beach together make up the largest retailing market in the nation.

“If Wal-Mart wants to grow and boost their earnings, they have to expand here,” Kalish said. “But Wal-Mart will find the going tough because its main competitors--Target and Kmart--have a large presence in the region. There’s also the real estate challenge of finding good locations.”

Wal-Mart currently has 88 stores in California, including three that opened in January in Pomona, City of Industry and Duarte--part of Wal-Mart’s push to open 50 to 100 additional California stores by 2000. The company also plans to open stores in Redding, Salinas and Valencia later this year.

However, the bid for a site in Los Angeles is a strategic departure for Wal-Mart because, with the exception of Wal-Mart stores in Houston and San Diego, Wal-Mart’s operations are concentrated in rural areas, smaller cities and suburbs.

However, strategic departures might be expected from a retailer that has had to contend with profit-shrinking price wars, unexpected defections from its executive ranks and stumbles abroad.

Citing the poor performance of Wal-Mart stores outside the U.S., Moody’s Investor Services last month downgraded the retailer’s bonds. The rating service also gave the discounter poor grades for its operation of 254 supercenters, which sell food in addition to other merchandise.

In addition, Wal-Mart was rocked by the abrupt resignation of William Fields, president of the company’s discount store division and heir apparent to Wal-Mart Chief Executive David Glass. Fields left to become CEO of Blockbuster Entertainment, the video-rental giant.

Fields’ chief competitor for the top Wal-Mart job, Dean Sanders, surprised many by quitting last fall. Sanders was president of the company’s Sam’s Club division, a membership operation.

Sanders’ departure was the first troubling sign in what has become a spate of negative news for the giant discounter, topped in February when the company reported its first quarterly earnings decline in 25 years.

Wal-Mart attributed the decline to weak holiday sales, to higher operating expenses and to its price-slashing response to unusually big merchandise markdowns by department stores and rival discount chains, a competitive move that cut into its profit margin.

An expanded presence in Southern California is one key to regaining and maintaining momentum, said Jay Allen, Wal-Mart’s vice president of corporate affairs. By acquiring locations within Los Angeles, Wal-Mart can reach new consumers and shed its big-fish-in-a-little-pond image.

“If you look at the way we grew, we started in Arkansas and expanded to throughout the South and Midwest. Now, the biggest opportunities are in the West and Northeast. . . . The population density makes Los Angeles a logical market for us,” Allen said.

Officially, Wal-Mart will not comment on the impending deal for the Panorama Mall site, saying only that the vacant Broadway store is one of several potential Valley sites for its first Los Angeles store.

However, after signaling interest in acquiring the Van Nuys Drive-In at Roscoe Boulevard and Noble Avenue in Panorama City, Wal-Mart said in January that the site was not economically feasible.

Wal-Mart has also considered building a store on the grounds of an abandoned General Motors Corp. plant on Van Nuys Boulevard in Panorama City.

Such a deal is unlikely because the plant is in a district represented by Councilman Richard Alarcon, who does not want a Wal-Mart in the area. The City Council has some control over the site because it would have to be rezoned to allow retail operations.

“A Wal-Mart tends to have a negative impact on hardware stores, grocery stores and other small business,” Alarcon said.

Alarcon also contends that a Wal-Mart at the Panorama Mall, located on Van Nuys Boulevard between Roscoe Boulevard and Chase Street, would also hurt neighboring businesses at the shopping center.

However, Louise Marquez, general manager and marketing director at the mall, disagrees.

“If you’re Wal-Mart, it’s easy to go into a suburb or an isolated area and dominate,” she said. “But you can’t wipe out businesses in Los Angeles by opening a store. We’re too big.”

Some neighborhood groups want Wal-Mart to take over the Broadway site.

“A majority of people in this area are in favor of this,” said Leslie Yamashita, director of the Panorama City West Neighborhood Assn.

“A Wal-Mart would bring jobs and add to the economic base. The store would attract people from outside the community and that would help other local businesses.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Trying to Rebound

After years of steady gains, shares of Wal-Mart Stores Inc. have started to decline. Quarterly highs, except latest:

Wednesday: $22.88

Source: TradeLine