LAEDC-Wal-MartforSoCal

LAEDC-Wal-MartforSoCal - Wal-Mart Supercenters What's in...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Wal-Mart Supercenters: What's in store for Southern California? Los Angeles County Economic Development Corporation Prepared by: Gregory Freeman Los Angeles County Economic Development Corporation January 2004 ECONOMIC DEVELOPMENT FOR THE REGIONS OF LA COUNTY LAEDC Wal-Mart Economic Impact Study Editor’s Note: The consulting practice of the Los Angeles County Economic Development Corporation (LAEDC) was commissioned by Wal-Mart Stores, Inc. to conduct an even-handed assessment of the potential impact of its Supercenters on Southern California. January 2004 LAEDC Wal-Mart Economic Impact Study Table of Contents Executive Summary........................................................................................................ 1 Costs and Savings...................................................................................................... 1 Timing......................................................................................................................... 3 Conclusion.................................................................................................................. 3 Study Highlights.............................................................................................................. 4 Background .................................................................................................................... 6 Section 1: The Benefits of Every Day Low Prices ......................................................... 10 Summary .................................................................................................................. 10 Introduction and Methodology................................................................................... 10 Lower Prices on Groceries........................................................................................ 11 Spending at Grocery Stores...................................................................................... 13 Spending at General Merchandise and Apparel Stores ............................................ 14 Potential Savings in the City of Los Angeles............................................................. 14 Potential Savings in Los Angeles County.................................................................. 17 Potential Savings in Southern California ................................................................... 18 Increased Buying Power ........................................................................................... 20 Job Creation ............................................................................................................. 21 Section 2: Wages ......................................................................................................... 22 Summary .................................................................................................................. 22 Wal-Mart Benefits Wal-Mart................................................................................................................... 24 Grocery Industry Wages ........................................................................................... 25 Union Wages in the Grocery Industry ....................................................................... 27 Wage Gap Analysis .................................................................................................. 29 Cost to the Economy ................................................................................................ 31 Section 3: Weighing the Impacts .................................................................................. 32 Upside ...................................................................................................................... 32 Assessment .............................................................................................................. 33 Downside.................................................................................................................. 33 Assessment .............................................................................................................. 33 Conclusion................................................................................................................ 35 Section 4: City of Los Angeles Response ..................................................................... 37 Summary .................................................................................................................. 37 Option #1: Ring around Los Angeles ........................................................................ 38 Option #2: Working Together.................................................................................... 39 Conclusion................................................................................................................ 40 January 2004 LAEDC Wal-Mart Economic Impact Study Wal-Mart Supercenters: What’s in store for Southern California? Executive Summary Wal-Mart Stores, Inc. is now the largest grocery retailer in the country based on sales. It is preparing to introduce its Supercenters, which combine a large general merchandise store with a full service market, into Southern California. The City of Los Angeles, in particular, with its 3.61 million people, 1.28 million households, and annual food store spending of approximately $5.65 billion, is a very attractive market. Wal-Mart’s planned expansion into the local grocery business creates both a challenge to the major grocery store chains in the region, and an opportunity for cities to encourage strategic reinvestment in underserved neighborhoods. The LAEDC agreed to assess the economic implications of Wal-Mart’s entry into the Southern California grocery market because existing studies, which tend to tally only the negative impacts of Wal-Mart’s operations, miss half the story. Here we aim to provide a fair and balanced assessment of both the good and not so good impacts of Supercenters in Southern California. Thus, we include not only the potential effects on existing grocery chains and their employees, but also the potential savings to consumers, and the potential job creation outside the grocery industry. Costs and Savings Wal-Mart Supercenters have a substantial cost advantage relative to traditional supermarkets, based on careful supply chain and inventory management, volume discounts, and lower labor costs. Much of this can be attributed to Wal-Mart’s willingness to invest in technology and business practices which make its operations more efficient. Wal-Mart passes the savings on to consumers, offering lower prices on groceries than traditional grocery market chains. If Wal-Mart Supercenters are introduced in Los Angeles, food prices should fall. Wal-Mart shoppers would immediately save an estimated average of 15 percent relative to what they would have paid under the current status quo. The savings could be higher, particularly in portions of the City of Los Angeles such as South Los Angeles and the northeast San Fernando Valley, which are underserved by traditional grocery stores. The corner stores where much of the food purchases in these areas take place offer uncompetitive prices relative to existing grocery stores, never mind Supercenters. As Wal-Mart gradually builds market share, major competitors will lower their prices as well, thus bringing additional savings to some consumers who will never set foot in a WalMart store. Smaller stores will adjust by emphasizing specific market niches and specialty products which Wal-Mart does not provide. The LAEDC conservatively calculated the potential savings to consumers in the City of Los Angeles to be at least $668 million, or $524 per household, annually, once Wal-Mart reaches 20 percent market share. The savings could be much higher, though the savings will not materialize overnight. They will increase gradually over many years in step with Wal-Mart’s market share. These savings add to a household’s discretionary after tax dollars – the portion of the income actually available for spending. This “found” January 2004 1 LAEDC Wal-Mart Economic Impact Study money will be redirected to other items, including housing, savings, health, entertainment, and transportation. As households redeploy their savings, their spending will create jobs outside the grocery industry. In the City of Los Angeles, redirected grocery savings will create 6,500 additional jobs. The new jobs will be in a wide variety of occupations, reflecting the diverse spending patterns of Los Angeles households and the breadth of the regional economy. The LAEDC also looked at the potential impact of Wal-Mart Supercenters on the entire Southern California market. In Los Angeles County, the aggregate annual savings to consumers would be at least $1.78 billion. When the savings are redirected to other purchases, the county-wide job creation will total 17,300 jobs. For consumers in Imperial, Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties, the combined total annual savings will be at least $3.76 billion. The sevencounty Southern California job creation total is 36,400 jobs. Wal-Mart compensation, while lower than for the best-paid unionized grocery employees, is better than most people realize, particularly in its food business. Wal-Mart benefits include health care, a stakeholders’ bonus, which is paid to employees at stores that perform well, profit-sharing, company contributions to 401(k) plans, which are the most common form of defined contribution retirement plan, a 15 percent discount on company stock, and a 10 percent discount on purchases of general merchandise. WalMart’s healthcare plan requires employees to share the upfront costs (Wal-Mart pays 2/3rd; the associates pay 1/3rd), but in return does not have single incident or lifetime caps on coverage. Two important factors make Wal-Mart’s wages appear lower than they might otherwise. First, Supercenters are a relatively new phenomenon. Most Supercenters have simply not been open long enough to have accumulated many employees with lengthy service records, and thus higher rates of pay. Second, and perhaps most important, Wal-Mart’s pay among its front line grocery workers is skewed downwards because it promotes from within. Wal-Mart recruits its management primarily from within the ranks of its own employees. This opens up career opportunities for associates, and crucially for wage comparisons, removes some of the most experienced and best paid Wal-Mart employees from the pool of workers typically being compared. In contrast to unionized grocery stores, where some of the most senior employees are cashiers, at Wal-Mart cashier is an entry level position. Unionized grocery workers earn $2.50-$3.50 