Low Prices, Blighted Suburbs


Contra Costa County wants to ban Wal-Mart's biggest store.

The future of retailing and a new kind of poverty are at stake.

BY CHRIS THOMPSON chris.thompson@eastbayexpress.com


The company Sam Walton founded seeks to corner the market everywhere it competes. John Gioia has seen the future, and its name is Wal-Mart. While driving across the country recently, passing by the strip malls and subdivisions of Middle America, he saw the discount retail giant's most ambitious project: the Supercenter. At a scale of up to 228,000 square feet, the Wal-Mart Supercenter dwarfs every other big-box store that has come before it. Nothing else so dramatically exemplifies the company's strangely prosaic grandeur.

Wal-Mart has been opening Supercenters since 1988, but up to now, California has been untouched. That's about to change. According to company spokeswoman Amy Hill, Wal-Mart is opening Supercenters in Tracy, Yuba City, and Gilroy, luring untold thousands of shoppers to the fringes of the Bay Area and changing the face of California retail forever. Wal-Mart currently operates three stores in Contra Costa County and plans to open a fourth at Richmond's Hilltop Mall. But a county of 1 million people, whose median household income is more than $63,000, could buy a lot more cheap consumer goods than just four stores can offer, and Gioia is convinced that Wal-Mart intends to drop a Supercenter in Contra Costa sometime soon.

If Wal-Mart's Supercenters colonize Contra Costa County, Gioia worries that the discount retail giant will deal a body blow to its competition, wiping out hundreds of union jobs, depressing wages, and sapping the vitality from downtowns and older commercial districts. So he's determined to put a stop to it. After all, Gioia isn't just any chump. As a member of the Contra Costa Board of Supervisors, he recently pushed through legislation banning all Wal-Mart Supercenters on unincorporated county land. Along the way, he has provoked the greatest electoral battle in the company's history.

Food is the key to the success of Supercenters. Unlike other Wal-Mart stores, Supercenters offer cheap groceries to lure in shoppers, and once they start wandering through the aisles, people who set out to buy a loaf of bread suddenly find themselves blowing a wad on a toolbox or stereo component. That's where Wal-Mart cashes in.

And that's what's Gioia says he doesn't like. If Wal-Mart were to build a Supercenter on unincorporated land, the county would be on the hook to build and maintain the access roads and other infrastructure. These roads would get far more than their share of use, but because groceries are not subject to sales taxes, the county wouldn't be able to use sales tax to finance their upkeep. So the county would get nightmare traffic without the sales tax to deal with it. "The impacts in terms of traffic and air quality are substantial, and yet you don't recover tax revenue to mitigate the negative impacts of those facilities," he says. "So it's a planning ordinance."

This isn't the real reason Gioia has picked a fight with Wal-Mart -- which is fine, since it's not a very strong argument. But that is ostensibly why the Board of Supervisors voted on June 3 to ban all stores larger than 90,000 square feet from devoting more than 5 percent of their floor space to nontaxable items, thus barring Supercenters from unincorporated county land.

Immediately after the vote, Wal-Mart officials spent $100,000 collecting enough signatures to force the board to either rescind its ordinance or put it on the ballot and let the voters decide. Wal-Mart spokeswoman Hill claims that, far from being an attempt at sensible planning, Gioia's ordinance is just a sneaky favor for the United Food and Commercial Workers Union, which represents grocery clerks at Albertsons and Safeway, the chains mostly likely to suffer if Wal-Mart Supercenters move in on their action.

"This ordinance was brought to Contra Costa by the UFCW, which is the grocery union," she says. "It's anticonsumer and anticompetition. ... They have definitely tried to stop our development, and it's due to a frustration by their inability to organize in our stores. More than a million people in the US work for Wal-Mart, and about 100,000 are eligible for union membership. That's a lot of potential dues, and they are a business, too." On July 2, Wal-Mart officials turned in almost twice the number of signatures they needed, and county supervisors are expected to place the ban on the ballot next week.

Wal-Mart is a battle-hardened veteran of such wars. In many cities, local leaders have tried to keep out the discounter, only to be overwhelmed by the vast amounts of money it can throw into such a campaign. Although Wal-Mart has faced occasional setbacks in exceptional cities such as Eureka, it has beaten back similar ordinances in Calexico, Inglewood, and Clark County, Nevada. According to company critic Al Norman, Wal-Mart will spare no expense to overturn such an ordinance, blitzing voters with every imaginable campaign strategy. "Voters better fasten their seat belts, 'cause they'll get hit with several full-color mailings, they'll be telemarketed, they'll create some citizens group, like Citizens for Economic Development," he says. "In some cases, like in Texas, they've even produced little three-minute videos and mailed them to people." And those were just the small markets. In the company's entire history, no market as big or rich as Contra Costa has ever challenged it, Hill notes.

