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Wal-Mart bets heavily on Chicago experiment

People lined up in the rain to attend the grand opening of Wal-Mart's Chicago store last September. Chicago is the biggest city Wal-Mart has entered, but only after a long battle over worker pay and benefits and concerns that it would crush local businesses.
People lined up in the rain to attend the grand opening of Wal-Mart's Chicago store last September. Chicago is the biggest city Wal-Mart has entered, but only after a long battle over worker pay and benefits and concerns that it would crush local businesses.Charles Rex Arbogast / AP
/ Source: The Associated Press

Baggy clothes and Mexican CDs line the aisles. Catfish bait and automobile decorations sit on the shelves. A local restaurant serves up fried chicken near the checkout stands.

After blanketing rural America, Wal-Mart is pushing into big cities with a new strategy: catering to local shoppers — in this case, black and Hispanic customers in a West Side Chicago neighborhood — while making efforts to help other local businesses survive.

There is a lot riding on Wal-Mart's success at this store that opened last September, both for the struggling neighborhood and the company.

Chicago is the biggest city Wal-Mart has entered, but only after a long battle over worker pay and benefits and concerns that it would crush local businesses — the same issues that have dogged it for years and prevented it from cracking New York City and other markets.

The retail giant has long been criticized by union-backed groups that claim the company pays poverty wages, runs small businesses out of town and pushes employees onto tax-funded public health care. Wal-Mart denies those allegations.

"Wal-Mart has to show that it is willing and committed to forming a true relationship with that (Chicago) community that goes beyond a big retailer that sells socks cheaper than anybody else," said Steven Silvers, a corporate reputation management expert with consultancy GBSM Inc. in Denver.

Francisco Soto worries whether such a relationship will happen — or whether so many customers will go to Wal-Mart that he's driven out of business.

Soto, who owns Midwest Audio, less than a block from Wal-Mart, said that during the holiday shopping season, Wal-Mart sold TV-radios for $25 less than he paid for them.

"That's my bread and butter," Soto said. "I don't know what my future here holds."

But Wal-Mart insists it can help both businesses and residents in this community where the unemployment rate is in double digits, noting that 15,000 people applied for 400 jobs there.

To prove it wants to be a good neighbor, the store caters to local residents and says it has a plan to help other businesses.

It carries a wide selection of items such as clothing, music and foods favored by blacks and Hispanics, who account for 90 percent of the customers, manager Ed Smith said.

The aisles are wider than in many other stores because people here often shop in large family groups, said Mia Masten, a Wal-Mart spokeswoman in Chicago. Signs for various sections of the store are in both English and Spanish.

The Uncle Remus Saucy Fried Chicken restaurant is another nod to the neighborhood, Masten said.

"We were the first store to open to have a local restaurant from the neighborhood come into our store," Masten said.

The restaurant was one of the first things Patricia Wright noticed when she walked inside the new Wal-Mart. "The fact you have an Uncle Remus here, you wouldn't find one ... in the suburbs," said Wright, 44, of Chicago.

The store, included in the "Wal-Mart Jobs and Opportunity Zones" initiative announced last April, bought ads in local newspapers for two hardware stores, a bakery and other small businesses, and will produce ads for the same five businesses to be broadcast over the in-store radio feed. Last week, Wal-Mart announced the program would expand to nine more stores in other cities' economically struggling areas.

"We want to work with them in partnership to revitalize their business," Smith said.

Critics say the program is simply a publicity stunt.

"The idea that a giant company is going to teach small companies to compete with it seems ridiculous," said Nu Wexler of Wal-Mart Watch, a union-backed organization.

Others, though, say the program is the kind of thing Wal-Mart needs to do.

"Wal-Mart knows there are enough people who don't go there because if its reputation," said Silvers.

Although Wal-Mart said it would hold seminars for Chicago businesses, Smith said he doesn't know if that has happened yet. And the store has not begun selling products by local vendors, as officials promised before the store opened; they say applications from local vendors are being analyzed.

Author Charles Fishman said Wal-Mart must be careful to deliver on its promises.

"If they don't, rather than helping the community they simply increase cynicism," said Fishman, who wrote the book, "The Wal-Mart Effect: How the World's Most Powerful Company Really Works and How It's Transforming the American Economy."

Just how the new Wal-Mart and its strategy will affect local businesses in Chicago remains to be seen.

A handful of businesses have closed or are in the process of closing, but they are primarily clothing stores that barely were surviving before Wal-Mart opened, said Pete Schmugge, executive director of the North Pulaski-Armitage Chamber of Commerce.

"Wal-Mart was basically the final push," he said.

Top Line Fashion, a tired-looking store a few blocks from Wal-Mart, is about to close.

"The economy (has) not been good the last year," said owner Chung Yoo, adding she knew her store was finished when she walked into Wal-Mart and saw for herself that prices there were lower than in her store.

Even those whose businesses aren't in immediate danger are worried — including some who got free advertising from Wal-Mart.

"It scares me," said Norman Delrahim, who has owned B&S Hardware for 25 years. "But I'm happy to get those ads. Hopefully they're going to help us."

Meanwhile, Emma Mitts, the alderman who successfully pushed for the Wal-Mart to be built in her ward, said there are signs Wal-Mart is encouraging other business to come to the area.

"I can see the retailers and developers want to come in," said Mitts.

Various companies — including Starbucks, which Mitts said will build a coffee shop in the area — say they don't comment on reasons for locating in particular areas. Starbucks did confirm it is looking in the Chicago neighborhood.

But anybody who has been to the store, particularly on the weekends, can't miss the traffic jams out front and packed aisles inside. The fact is, said Silvers, Wal-Mart is a well-established anchor tenant, and smaller companies don't agree to build in an area until such a tenant is in place.

"That was the attraction for them," said Camille Lilly, executive director of the Austin Chamber of Commerce on the city's West Side. "They wanted to have an anchor such as Wal-Mart."

What happens now will be of interest far beyond the city limits, said Fishman. When Wal-Mart wants to "move into urban area where it hasn't been or encounters resistance, city officials will immediately say 'How's that Chicago store doing?'" Fishman said.

For Soto, the question is whether the other retailers will experience the same kind of traffic — and shoppers — that Wal-Mart has now: the kind who pass them by on their way to Wal-Mart.

Shoppers like Josephine Gatling.

"I don't have to be going to all the stores,' said Gatling, who lives five blocks from the store, as she wheeled her cart through Wal-Mart. "Everything I want is here."

Soto isn't waiting to find out whether his store dies or survives.

"I opened up a second location (in neighboring Cicero) because of Wal-Mart," he said. "I can sleep at night now."