per hour more, on average, than Supercenter employees in Southern California could expect. Some union grocery workers are very well compensated, but the wages of the most highly compensated among them are frequently mistaken for average union wages, which are lower. The widely-cited Orange County Business Council (OCBC) study calculated the potential wage loss if all union workers in the Southern California grocery industry were to earn the same wages as Wal-Mart employees. Using more realistic assumptions of Wal-Mart Supercenter employee pay (and hence a narrower wage gap), we find the potential cumulative wage loss in Los Angeles County is $150 million to $258 million annually. For the 7-county Southern California region (including Los Angeles), the range is $307 million to $529 million. If all current unionized grocery employees were to eventually earn the equivalent of Wal-Mart Supercenter employees, the lost spending due to eroded household income could cost Los Angeles County alone 1,500 to 2,500 jobs and the 7-county region 3,000 to 5,100 jobs. Should these losses materialize, they would be January 2004 2 LAEDC Wal-Mart Economic Impact Study offset by region-wide gains of 36,400 jobs, meaning that outside the grocery sector at least seven jobs would be added for every one lost. Timing Timing will be critical in determining the potential impact of Supercenters. Experience in other regions suggests that existing stores will have time to adjust. The potential benefits as well as the costs of Wal-Mart entering the Southern California grocery market described in this report assume that Wal-Mart will eventually gain a market share of 20 percent. Yet, gaining share will take a long time. Wal-Mart will struggle to find suitable locations for its stores in many areas of heavily urbanized, built-out Southern California, including most of the City of Los Angeles. By comparison, in Fort Worth, Texas, it took Wal-Mart six years to achieve a 6.5 percent share in a market where stores can be built quickly. Unlike California, permitting, environmental regulation, and community opposition are not generally a factor in Texas, where growth has nonetheless proceeded at only a modest pace. Wal-Mart appears to be proceeding cautiously in California, with plans to build just 40 Supercenters in the state over the next three to five years. This represents just 4 percent of the 1,000 new Supercenters that will be added nationwide during the same period. Based solely on the state’s share of the national population and the potential size of its market, the expected number of new Supercenters in California should be in the range of 100 to 150. If the distribution of existing Supercenters were factored in, the California number would be higher still. Again, by comparison, Texas, which is the nation’s second most populous state, already has many Supercenters while California, the most populous state, has none. The slow roll out of Supercenters in Southern California, compared to other regions, will delay the arrival of benefits for consumers, but it will also give Wal-Mart’s competitors more time to adapt. With Southern California’s rapidly growing population, Wal-Mart is likely to increase its presence by taking a greater share of overall market growth, rather than by luring existing customers from large supermarket chains. While a scenario in which Wal-Mart captures most of this growth may constitute a challenge for the major supermarket chains, their situation – aside from fierce price competition, which benefits consumers, and increased pressure on their balance sheets – is not likely to be significantly different than it is now. Conclusion All indicators suggest that Wal-Mart will gradually enter the grocery market in Southern California. A 20 percent market share may be achievable over time, but not in the near future. Unlike what has occurred in other parts of the country, Supercenters will be rolled out slowly here, delaying the arrival of benefits. Conversely, any negative impacts will also be delayed, and lessened, since competitors will have more time to adapt. Over the long term, Wal-Mart is likely to increase its market share by absorbing a larger share of overall market growth, rather than by attracting existing customers from the large grocery chains. The real choice facing the City of Los Angeles is whether Wal-Mart will serve residents from within the city’s boundaries or from without. If Wal-Mart decides to open Supercenters to serve demand in the region, the stores could conveniently serve January 2004 3 LAEDC Wal-Mart Economic Impact Study customers residing in the City of Los Angeles from within the city, or from neighboring jurisdictions. In the former case, the city government would have the opportunity to influence Wal-Mart’s presence. The City of Los Angeles could guide Wal-Mart and other large scale retailers to sites where their presence and spending would be a boon for local redevelopment. If, however, Wal-Mart builds in neighboring jurisdictions, the City of Los Angeles will have no control over the development. Wal-Mart customers in Los Angeles would leave the city to shop, taking their taxable spending (and any resulting local sales tax revenues) with them. Study Highlights Savings for Consumers and New Jobs outside the Grocery Industry Supercenter customers will save an average of 15 percent on their groceries. Price competition will lead to reduced prices at existing grocery chains, providing customers who shop at stores other than Wal-Mart average savings of 10 percent. Increased competition in non-grocery items will lead to price reductions averaging 3 percent at general merchandise and apparel competitors. Money that people save on groceries will be redirected to other items, including housing, savings, health, entertainment, and transportation. This new spending will, in turn, create jobs outside the grocery industry. Savings in the City of Los Angeles Consumers in the City of Los Angeles are conservatively estimated to save at least $668 million annually, or $524 per household, per year. Redirected grocery savings will create 6,500 additional full-time-equivalent jobs. Savings in Los Angeles County Consumers in Los Angeles County are conservatively estimated to save at least $1.78 billion annually, or $569 per household, per year. Redirected grocery savings will create 17,300 new jobs County-wide. Savings in Southern California Consumers in Imperial, Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura counties are conservatively estimated to save at least $3.76 billion annually, or $589 per household, per year. In these seven counties, 36,400 new jobs will be created. Potential impacts to Major Grocery Chains Major grocery companies have used fear of intense competition to seek wage concessions from unionized employees, most likely by lowering the wages of new hires. Future foregone wages of unionized grocery employees in Los Angeles County could equal $150 million to $258 million annually, and could reach $307 to $529 million annually across the entire 7-county Southern California region. January 2004 4 LAEDC Wal-Mart Economic Impact Study These foregone wages would reduce overall household spending, potentially costing Los Angeles County 1,500 to 2,500 jobs and the 7-county region (including Los Angeles) 3,000 to 5,100 jobs. These losses will be offset by region-wide gains of 36,400 jobs outside the grocery business, or a net gain of at least seven new jobs for every one lost. Catalyst for Redevelopment Wal-Mart can be used as a catalyst for redevelopment, particularly in areas saddled with struggling (or failed) retail centers. In Panorama City, Wal-Mart replaced the Broadway department store, creating new jobs and revitalizing the mall and the surrounding neighborhood. Wal-Mart will open stores in an abandoned K-Mart in Canoga Park and in an abandoned AutoNation site in Harbor Gateway. Wal-Mart has demonstrated a willingness to enter communities that other businesses appear uninterested in serving. In Baldwin Hills, Wal-Mart brought jobs and retail opportunities to an underserved community by opening a store in a former Macy’s, which had sat vacant for five years. There are many parts of Los Angeles that are underserved by retail. The need is acute in the grocery sector and these communities stand to gain the most if WalMart were to enter the market and offer lower prices. Sales Tax Leakage Jurisdictions without Supercenters will lose taxable sales when their residents shop elsewhere. Supercenters have become an issue because they sell groceries, which are non-taxable. Sixty to seventy percent of the sales at Supercenters, however, are taxable. The appeal of Supercenters, for both WalMart and the consumer, is that they allow shoppers to combine trips and do all of their purchasing in one location. If city residents choose to buy their groceries at Supercenters outside of the city, the City of L.A. will lose out on the local share of any taxable purchases shoppers make on those trips. Cities without Supercenters will also lose out on sales tax revenue when their residents combine trips to Wal-Mart with shopping at nearby stores. Overall sales taxes will increase to the extent that customers spend their savings generated from lower-priced groceries (which are not taxable) on goods which are taxable. The modest increase in overall taxable sales should not obscure the key issue – the distribution of taxable sales (and hence tax revenues) among Southern California jurisdictions based on where consumers choose to shop. January 2004 5 LAEDC Wal-Mart Economic Impact Study Background Wal-Mart is America’s largest company, based on gross sales of $245 billion in the fiscal year ending January 31, 2003. Wal-Mart sells a limited selection of food items at its general merchandise stores, and operates Sam’s Club, which sells food and general merchandise in a warehouse format. Wal-Mart moved into the traditional grocery business in 1988, when it rolled out the first of its 1,386 Supercenters. These stores combine a traditional Wal-Mart with a complete grocery operation in spaces ranging from 109,000 to 230,000 square feet. Groceries account for approximately 30 percent of sales at Supercenters, or $29.3 billion in 2002.1 Wal-Mart is now the largest grocery retailer in the United States, having passed Kroger for the top spot in 2001.2 Wal-Mart began selling groceries both in response to customer demand for the increased convenience of one-stop shopping, and as a means of raising the average number of visits per month customers make to its general merchandise stores. The logic of increased customer visits is simple. Typical households visit grocery stores roughly three times as often as they visit mass merchandise stores such as traditional Wal-Marts.3 By expanding into groceries, Wal-Mart offers consumers increased convenience. Shoppers can combine trips, picking up items such as a DVD, a new toaster or school supplies while buying their groceries. Wal-Mart benefits as well because consumers have less incentive to shop elsewhere, which would require an additional trip. “Conscientious expense control” Although margins in the grocery sector of the retail industry tend to be low, they are still high enough that Wal-Mart can sell for less than the large chain grocery stores and still make a profit. Wal-Mart achieves lower prices through enormous economies of scale, efficiency, and what the company calls “conscientious expense control” in every aspect of its business. Four examples illustrate the company’s commitment to cost control and efficiency. First, Wal-Mart produces far fewer advertising circulars than its competitors do. The savings of producing and distributing 12-13 fliers instead of 50-100 per year are passed on to consumers. 