Consequently, Wal-Mart watchers expect the retailer to wage a particularly aggressive campaign. That's just fine with Gioia, who is in no mood to compromise. He says that when he watched professional signature-gatherers hit up people outside the company's Contra Costa stores, he also saw them collecting names for California's gubernatorial recall petition. For Gioia, that summed up an exasperating irony about this election: Once again, a populist reform mechanism had been hijacked by interests with enough cash to make it serve their own agenda. Gioia figures Wal-Mart will spend at least $1 million on the campaign, so he'd better get those union members walking precincts pretty soon. Because make no mistake about it, Amy Hill is right -- this fight is about the unions.

Whatever the merits of Gioia's traffic argument, from day one he's been working with UCFW Local 1179 president Barbara Carpenter on how best to run this campaign. Both Gioia and Carpenter know that voters will be more irritated by long commutes than inspired by appeals for labor solidarity, so they're staying on-message and steering well clear of union issues. Carpenter, whose union represents 5,000 retail clerks in Contra Costa, even goes so far as to make the ludicrous suggestion that her members are actually more incensed by traffic jams than the potential loss of their jobs -- "We're looking at the well-being of all our members, not just their working conditions," she says. "The traffic here is atrocious." At least Gioia is forthright enough to acknowledge the obvious labor connections, however obliquely: "There many others who have issues with Wal-Mart, so I think there's been a convergence of issues here."

Not that I have any problem with organized labor kicking Wal-Mart in the ass. Gioia claims that unionized retail clerks make an average of $10 more an hour in wages and benefits than Wal-Mart employees. I don't know about that, but it doesn't take a genius to see that if anyone could use a union, it's the cashiers and stockboys at major retail chains. But there's another player in the anti-Supercenter campaign, one that has stayed behind the scenes but conferred with Gioia throughout this process. And if its involvement were widely known, it could diminish any argument Gioia might make. That player is Safeway, whose corporate headquarters is located just across the border in Pleasanton, and whose executives and middle managers live in the gated communities of Contra Costa and Alameda counties.

That's the funny thing about Wal-Mart: Its business is so successful and the scale of its operations so vast that it makes instant allies out of longtime adversaries. Less than ten years ago, Safeway and its unions were locked in bitter strikes and contract battles, and its history of redlining has so angered neighborhood activists that they spat whenever they said the company's name. Now they have teamed up against the beast from Arkansas, and no one is more grateful for its new friends than Safeway.

Now that Wal-Mart has opened more than 1,300 Supercenters, rival grocery chains have watched their business gradually stall out, withered by the stiff new competition and an overcrowded marketplace. Like almost every other competitor to come before them, grocery retailers just can't compete with Wal-Mart's strategy of enticing customers with its sheer size, product volume, and hefty discounts. So far, Southern firms such as Kroger have taken the brunt of Wal-Mart's charge, as the Arkansas-based discounter invariably grew close to home before expanding into the rest of the country. But now that the Supercenters are coming to California, the heart of Safeway's retail empire, the local grocery chain can't help but glance nervously over its shoulder.

Safeway spokeswoman Vanessa Kingsborough didn't return numerous calls seeking comment. But according to Dave Novosel, a retail industry analyst for Banc One Capital Markets, the Supercenters are likely to hit Safeway square on the chin. "The reality is, it's a big threat," he says. "Wal-Mart's very clear that a big part of their expansion strategy isn't just domestic sale of general merchandise, but increasing food sales. ... Wal-Mart's just getting going in California. If you talk to Safeway, they'll tell you that it's too soon to conclude anything definitive yet. My guess is it'll definitely hurt them, it's just a question of degree."

After all, Wal-Mart always follows the same formula when it decides to penetrate a regional market. First comes the "spread out and fill in" phase, in which Wal-Mart places a store on the outskirts of town, tracks the zip codes of its most prolific shoppers, and plans the next phase of expansion. Then comes the "cannibalization" phase, in which Wal-Mart sets up so many stores that they cut into one another's business. By the time the bloodletting is over, Wal-Mart even will have closed some of its own stores, but it also will have gained a dominant share of the market. "Sam Walton himself said he wanted to be his own competition, because it's better than to pick your own pocket than have someone else do it," antisprawl activist Norman says of the retailer's legendary founder.

Of course, Safeway has a few options left. Many shoppers won't brave endless traffic jams and walk through a retail complex the size of five football fields just to stock up on food. So Safeway's smaller, more convenient stores will always have a niche. The grocer can also distinguish itself from the discounter by emphasizing quality over price. But with Wal-Mart's arrival a virtual certainty, as well as news that Safeway's profits plunged 48 percent in the second quarter of this year, is it any wonder it is dipping its toe into the retail politics (ahem) of Contra Costa County?

