Why Walmart's Bite Into the Big Apple May Not Be Sweet
File this one under the department of obvious: Walmart (WMT) is not going to be discouraged from grabbing its slice of Big Apple pie so easily. In fact, management at world's largest retailer continues to force itself to think outside the (big) box to woo New York City with custom plans for an urban outlet.
The problem is that by focusing so hard on the prize, Bentonville's beehive may be buzzing up the wrong tree.
That prize is definitely tempting to be sure. Underserved urban areas represent a reported $100 billion market annually and New York City residents are said to spend $165 million at the dozens of Walmarts located away from the city.
However it's a huge drain on Walmart's already taxed resources. The aggressive campaign to woo local politicos included hiring Mayor Michael Bloomberg's former campaign manager Bradley Tusk. It's also got to throw a lot of money behind its internal PR machine in order to stem the ever-present tide of bad press about its employment practices. Currently, the largest private employer in the country is battling a massive class-action lawsuit -- now in the hands of the U.S. Supreme Court -- in which nearly a million women workers claimed that they were paid less and promoted less often.
It's not like Walmart's got money to burn. In fact, last month Walmart execs moved to slash its $1 extra per hour Sunday pay policy in a measure to massage the balance sheet after six straight quarters of declining comps. That was on the heels of bumping up its oft-touted "rollback" pricing, retooling its apparel strategy, and cutting profit sharing after 40 years.
And the competition is fierce. Target's (TGT) an established presence in Brooklyn, Queens and Manhattan and has become a destination for fashion forward shoppers to purchase thrifty but stylish threads along with their shampoo and paper towels. Walmart's always lagged behind Target in its ability to draw more affluent consumers even after the arrival (and subsequent departure) of ex-Target exec John Fleming.
Walmart's forgetting a critical point: New Yorkers don't shop like their suburban counterparts. A smaller footprint would require the retailer to make that many more dollars per square foot. Yet how will that happen when most customers are lugging their bags home on the bus or subway?
If Walmart really wants to turn its balance sheet around, it needs to focus on the places where it can stretch its legs more easily. Foreign markets are a natural growth point for this mature retailer. How can Walmart's exec suite ignore the fact that stores abroad rang in over $1 billion last year in favor of opening an 80,000 square foot repository of Cheerios and Crest? Honing its sales strategy for the burgeoning Hispanic market wouldn't be a bad idea either.
Walmart's set to have its case considered later this month at a New York City council hearing. Meanwhile, the company continues to look for sites that won't require council approval.
Image via Flickr user Steven Mitchell
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