4 Second, Wal-Mart invests heavily in supply chain management. CIO Magazine, a trade publication for chief information officers, observes that Wal-Mart’s private exchange, known as RetailLink, provides suppliers with raw sales and inventory data to better manage stocking decisions and reduce costs… RetailLink… has allowed the company to reduce the cost of transactions within the supply chain by providing daily scan-data to suppliers, creating a system in which items are rarely out of stock. By contrast, many grocery retailers have 8 percent to 12 percent out-of-stocks because partners can’t see the demand levels…5 January 2004 6 LAEDC Wal-Mart Economic Impact Study Third, Wal-Mart eschews charges such as “slotting fees,” the practice in which grocers charge manufacturers for prime shelf and display space. Indeed, Fortune magazine describes a whole slew of fees retailers charge their suppliers, all of them eliminated at Wal-Mart: Slotting fees. Display fees. Damage allowances. Handling charges. Late penalties. Special sales and rebates. Super Bowl tickets. Each is a small inefficiency that benefits the retailer at the supplier’s expense and, ultimately—since the supplier builds those costs into its prices—the consumer’s. [With] Wal-Mart, by contrast … “All the funny money … isn’t there. They’ll negotiate hard to get the extra penny, but they’ll pass it along to the customer.”6 Fourth, Wal-Mart’s corporate culture is steeped in frugality. Wal-Mart expects its executives to empty their own wastepaper baskets, refuses to spend money on lavish offices, and limits Wal-Mart related travel to economy car rentals and budget motels. Wal-Mart’s emphasis on cost control in every aspect of its business underpins its success. Wal-Mart makes a point of always listening to its customers, and focuses on the consumer’s bottom line. Millions of people shop at Wal-Mart stores every day because the company’s savings are passed on to them. Wal-Mart will enter the grocery market in Southern California. Low prices on grocery items have made Wal-Mart Supercenters popular with consumers. The Supercenter format now accounts for about 40 percent of total corporate revenue at Wal-Mart Stores, Inc.7 Wal-Mart plans to add 1,000 new Supercenters nationwide over the next five years, including 40 in California.8 W al-Mart’s planned expansion into the Southern California grocery market has unnerved the major grocery store chains in the region. Not long ago, the major supermarkets displaced many local butchers, bakers, vegetable stands and neighborhood markets. Some of the supermarkets grew into enormous chains, with annual sales in tens of billions of dollars. Now, these chain supermarkets face competition from the “everyday low prices” of WalMart Supercenters. The supermarkets, however, have already begun adapting to the changing retail environment in earnest, and will not be easily displaced. The chain supermarkets have been increasing the square footage of their stores and adding more general merchandise items such as toys, lawn furniture, and small appliances. They have entered alliances with pharmacy chains, banks, and coffee vendors to offer their customers greater convenience and meet the growing demand for one-stop shopping. The supermarkets have also taken steps to improve the efficiency of their distribution systems, and are seeking to control labor costs in their stores. At present, cost control has been focused on improving productivity, most notably through the adoption of automated self-check out stations and by switching to less labor intensive business practices. Here the supermarkets strive to emulate Costco and other January 2004 7 LAEDC Wal-Mart Economic Impact Study wholesale membership warehouses, which combine their stores and storage areas in the same place. A pallet of goods is placed directly on the selling floor, the shipping materials are removed and the boxes are opened. The product is then ready for shoppers with little (if any) labor expended on labeling, sorting, and restocking. Most of the public commentary on Wal-Mart’s pending move into Southern California’s grocery industry has been negative. This trend is unsurprising for two reasons. First, the potential downside – intense competition, possible business failures, and downward pressure on wages – is largely concentrated in a single sector of the retail industry. This makes the potential negative impacts highly visible, and suggests they may be acutely felt. Second, the potential benefits, in contrast, are easy to overlook. Lower prices in the grocery sector will be shared among millions of households, meaning gains at the individual level will be relatively modest. And the job growth outside the grocery industry that will be induced by the cumulative impact of money once spent on groceries being redirected to other purchases is something that must be imputed rather than seen. (If a family saves $20 per week, the redirected spending has a miniscule employment impact. Multiplied over millions of families, the job impact of even these modest savings would be quite large. Even with tens of thousands of new jobs, however, identifying specific individuals whose jobs are sustained by the redirected spending would be all but impossible.) Just because the potential benefits are easily overlooked, however, does not make them any less real. The LAEDC agreed to assess the economic implications of Wal-Mart’s entry into the Southern California grocery market because existing studies, which tend to tally only the negative impacts of Wal-Mart’s operations, miss half the story. Here we aim to provide a fair and balanced assessment of both the good and not so good impacts of Supercenters in Southern California. Thus, we include not only the potential effects on existing grocery chains and their employees, but also the potential savings to consumers, and the potential job creation outside the grocery industry. We start with the premise that large-scale economic change, while frequently unpleasant for those caught in the turmoil, is a normal occurrence in a free market economy. WalMart’s entry into the Southern California grocery market will occasion at least some turmoil. Companies that compete directly with Wal-Mart may see their future growth curtailed, and some may lose a portion of their existing sales. A few direct competitors may go out of business if they do not adapt. The negative implications of Wal-Mart’s entry into the Southern California Grocery market are examined in Section Two of this report. We begin, however, with an exploration of the potential benefits of Wal-Mart’s presence, tracing the implications of “everyday low prices” in the grocery sector throughout the local economy. Lower prices will bring modest, widespread improvements in household purchasing power, which in turn will induce job growth beyond those working directly at Wal-Mart. In Section Three we compare the findings from the first two sections, before turning to the options available to the City of Los Angeles in Section Four. The potential impact of Wal-Mart’s entry into the Southern California grocery business hinges on the timing and size of its market share. January 2004 8 LAEDC Wal-Mart Economic Impact Study The calculations in the first two sections of this report are based on the assumption that Wal-Mart will eventually control 20 percent of the grocery sector in Southern California. The LAEDC selected this threshold chiefly so that our findings can be compared directly with those of a widely cited study conducted for the Orange County Business Council (OCBC) in 1999. The OCBC study assumed Wal-Mart would control 10 to 20 percent of the Southern California grocery market based on the average number of Supercenters per distribution center. Looking at Wal-Mart’s operations elsewhere in the country, the OCBC study concluded the company would enter Southern California expecting to eventually build 47 to 57 Supercenters, giving it enough capacity to contend for 20 percent market share in groceries. Whether Wal-Mart will eventually reach the 20 percent threshold is open to debate, but the LAEDC believes it is at least plausible. (The longer the time horizon, the more plausible the assumption becomes.) Note that Wal-Mart leapt from nowhere to first in the national grocery business in just over a decade. The more important question revolves around timing. Competitors care deeply about how rapidly (or slowly) Wal-Mart will gain market share, and policy makers should share their concern. The OCBC study leaves unstated how long it will take Wal-Mart to reach a 10 to 20 percent market share, though their discussion of the company converting general merchandise stores into Supercenters implies that Wal-Mart is poised for a rapid expansion into Southern California. This silent assumption is crucial. The nature of the economic implications of Wal-Mart’s entry into the local grocery market hinge almost entirely on the rate at which Wal-Mart gains market share and the willingness of its competitors to adapt to meet consumer demands. If Wal-Mart were to open 50 to 60 Supercenters in Southern California over the next few years, its growth would necessarily have to come at the expense of the established supermarket chains. The grocery business is, after all, a slow growth industry, rising roughly in line with population and income growth. Most calculations of economic harm appear to be premised on this sort of scenario, in which Wal-Mart arrives all at once, leaving no time for growth in the size of the overall market. Yet, competitors will have time to adjust. Wal-Mart plans to build just 40 Supercenters statewide over the next three to five years. Even if half of these stores were built in the greater Los Angeles area, Wal-Mart could not conceivably capture 20 percent of the market. Given Wal-Mart’s current plans, the