There's a certain irony in Safeway's support for the Supercenter ban. Gioia waded into this fight partly because he wants to preserve and restore downtowns and smaller malls, where shopping is conducted on a more human, intimate scale. Yet few companies have done as much to destroy inner-city downtowns as Safeway has.

The 1980s were a great time for KKR Associates, that merry band of Wall Street suits who invented the leveraged buyout. In 1986, KKR added Safeway to its list of acquisitions. Amassing vast amounts of debt, KKR shuttered less-profitable stores in poor neighborhoods across the county to get back in the black. Over the next decade, Safeway closed more than 1,100 stores -- and even redlined the entire state of Oklahoma. Millions of inner-city residents lost access to cheap food, and ghetto liquor stores rushed in to fill the void. Making common cause with the likes of Safeway in order to confront a company that specializes in keeping its prices low seems a bit awkward to say the least.

But Gioia will take his friends where can get 'em. Because just as Safeway once helped catalyze the death of urban commercial life, Wal-Mart's Supercenters threaten the very world Safeway helped create -- the older suburban shopping mall. And the decline of these malls is a prime indicator of one of the least-noticed but most unsettling phenomena of our times: the rise of suburban poverty.

Once upon a time, urban economic disparity followed a simple, bipolar formula: impoverished inner cities surrounded by white, middle-class suburbs. The burbs were uniform bedroom communities with prefab housing, strip malls, and no parks or cultural amenities, but residents gladly moved there to get away from crime, poverty, and black people. Now a new generation of middle-class professionals is recolonizing inner cities, pushing the poor out into this first generation of suburbs. We are witnessing the emergence of a new, tripolar disparity, with the poor moving into a band of older suburbs, surrounded by the middle class in the cities within and gated exurban communities without. The first line of Levittowns -- bereft of parks, public transportation, and any revenues other than property and sales taxes from decrepit old shopping malls -- are fast becoming the new face of poverty in America.

Myron Orfield, a social demographer and senior fellow for the Brookings Institution, has been tracking the growth of suburban poverty for Amerigis, a think tank he founded two years ago. According to Orfield, minority families either move into older suburbs and trigger a new round of white flight, or into growing bedroom communities with no economic diversity. Either way, poverty begins to concentrate in overcrowded, underfunded schools, which dramatically depresses the property values and locks the suburbs into a cycle of blight. "When poverty concentrates in the schools, the middle class moves away from them," he says. "Schools are powerful social motivators, and they're nowhere becoming more segregated than in California. A lot of times, this is occurring without a broad awareness of it."

Here in the East Bay, areas such as San Pablo, Rodeo, and Bay Point embody this phenomenon. According to Amerigis, San Pablo's tax base dropped more than 40 percent between 1993 and 1998, right in the middle of the boom years. Rodeo and Bay Point lost a significant percentage of their household tax capacity during the same period, while Oakland's grew modestly and Pleasanton's grew more than 18 percent. During the 1990s, the number of elementary students eligible for free lunch programs spiked in Pittsburg and West Contra Costa, even as it held steady in Oakland. All because middle-class families were leaving the older burbs behind for exurbs such as Hercules and American Canyon.

Wal-Mart has been one of the most dynamic engines of this trend all across the country. By placing Supercenters on the exurban fringe, the company has stimulated sprawl and helped wipe out older suburban shopping malls. One by one, anchor tenants such as Kmart and Albertsons have picked up and moved out, turning once-thriving malls into desiccated ghost towns. "Almost all the older suburbs in the US have dead malls in them," Orfield says. "That's really common. There are dead malls in almost every suburb in the US, because newer malls compete with them. And other cities compete with the older suburbs, especially in California, where sales tax is king. The richer suburbs almost always beat the poorer suburbs."

When Albertsons moved out of the El Sobrante mall on Valley View Road two years ago, blight infected the facility with dismaying speed. Officials with the Richmond Redevelopment Agency worked to find a replacement store, but within months, people were dumping their garbage in the parking lot. RVs began to camp out at the mall. A fire damaged the old Albertsons site, and the few commercial tenants who haven't left are now on a month-to-month lease, waiting to see if a Walnut Creek developer will buy the land, tear down the mall, and replace one of El Sobrante's two commercial districts with, yes, more housing. In San Pablo, the El Portal shopping center never recovered when its grocery store anchor tenant moved out, and now it, too, is the site of multifamily housing, once again diminishing the variety of the tax base and setting the stage for more suburban blight.

You can't lay all this at Wal-Mart's doorstep, but there's no denying that the company has been among the most energetic catalysts of the silent suburban ghettos. This is why groups like the community-based organization ACORN have suddenly decided that Safeway is their best friend. According to Doug Bloch, an ACORN organizer who's running their new Bay Point office and has joined the anti-Wal-Mart campaign, the new army of suburban poor has no public transportation, no social services, no free legal aid, no health care clinics. All they have, he says, is their shopping malls.

eastbayexpress.com | originally published: September 17, 2003