company’s initial share of the Southern California grocery market will be less than 5 percent. Southern California’s population is also growing rapidly, adding an average of 330,000 people annually. Wal-Mart may well enter the grocery sector, capture virtually all of the growth, and get quite large without making serious inroads into the customer base of the major chains. Our calculations examine the economic conditions that will prevail once Wal-Mart reaches a 20 percent market share. Yet it is critical to remember that timing is almost as important as the market share itself. Whether the conditions we model take five or fifteen years to materialize will have comparatively little bearing on the beneficial impacts. (As the population of Southern California – and hence the size of the local grocery market – continues to grow, the potential savings will increase as well.) For the negative impacts, on the other hand, the timing will determine both the nature and the scale of the consequences. January 2004 9 LAEDC Wal-Mart Economic Impact Study Section 1: The Benefits of “Every Day Low Prices” Summary Wal-Mart offers consumers lower prices on groceries than traditional grocery market chains. Surveys have repeatedly confirmed that Wal-Mart’s grocery prices are substantially lower than those of its competitors. If Wal-Mart Supercenters are introduced in Los Angeles, we expect food prices will fall. Wal-Mart will offer lower prices at its stores, and grocery chains responding to this competition will reduce their prices as well. The LAEDC has conservatively calculated the potential savings to consumers in the City of Los Angeles to be at least $668 million, or $524 per household, annually once Wal-Mart reaches 20 percent market share. (In all likelihood, the savings will be much higher, though the savings will not materialize overnight. They will build gradually with Wal-Mart’s market share.) Money that people save on groceries will be redirected to other items, including housing, savings, health, entertainment, and transportation. As households redeploy their savings, their spending will create jobs outside the grocery industry. In the City of Los Angeles, redirected grocery savings will create 6,500 additional full-time equivalent jobs. The LAEDC also looked at the impact of Wal-Mart Supercenters on the entire Southern California market. In Los Angeles County, the aggregate annual savings to consumers would be at least $1.78 billion. When the savings are redirected to other purchases, the county-wide job creation will total 17,300 jobs. For consumers in Imperial, Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties, the combined total annual savings will be at least $3.76 billion. The seven-county Southern California job creation total is 36,400 jobs. Introduction and Methodology Wal-Mart plans to build 40 Supercenters in California over the next three to five years, including some in Southern California. We begin by examining the potential impact of Wal-Mart entering the grocery market within the City of Los Angeles. In this scenario, food prices would fall as Wal-Mart attempted to build market share. Prices would fall both for residents who shop at Wal-Mart, and for those who save when competitors respond by reducing their prices. To the extent that Los Angeles-based households have to spend less to purchase the same groceries each week, their real purchasing power will have increased. When these savings are reallocated within the household budget (i.e. when money that used to be spent on food is redirected to expenditures such as housing, transportation and entertainment) it will create additional jobs in a variety of industries. We begin by documenting Wal-Mart’s lower prices. Next, we determine the size of the pool of spending that is likely to be affected by lower prices, looking in particular at spending in grocery, general merchandise and apparel stores. We calculate spending on grocery store items in two steps. First, we multiply the average spending per household on food consumed at home by the total number of households. This is a rough measure of the money spent on non-taxable items at food stores. Then we add the taxable sales at food stores. For general merchandise and apparel stores we look just at taxable sales, since taxable sales totals include almost all purchases at these stores. January 2004 10 LAEDC Wal-Mart Economic Impact Study Having determined the spending pool that could be affected by competition from WalMart, we proceed to estimate the potential savings for consumers. We estimate the savings separately for grocery, general merchandise and apparel stores, further breaking out the savings at grocery stores for patrons of Wal-Mart Supercenters, major grocery chains, and niche players. After calculating the savings for consumers in the City of Los Angeles, we repeat the process to determine the savings for consumers in Los Angeles County and the rest of Southern California. Finally, we turn to job creation. By reducing the amount a household must spend to procure groceries each week, Wal-Mart’s presence in Los Angeles will effectively increase real household spending. Thus, if a family that now buys $100 worth of groceries per week instead spends $80 for the same items, the family has gained $20 in buying power. We use a customized version of the RIMS II input-output model developed by the U.S. Bureau of Commerce to determine the number of jobs created by the cumulative increase in spending by all households in the City of Los Angeles. We also calculate the number of jobs associated with the potential savings in the County of Los Angeles, and in Southern California as a whole. The savings and job creation calculations are all based on the assumption that Wal-Mart gains a 20 percent share of the current grocery market. The market is, of course, growing, along with the population of Southern California. We have underestimated the impact, therefore, to the extent that the market increases in size during the time it takes Wal-Mart’s presence in Southern California to reach these levels. Wal-Mart Supercenters offer lower prices on grocery store items. Wal-Mart Supercenters have a substantial cost advantage relative to traditional supermarkets, based on careful supply chain and inventory management, volume discounts, and lower labor costs. This cost control could translate into substantial savings for consumers in Los Angeles. Wal-Mart entered the grocery market to increase the average number of visits per month customers make to its general merchandise stores and because it saw an opportunity to make money selling groceries. Consolidation in the grocery industry reduced competition and increased margins. Nationwide, food prices “grew at twice the rate of the producer-price index from 1991-2001… [which means] …Wal-Mart could come in, cut prices 10% to 15% and still make a profit.”9 Indeed, “studies show that the items at Wal-Mart cost 8% to 27% less than at Kroger, Albertsons or Safeway, including discounts from these competitors’ loyalty cards and specials.”10 Deutsche Bank found that Kroger, which owns Southern California Ralph’s stores and is the nation’s second largest supermarket chain, has prices “13% to 24% higher than Wal-Mart Superstores.”11 In some categories, particularly for high-margin snack items, Wal-Mart savings approach 50 percent. An informal local survey conducted by the Fort Collins Coloradoan found that for a typical 20-item grocery list, Wal-Mart offered the lowest total price. The same basket of groceries cost 17 percent less than at Safeway (parent of Vons), and 23 percent less than at Albertsons.12 A more detailed and comprehensive price survey was conducted in Las Vegas, Nevada by the equity research firm UBS Warburg in November, 2000. UBS Warburg found that Wal-Mart offered shoppers in Las Vegas savings of 20 percent January 2004 11 LAEDC Wal-Mart Economic Impact Study to 40 percent for representative baskets of goods compared to traditional supermarkets including Raley’s, Kroger, Albertsons and Safeway. 13 Wal-Mart was the lowest-priced retailer in every department surveyed. Purchasing the same bundle of goods at Wal-Mart offered savings relative to competitors on wines and spirits ranging from 2.53 percent to 8.74 percent. In drugs and pharmacy the savings ranged from 20.01 percent to 28.38 percent; in dairy, 21.91 percent to 26.75 percent; in meat, 8.84 percent to 41.46 percent; in perishables, 21.98 percent to 29.52 percent; in beverages, 26.63 percent to 37.81 percent; and in non-food items, 32.84 percent to 38.86 percent. The UBS Warburg study concludes: “Wal-Mart offers considerable savings over traditional supermarkets… [and it] …will force prices to come down longer term.”14 Observed Range of Wal-Mart Savings, By Department Compared to Supermarket Competitors Percentage Savings 50 40 30 Low High 20 10 0 Alcohol Dairy Perishables Non-Food Pharmacy Meat Beverages Source: UBS Warburg (November, 2000) January 2004 12 LAEDC Wal-Mart Economic Impact Study Wal-Mart will increase competition for dollars spent at grocery, general merchandise and apparel stores. Grocery Stores We calculate spending on grocery store items in two steps. First, we multiply the average spending per household on food consumed at home by the total number of households. This is a rough measure of the money spent on non-taxable items, primarily food products, at food stores. Then we add the taxable sales at food stores. The Consumer Expenditure Survey, 2000-2001, from the U.S. Department of Labor, Bureau of Labor Statistics collects information from the nation’s households and families on their buying habits (expenditures), income, and other characteristics. The Consumer Expenditure Survey covers “consumer units,” a term that is used interchangeably with family and household. There are some technical differences between consumer units and households of interest to economists, but these do not have a material impact on the estimates presented here. The Consumer Expenditure Survey covers major metropolitan statistical areas and is the best available measure of household food purchases. The Los Angeles-Riverside-Orange County Consolidated Metropolitan Statistical Area (CMSA), which obviously includes people living outside the city of Los Angeles, consists of 5,047,000 consumer units (households), with an average of 2.9 persons per consumer unit. The average income per consumer unit was $53,514 during the 2000-2001 survey. Annual expenditures on food eaten at home per consumer unit were $3,207. The U.S. Census Bureau reports that as of April 1, 2000, there were 1,275,412 households in the City of Los Angeles, with an average of 2.83 persons per household. Multiplying the number of households in the City of Los Angeles by the average amount spent on food reveals that Los Angeles residents together spend $4.09 billion dollars annually on food eaten at home. This is a rough measure of total food purchases for the city. Yet, typical grocery stores also sell a range of products besides food. The nonfood items are typically taxable, in contrast to food, which typically is not subject to sales taxes. The California Board of Equalization tracks taxable sales, including the type of establishments at which the sales take place. Taxable sales at food stores in the City of Los Angeles, 2001, were $1,562,989,000. In Table 1.1 we add taxable sales at food stores to our measure of food purchased for home consumption in the City of Los Angeles. City residents spend an aggregate annual average of $5.65 billion on food and taxable items at food stores. January 2004 13 LAEDC Wal-Mart Economic Impact Study Table 1.1 Average Annual Expenditures on Food and Taxable Items at Food Stores In the City of Los Angeles, 2000-2001 Households in the City of Los Angeles Avg. Annual Expenditure on Food Eaten at Home (Per Household) 1,275,412 $3,207 Total Spent on Food Eaten at Home $4.09 billion Taxable Sales at Food Stores in the City of Los Angeles $1.56 billion Total Spending $5.65 billion Sources: U.S. Census Bureau; U.S. Department of Labor, Bureau of Labor Statistics; California Board of Equalization; LAEDC. General Merchandise and Apparel Stores The impact of Wal-Mart Supercenters would not be confined to the grocery industry, since Supercenters combine a large general merchandise store with a full service market. These stores offer some items offered at chain grocery stores (and which are therefore included in Table 1.1. above). They also offer items typically found at drugstores, general merchandise stores, and apparel stores. Thus, price competition from Wal-Mart will affect more than groceries. Annual taxable sales at general merchandise and apparel stores, recorded by the California Board of Equalization, are roughly equivalent to the annual spending at these establishments. Table 1.2 reveals that in 2001 consumers purchased $3.12 billion in taxable goods from general merchandise stores and $1.24 billion from apparel stores located in the City of Los Angeles. Table 1.2 Taxable Sales, 2001, at Selected Non-Food Stores in the City of Los Angeles Taxable Sales General Merchandise Stores $3.12 billion Apparel Stores $1.24 billion Total $4.36 billion Note: Numbers may not sum due to rounding. Source: California Board of Equalization. Wal-Mart offers the potential for enormous savings in the City of Los Angeles. Table 1.3 shows that consumers shopping at food stores in the City of Los Angeles could save more than one-half billion dollars annually, if Wal-Mart Supercenters captured 20 percent market share. This calculation is based on current annual spending of $5.65 billion at food stores in the City of Los Angeles, and would likely rise in the time it took Wal-Mart to increase its presence. We conservatively estimate Wal-Mart January 2004 14 LAEDC Wal-Mart Economic Impact Study shoppers would save an average of 15 percent relative to what they would have paid under the current status quo. Wal-Mart shoppers could save even more, particularly if the price difference compared to the supermarkets matched those observed by UBS Warburg in its study of Las Vegas. Increasing the assumed savings from an average of 15 percent to 25 percent adds a further $113 million annually to the aggregate savings. Our estimate is also conservative because there are portions of the City of Los Angeles, such as the northeast San Fernando Valley, which are underserved by traditional grocery stores. The corner stores where much of the food purchases in these areas take place offer uncompetitive prices relative to regular grocery stores, never mind Supercenters. If WalMart were to open stores in these areas, the savings for local consumers could be considerably higher than those assumed here. Table 1.3 What if Wal-Mart Were Here? Potential Aggregate Savings for Consumers Shopping at Food Stores in the City of Los Angeles (Based on 2000-2001 Expenditures of $5.65 Billion) Market Savings Aggregate Share Offered Savings Wal-Mart Supercenters 20% 15% $170 million Competitors – Major Grocery Chains 65% 10% $367 million Competitors – Niche Players 15% 0% -Total $537 million Note: Numbers may not sum due to rounding. Source: LAEDC Of course, people will continue to shop at food retailers besides Wal-Mart. We assume shoppers at food stores comprising 65 percent of the market will enjoy some price relief as the major grocery chains lower prices in response to increased competition. We estimate an average price reduction of 10 percent at these stores. Note that these savings would probably start out lower, rising only as Wal-Mart’s growing market share created addition pressure on prices. (In practice, we would anticipate a wide variation in actual savings both among and within chains depending on the competitive strategies these companies were to adopt.) Some “competitors” would feel little pressure from Wal-Mart Supercenters, either early on or once it had completed its build out in Southern California. We estimate that firms comprising 15 percent of the total food store market would thus be unlikely to lower their prices much, if at all. Factors that might put a store in this position include greater convenience based on a prime location; general proximity to target market; and a niche product mix such as ethnic, organic, gourmet or bulk foods. Finally, discount stores such as Costco, which typically offer low prices, are unlikely to lower their prices much in response to a nearby Wal-Mart. Accordingly, we have assumed no additional savings among niche players owing to Wal-Mart’s presence. The impact of Wal-Mart Supercenters would not be confined to the grocery industry, since the Supercenters include full Wal-Mart discount stores. The potential savings for January 2004 15 LAEDC Wal-Mart Economic Impact Study consumers shopping at general merchandise and apparel stores in the City of Los Angeles consumers is conservatively estimated at 3 percent. This small reduction in price levels still produces large overall savings because of the scale of spending described in Table 1.2. Table 1.4 What if Wal-Mart Were Here? Total Potential Savings for Consumers Shopping at Selected Non-Food Stores in the City of Los Angeles Savings Aggregate Offered Savings General Merchandise Stores 3% $94 million Apparel Stores 3% $37 million Total $131 million Note: Numbers may not sum due to rounding. Source: LAEDC. Table 1.4 reveals potential annual savings of $94 million at general merchandise stores and $37 million at apparel stores. The potential savings are estimated at just 3 percent to reflect (1) the existence of aggressive price competition in some segments of this sector even without Wal-Mart; and (2) our anticipation of a negligible market share for Wal-Mart (and hence little or no price influence) in some segments. Combining the potential savings at all three types of stores reveals the potential for enormous aggregate savings for consumers shopping in the City of Los Angeles. Table 1.5 shows total savings for consumers in the City of Los Angeles of at least $668 million annually. This a conservative estimate, and should be considered a floor for potential savings. In particular, price surveys conducted by reputable firms suggest that the price savings offered by Wal-Mart Supercenters could be substantially higher than the 15 percent estimate used here. The aggregate savings are also likely to be higher because the estimates here are based on population counts from 2000, and spending estimates from 2000-2001. The population is growing, and along with it the amount spent each year on purchases at food stores. The potential savings will thus rise along with the size of the market. Table 1.5 What if Wal-Mart Were Here? Potential Aggregate Savings for Consumers Shopping in the City of Los Angeles 2001 Retail Sector Spending Food Stores $5.65 billion General Merchandise Stores $3.12 billion Apparel Stores $1.24 billion Total Aggregate Savings $537 million $94 million $37 million $668 million Note: Numbers may not sum due to rounding. Sources: U.S. Census Bureau; U.S. Department of Labor, Bureau of Labor Statistics; California Board of Equalization; LAEDC. January 2004 16 LAEDC Wal-Mart Economic Impact Study The $668 million in aggregate potential savings will have a considerable positive impact, averaging $524 per household per year. Note, of course, that the savings will not be immediate, and will reach these levels only after Wal-Mart has significantly expanded its grocery presence. Wal-Mart offers the potential for similar savings in the rest of Southern California. Los Angeles County The 2000 Census recorded 9,519,338 people living in Los Angeles County, and 3,133,774 households. The average household size was 2.98 people, with a median annual income of $42,189 and a mean annual income of $61,373. The Consumer Expenditure Survey, 2000-2001, for the Los Angeles-Riverside-Orange County Consolidated Metropolitan Statistical Area (CMSA), revealed annual expenditures on food eaten at home per consumer unit were $3,207. Table 1.6 combines this information with the taxable sales at food, general merchandise, and apparel stores in Los Angeles County. Table 1.6 Aggregate Household Expenditures on Selected Items In Los Angeles County, 2001 Expenditures Food Consumed at Home $10.05 billion Taxable Purchases at Food Stores $4.21 billion Taxable Purchases at General Merchandise Stores $10.58 billion Taxable Purchases at Apparel Stores $3.67 billion Total $28.51 billion Note: Numbers may not sum due to rounding. Sources: U.S. Census Bureau; U.S. Department of Labor, Bureau of Labor Statistics; California Board of Equalization; LAEDC. Next, we apply the same assumptions from the City of Los Angeles calculations to the Los Angeles County spending patterns in Table 1.6. Thus, we assume that Wal-Mart Supercenters achieve a 20 percent share of the grocery market. Wal-Mart shoppers in Los Angeles County are assumed to save 15 percent compared to the status quo; shoppers at large grocery chains (serving 65 percent of the market) save 10 percent compared to the status quo; and shoppers at niche players serving 15 percent of the market see no additional savings. Shoppers at general merchandise and apparel stores in the county are assumed to reap an additional 3 percent savings compared to the status quo owing to increased competition from Wal-Mart. The potential savings are reported in Table 1.7. January 2004 17 LAEDC Wal-Mart Economic Impact Study Table 1.7 What if Wal-Mart Were Here? Potential Aggregate Annual Savings for Consumers Shopping in Los Angeles County 2001 Retail Sector Spending Food Stores $14.26 billion General Merchandise Stores $10.58 billion Apparel Stores $3.67 billion Total Aggregate Savings $1.35 billion $0.32 billion $0.11 billion $1.78 billion Note: Numbers may not sum due to rounding. Sources: U.S. Census Bureau; U.S. Department of Labor, Bureau of Labor Statistics; California Board of Equalization; LAEDC. The potential aggregate annual savings for shoppers in Los Angeles County related to competition from Wal-Mart Supercenters are $1.78 billion, or $569 per household per year. Southern California The 2000 Census recorded 19,329,839 people living in the seven counties of Southern California: Imperial (142,361), Los Angeles (9,519,338), Orange (2,846,289), Riverside (1,545,387), San Bernardino (1,709,434), San Diego (2,813,833), and Ventura (753,197). Information on the region’s 6,381,168 households is presented in Table 1.8, including the number and average size of households in each county, the mean and median household income, and the average amount spent on food at home. Table 1.8 Southern California Households: Number, Size, Annual Income and Spending on Food Eaten at Home Avg. Size Median Mean County Households (People) Income Income Imperial 39,384 3.33 $31,870 $43,991 Los Angeles 3,133,774 2.98 $42,189 $61,373 Orange 935,287 3.00 $58,820 $75,344 Riverside 506,218 2.98 $42,887 $54,763 San Bernardino 528,594 3.15 $42,066 $53,422 San Diego 994,677 2.73 $47,067 $60,805 Ventura 243,234 3.04 $59,666 $73,100 Southern California 6,381,168 2.96 $46,035 $62,489 Food at Home $2,524 $3,207 $3,207 $3,207 $3,207 $2,524 $3,207 $3,096 Note: Household number and size from 2000; income data, 1999; food expenditure estimates, 2000-2001. Southern California estimates (besides number of households) are weighted averages. Sources: U.S. Census Bureau; U.S. Department of Labor, Bureau of Labor Statistics. The figures for average household spending on food eaten at home are from the U.S. Department of Labor, Bureau of Labor Statistics Consumer Expenditure Survey, 20002001. The Los Angeles-Riverside-Orange County Consolidated Metropolitan Statistical Area (CMSA) includes San Bernardino and Ventura counties. The average spending January 2004 18 LAEDC Wal-Mart Economic Impact Study per household on food eaten at home in the 5 counties covered by the Los Angeles CMSA was $3,207. The San Diego Metropolitan Statistical Area (MSA) covers San Diego County, where average spending per household on food eaten at home was $2,524. The Consumer Expenditure Survey only covers major metropolitan statistical areas: in California, the San Francisco CMSA, the Los Angeles CMSA, and the San Diego MSA. Imperial County, therefore, is not included. We have somewhat arbitrarily assumed that Imperial County households spend the same amount on food eaten at home ($2,524) as their counterparts in San Diego. (This assumption would not materially alter our results, even it was off by several hundred dollars per year in either direction. Imperial County contains just 0.62 percent of all households in Southern California.) With seven counties and more than 19 million people, Southern California is an enormous consumer market. Table 1.9 reveals that Southern Californians collectively spend almost $20 billion on food eaten at home each year. In addition, taxable sales at food stores in Southern California were $9.5 billion. A further $24.7 billion was spent at general merchandise stores, and $7.6 billion was spent at apparel stores. Table 1.9 Southern California Annual Spending on Selected Items, in Millions 2001 Taxable Sales General Food Merchandise Apparel At Home Stores Stores County Food Stores Imperial $99 $80 $266 $48 Los Angeles $10,050 $4,212 $10,577 $3,669 Orange $2,999 $1,509 $4,334 $1,364 Riverside $1,623 $889 $2,062 $538 San Bernardino $1,695 $914 $2,173 $492 San Diego $2,510 $1,557 $4,307 $1,182 Ventura $780 $385 $1,048 $327 Total $19,758 $9,549 $24,771 $7,621 Sources: U.S. Census Bureau; U.S. Department of Labor, Bureau of Labor Statistics; California Board of Equalization; LAEDC. Even modest savings quickly reach astonishing levels when aggregated across such an enormous market. We repeated the potential savings calculations for Southern California using the same assumptions described for our City and County of Los Angeles estimates. Table 1.10 shows that consumers shopping at Southern California food stores could save $2.78 billion dollars annually if competition from Wal-Mart Supercenters lowered prices. When the savings at general merchandise and apparel stores are included, the seven-county potential savings grow to $3.76 billion annually. January 2004 19 LAEDC Wal-Mart Economic Impact Study Table 1.10 What if Wal-Mart Were Here? Potential Aggregate Savings for Consumers Shopping in Southern California 2001 Retail Sector Spending Food Stores $29.31 billion General Merchandise Stores $24.78 billion Apparel Stores $7.62 billion Total Aggregate Savings $2.78 billion $0.74 billion $0.23 billion $3.76 billion Note: Numbers may not sum due to rounding. Sources: U.S. Census Bureau; U.S. Department of Labor, Bureau of Labor Statistics; California Board of Equalization; LAEDC. Total savings of $3.76 billion in Southern California suggests an average saving of $589 annually for each of the 6.38 million households in the 7-county region. Note, again, that the actual savings will start out much lower and gradually build over time as Wal-Mart increases its grocery presence. By the time Wal-Mart has finished its build out in Southern California, the size of the market (and thus the potential savings) will have increased. Thousands of jobs will be created after Wal-Mart moves in as households redirect their savings to other purchases. Lower prices on groceries will have an important job creation impact as households purchase additional items with their savings. By reducing the amount a household must spend to procure the same groceries each week, Wal-Mart will effectively increase real household purchasing power. Thus, if a family that now buys $100 worth of groceries per week instead spends $80 for the same items, the family has gained $20 in buying power. When millions of families save hundreds of dollars per year, the potential boost to regional spending quickly becomes quite large. We use a customized version of the RIMS II input-output model developed by the U.S. Department of Commerce to determine the number of jobs created by the cumulative increase in spending by households in the City of Los Angeles. We also calculate the number of jobs associated with the potential savings in the County of Los Angeles, and in Southern California as a whole. Increased Buying Power The average household shopping in the City of Los Angeles will eventually save $524 annually if competition from Wal-Mart lowers prices, as demonstrated above. This is the equivalent of giving an extra $524 in purchasing power to the average household, or 0.89 percent of the average household income of $58,641, and 1.43 percent of the median household income of $36,687. The real impact will be greater. The average and median household incomes are in gross (pretax) dollars. The savings, on the other hand, add to a household’s after tax dollars – the portion of the income actually available for spending. January 2004 20 LAEDC Wal-Mart Economic Impact Study Individual households shopping in the City of Los Angeles would thus be able to redirect an average of $524 per year in spending. Freed from spending $524 on food and other items offered at Wal-Mart (since they have purchased the same basket of goods as before, just for less money), families in Los Angeles could use the money to meet other household needs. A portion of the money would likely go towards meeting the high cost of housing in Los Angeles. Some of it may be saved, or spent on transportation. Depending on their priorities, families may opt to spend their savings on sports equipment, continuing education classes, or restaurant meals. Undoubtedly, individual households will allocate their potential savings in myriad ways reflecting the incredible diversity of Los Angeles. Note that lower income families, which spend disproportionately more of their income on food, stand to benefit the most from lower food prices. Job Creation For its economic impact analysis work, the LAEDC uses a customized version of the RIMS II input/output model developed by the U.S. Bureau of Commerce. It should be noted that the RIMS II model measures the effect of adding to gross (pre-tax) incomes. Here we are observing a hypothetical shift in after-tax household income, since groceries are purchased with the money that is left after tax obligations have been paid. Since we have not adjusted for this tax effect, and we began with conservative estimates of the potential income effect (the savings in the previous section), LAEDC’s jobs estimate almost certainly understates the actual impact. Table 1.11 reveals the impact of households redirecting average savings of $524 in annual savings. Table 1.11 What if Wal-Mart Were Here? Jobs Created by the Eventual Increase in Household (Real) Income Linked to Wal-Mart’s Presence in the City of L.A. Total Increase in Household Purchasing Power (Real Income) Average Increase per Household $668 million $524 Jobs Per $1 Million of Household Income 9.7 Total Full-Time Equivalent Jobs Created 6,500 Sources: (1) U.S. Department of Commerce, Bureau of Economic Analysis; LAEDC. Even with our conservative methodology, we estimate that lower prices following the introduction of Wal-Mart Supercenters to the City of Los Angeles would generate new spending sufficient to create 6,500 full-time equivalent jobs.15 If we include the redirected savings of consumers in the rest of Southern California, the number of jobs created is even greater. Households in Los Angeles County will save an average of $569, for a combined annual savings of $1.78 billion. Adding $1.78 billion to household income will create 17,300 full-time equivalent jobs in L.A. County alone. Over all seven counties of Southern California, households will save an average of $589, for a combined annual savings of $3.76 billion. Adding $3.76 billion to household income will generate 36,400 full time-equivalent jobs in the 7-county region. January 2004 21 LAEDC Wal-Mart Economic Impact Study Section 2: Wages Summary Wal-Mart compensation, while lower than for the best-paid unionized grocery employees, is better than most people realize, particularly in its food business. Wal-Mart benefits include health care, a stakeholders’ bonus, which is paid to employees at stores that perform well, profit-sharing, company contributions to 401(k) plans, which are the most common form of defined contribution retirement plan, a 15 percent discount on company stock, and a 10 percent discount on general merchandise. Wal-Mart’s healthcare plan requires employees to share the upfront costs (Wal-Mart pays 2/3rd; the associates pay 1/3rd), but in return does not have single incident or lifetime caps on coverage. Two important factors make Wal-Mart’s wages appear lower than they might otherwise. First, Supercenters are a relatively new phenomenon. Most Supercenters have simply not been open long enough to have accumulated many employees with lengthy service records, and thus higher rates of pay. High employee turnover also brings down the average length of service, and hence affects average wages as well. (Average employee turnover in the retail industry is 65 percent; Wal-Mart’s turnover rate, though considerably lower, is still near 50 percent.) Second, and perhaps most important, WalMart’s pay among its front line grocery workers is skewed downwards because it promotes from within. Wal-Mart recruits its management primarily from within the ranks of its own employees, with 2/3rd of its management having started off as hourly workers. This opens up career opportunities for associates, and crucially for wage comparisons, removes some of the most experienced and best paid Wal-Mart employees from the pool of workers typically being compared. In contrast to unionized grocery stores, where some of the most senior employees are cashiers, at Wal-Mart cashier is an entry level position. Unionized grocery workers earn $2.50-$3.50 per hour more, on average, than Supercenter employees in Southern California could expect. Some union grocery workers are very well compensated, but the wages of the most highly compensated among them are frequently mistaken for average union wages, which are lower. Union cashiers make up to $17.90 per hour, journeymen clerks earn hourly wages in the $17 range, and some meat cutters earn more than $20 per hour. The people who bag groceries and round up shopping carts earn far less. The average wage among all union grocery store employees is $14 per hour or less. The widely-cited Orange County Business Council (OCBC) study calculated the potential wage loss if all union workers in the Southern California grocery industry were to earn the same wages as Wal-Mart employees. Using more realistic assumptions of Wal-Mart Supercenter employee pay (and hence a narrower wage gap), we find the potential cumulative wage loss in Los Angeles County is $150 million to $258 million annually. For the 7-county Southern California region (including Los Angeles), the range is $307 million to $529 million. If all current unionized grocery employees were to eventually earn the equivalent of Wal-Mart Supercenter employees, the lost spending due to eroded household income could cost Los Angeles County alone 1,500 to 2,500 jobs and the 7-county region 3,000 to 5,100 jobs. Should these losses materialize, they would be offset by region-wide gains of 36,400 jobs, meaning that outside the grocery sector at least seven jobs would be added for every one lost. January 2004 22 LAEDC Wal-Mart Economic Impact Study Wal-Mart’s compensation, while lower than for the best paid unionized grocers, is better than most people realize, particularly in its food business. Benefits Wal-Mart’s employee benefits are widely perceived to be poor, particularly when set along side those offered to unionized grocery workers in Southern California. Wal-Mart insists that it offers an attractive package of employee benefits, while unionized grocery workers say they are being asked to accept cuts in their medical benefits so that their employers can compete with Wal-Mart. Wal-Mart benefits include: Health care Sick days and personal and vacation time; Stakeholders’ bonus (paid to employees at stores that perform well); Profit-sharing; Company contributions to 401(k) plans (the most common form of defined contribution retirement plan); 15% discount on company stock; and 10% discount on general merchandise. The value of these benefits varies, particularly for those related to the company’s stock price. Some long-term employees have become wealthy by buying and holding company stock. Interestingly, the discount on merchandise is the most popular benefit among employees. Health care coverage, of course, is the most contentious issue. Health Benefits Union grocery workers have excellent health benefits, including some plans in which the employer covers both the health care premiums and the deductibles. Wal-Mart, in contrast, requires employees to share the cost of the monthly premiums, and has a relatively high deductible. (Wal-Mart pays two-thirds and associates pay one-third of the premium. This applies to family coverage as well.) As the Wall Street Journal notes, however, an important facet of the Wal-Mart health plan is frequently overlooked. WalMart’s philosophy is to share the routine costs – both for the medical insurance and services – but to protect its employees from catastrophic medical bills that could bankrupt them. Thus, Wal-Mart’s medical coverage does not have single incident or lifetime caps on coverage. For the parents of a premature child or someone in need of an organ transplant – both medical events that routinely incur costs of one million dollars and more – catastrophic coverage is crucial. The union grocery workers’ medical plan covers their routine expenses but the coverage is capped, leaving workers with extraordinary medical expenses exposed.16 Wal-Mart workers, of course, only enjoy their company’s medical coverage if they agree to share the costs of the plan. (Part-time workers are eligible to join the plan after an initial waiting period.) Since they must pay some of the upfront costs of medical care, many Wal-Mart employees who are eligible for the coverage choose not to participate. This leads to much lower participation rates among Wal-Mart employees than among union workers, virtually all of whom participate since their up front costs are paid by their employer. It is worth noting that more than 90 percent of all Wal-Mart employees have health coverage from some source, including the company itself, a covered spouse, January 2004 23 LAEDC Wal-Mart Economic Impact Study parents, through retirement benefits (from another job), etc. The issue of participation rates may become moot in California, however. In October, Governor Davis signed SB 2 – Health Care for Working Families that mandates large employers to provide health care coverage to all of their employees. The structure of the grocery workers’ union health plan may change as well, pending the outcome of labor negotiations. The grocery chains are seeking to alter their health coverage obligations in response to the continued upward spiral of health-care costs in the United States. As The Economist notes, American employers across industries are struggling with rising health-care costs that have driven the average cost of insurance premiums up 14 percent in 2003 alone.17 Wages Wal-Mart operates stores around the country, and pays competitive wage rates in each of the geographic markets and retail sectors in which they do business. Three key points are worth bearing in mind when comparing Wal-Mart’s compensation with the wages of unionized grocery workers in California. First, a fair comparison ought to involve similar job categories. This means comparing union food workers with Wal-Mart food workers, not Wal-Mart general merchandise workers. Even among non-union workers, the average retail wages are higher in the grocery sector than in the general merchandise sector. This is true at Wal-Mart, too. Second, we need to consider what wages Wal-Mart would pay here in Southern California, rather than their average wage in rural Oklahoma. The cost of living varies from region to region, a fact reflected in differences in Wal-Mart’s wages around the country. Third, it is important to compare average wage rates that reflect overall pay, rather than comparing the top end (or even the average) at one store with entry-level wages at another. Since Wal-Mart does not yet have any Supercenters in California, we gathered information on wages at one of the Supercenters in Las Vegas. Although not exactly the same as Southern California, Las Vegas is a major metropolitan area with a labor market that at least resembles the one in Los Angeles – more so than rural Oklahoma does, at any rate. Since the cost of living is higher in Southern California than in Las Vegas, workers here will probably be offered slightly higher rates. Table 2.2 Wal-Mart Las Vegas Supercenter Current Pay Ranges By Job Classification People Greeter/Cart Pusher General Merchandise Cashier General Merchandise Sales Associate Overnight Stocker Food Sales Associate Food Stocker Bakery $7.65 to $13.40 $7.65 to $11.45 $7.40 to $12.70 $8.40 to $15.30 $7.40 to $13.75 $8.40 to $14.40 $8.00 to $13.75 Source: Wal-Mart Stores, Inc. January 2004 24 LAEDC Wal-Mart Economic Impact Study Table 2.2 presents the actual pay range paid to current workers in each job classification at the Las Vegas store. The average pay among workers who have been at the Supercenter for one year or less is $8.62, with higher averages among more experienced workers. Note that unlike union shops, there is no predetermined pay scale or wage caps for workers at Wal-Mart. This leads to some oddities, such as the “people greeter” who earns $13.40 per hour. (Only one greeter earns this amount, most earn considerably less.) The lack of a wage cap allows associates to change positions within the company while maintaining the same wage level. If we look just at the grocery side of the business – covering about 20 percent of the workers at the store – we find that the average wage is $9.95/hour. This snapshot is a weighted average, which takes into account the total number of hours worked by employees at each pay level. The average wage reflects current conditions in Las Vegas, and will change over time. Critically, two factors make Wal-Mart’s wages appear lower than they might otherwise. First, Supercenters are a relatively new phenomenon. Most Supercenters have simply not been open long enough to have accumulated many employees with lengthy service records, and thus higher rates of pay. Wal-Mart introduced its first Supercenter in 1988, and brought the concept to the Las Vegas market in mid-2000. Once the store has been open longer, presumably it will have more employees who have been there longer, and the top end of the pay ranges listed above will rise accordingly. High employee turnover is also a factor in lowering the average length of service, and hence the average wage rates as well. (Average employee turnover in the retail industry is 65 percent; WalMart’s turnover rate, though considerably lower, is still near 50 percent.) Second, and perhaps most important, Wal-Mart’s pay among its front line grocery workers is skewed downwards because it promotes from within. At a union grocery store, a cashier who has been with the company for 15 years or more earns top of the scale, but is still a cashier. At Wal-Mart, in contrast, many of the employees who have been with the company for 15 years or more no longer work as food clerks or cashiers. Wal-Mart recruits its management primarily from within the ranks of its own employees, with 2/3rd of its management having started off as hourly workers. This opens up career opportunities for associates, and crucially for wage comparisons, removes some of the most experienced and best paid Wal-Mart employees from the pool of workers typically being compared. The number of employees involved is not trivial. Two-thirds of WalMart’s managers started as sales associates with the company, and Business Week reports that Wal-Mart’s expansion plans will add 47,000 new management positions nationwide, 2004-2008.18 Indeed, some Wal-Mart associates cite the opportunity to move up the ranks as their primary motivation for joining the company. Union grocery workers are well compensated, but the wages of the most highly compensated among them are frequently mistaken for average union wages, which are lower. To help their audience understand complex economic issues, media organizations frequently try to “put a face” on the wage issue by focusing on a particular employee. The selected subject representing “typical” employees has often worked for one of the major chains for 15 years or more and earns the top pay scale in his or her job classification, often $20/hour or more. The wages of these “typical” workers, who earn January 2004 25 LAEDC Wal-Mart Economic Impact Study considerably more than the average wage of employees at their own stores, are contrasted with the $7-$8/hour paid to entry level Wal-Mart employees.19 The implication, of course, is that the union jobs pay $12-14/hour more than Wal-Mart. Grocery Industry Wages Examining the wage issue in the grocery industry is complicated by the dual nature of the business. The supermarket sector has bifurcated into major chains, many of which are the product of mergers, and smaller independent supermarkets, often specializing in niche markets such as ethnic and gourmet foods. All of the large chains are unionized and tend to pay higher wages than the majority of the independents, which are not unionized and tend to offer lower pay.20 The pay differential is masked when looking at statistics for the grocery sector as a whole. Wage issues are further complicated by the widespread use of part-time labor. (Wal-Mart classifies 70 to 80 percent of its employees as full-time, based on a work week of at least 34 hours; at union grocery chains as few as 25 percent of workers are full-time.) Even well-paid part-time grocery workers will dilute the average hourly wage when it is calculated based on annual earnings. With these caveats, we turn first to the 2001 County Business Patterns. The U.S. Census Bureau conducts an annual survey that provides subnational economic data by industry, as defined in the North American Industry Classification System: United States, 1997 (NAICS). County Business Patterns data for the grocery industry in Southern California, including number of businesses, number of workers, and total payroll, is presented in Table 2.1. Table 2.1 Southern California Grocery (Except Convenience) Stores Establishments, Employees & Payroll by County, 2001 County Establishments Employees Payroll (000s) Imperial 45 1,233 $24,381 Los Angeles 2,127 63,239 $1,513,432 Orange 548 20,426 $517,744 Riverside 263 9,898 $245,834 San Bernardino 296 10,893 $269,011 San Diego 545 20,234 $468,574 Ventura 155 5,558 $139,223 Total 3,979 131,481 $3,178,199 U.S. Census Bureau, County Business Patterns, 2001. Note that establishments are places of business, not necessarily companies. A single company – Albertsons or Ralph’s for example – may have numerous establishments. Establishments in the Southern California grocery industry average 33 employees each, though this average masks great variation in size. For the industry as a whole, the average annual pay per employee is $24,172. On a full time basis (assuming 50 weeks per year at 40 hours per week), the average hourly wage in the industry is $12.09. The average among unionized grocery workers is higher. We can get more information on grocery wages by looking at occupational surveys from the California Employment Development Department (EDD) and the U.S. Bureau of January 2004 26 LAEDC Wal-Mart Economic Impact Study Labor Statistics (BLS). Each year the EDD conducts the Occupational Employment Statistics (OES) survey to measure occupational employment and wage rates in nonfarm establishments, by industry. The 2001 OES survey is the most recent available, which has wage data updated by EDD (adjusting for inflation) to 2002. The survey of cashiers in the Los Angeles MSA found a mean hourly wage of $9.50, and a mean annual wage of $19,766. Yet, the occupational title “cashier” covers many, many workers who are not part of the grocery industry. Indeed, union grocery cashiers are among the highest paid workers in their occupation. The OES survey reports wages for the 25th, 50th and 75th percentiles. The average wage of cashiers in the 75th percentile is $10.77. (This means that 75 percent of all cashiers in the Los Angeles MSA earn less than $10.77 per hour.) The BLS survey of cashiers in the Los Angeles MSA is OES. (The 2001 BLS survey reported an hourly mean mean of $19,510, with both figures in unadjusted 2001 also reports 90th percentile wages for cashiers, both ($33,430). similar in most respects to the wage of $9.38, and an annual dollars.) Yet, the BLS survey hourly ($16.07) and annually Union Wages in the Grocery Industry While there is plenty of information on wage rates at the higher end of the union pay scale, pinning down the average union wage in the grocery industry is surprisingly difficult. A Ralph’s spokesman told the Los Angeles Times that cashiers make up to $17.90 per hour. The Los Angeles Daily News reported that “journeymen clerks protected by union contracts earn hourly wages in the $17 range.” And the president of UFCW Local 1036 in Camarillo, CA, told The Morning News that members “who work in California grocery stores earn an average of $18/hour.”21 Yet, these characterizations of union grocery wages are misleading. We consider multiple sources to get a more accurate estimate. California EDD Local Area Wage Survey The California Cooperative Occupational Information System (CCOIS) is run jointly by the EDD and local employment and training agencies in all 58 California counties. Local agencies survey 15 to 50 occupations each year to determine wages, project demand and skill requirements. While grocery occupations have not been surveyed in the 7 counties of Southern California, the 2002 survey in Santa Barbara included grocery checkers. The Santa Barbara survey recorded union and non-union grocery checker wages separately. Entry level union grocery checkers with no experience earned $9.78/hour. (Their non-union counterparts earned wages that ranged from $6.75 to $8.00 per hour.) For experienced checkers with three years experience working for their firm, the hourly wage climbed to $17.50. (For experienced non-union checkers, the range was $7.00 to $12.00 per hour.) These union wages provide an accurate, if incomplete, snapshot of the grocery industry because they focus on just one job category. Absent are the clerk’s helpers and general merchandise clerks who also work at unionized grocery stores. The people who bag groceries and round up shopping carts earn far less than food clerks or journeymen meat cutters, typically less than $10/hour. Roughly half of the hourly January 2004 27 LAEDC Wal-Mart Economic Impact Study employees at union grocery stores in Southern California are neither food clerks nor meat cutters. Orange County Business Council Study The widely cited study conducted for the Orange County Business Council (OCBC), relying on an interview conducted with the Food Employers Council, reported “the average hourly wage at the major chains in southern California [was] $12.82, as of July, 1999.” 22 The average wage took account of actual job classifications and experience, exclusive of benefits. After adjusting for contractual increases since 1999, the average of $12.82 reported by the OCBC study would be consistent with an average wage of not more than $14.00 per hour in 2003. An apparent increase in the use of part-timers, who typically earn less than their fulltime counterparts, however, may have kept the overall average under $13.00 per hour. (The 1999 study reported an average work week of 35.5 hours; the UFCW today says the average is 30 hours per week.) Supermarket Chain Public Filings Publicly traded companies have to report data on their operations, allowing us to create a rough estimate of a company’s average wage as a share of revenues. BizStats.com, a provider of industry financial ratios and benchmarks, reports profitability, operating, balance sheet and financial ratios for grocery and specialty food stores. BizStats.com provides national averages based on all U.S. Corporations in industry sectors, classified by size of balance sheet assets. For companies with assets over $50 million in the grocery industry (i.e. the major chains), operating expenses averaged 26.8 percent of sales (revenues). Operating expenses are further broken down, with salaries and wages averaging 11.2 percent of sales. The employer cost of retirement plans averaged 0.5 percent of sales; employer cost of employee benefits averaged 1.4 percent. We can apply these figures to data from the Albertsons 2002 annual report. Albertsons had sales in 2002 of $35.6 billion dollars, and employed 202,000 people. If Albertsons is similar to the average store in its industry, this suggests an average annual wage of $19,753. The annual average rises to $23,103 if benefits are included, though it is important to note that this includes money paid on behalf of and not necessarily to the employees. Assuming 50 weeks per year at 40 hours per week, this translates to an average wage of $9.88 per hour, exclusive of benefits. Allowing for part-time workers, and assuming a more realistic average of 30 hours per week suggests an average hourly wage of $13.17. (Note that 70 to 75 percent of union grocery workers in Southern California are part-timers.) Albertsons has stores in numerous states outside of California, and the company almost certainly pays wages commensurate with the prevailing conditions in each state. The average wage is thus a blend of rates that includes places with a much lower cost of living (and lower January 2004 28 LAEDC Wal-Mart Economic Impact Study average wages, across industries) than Southern California. Adjusting upwards to compensate suggests again that $14 per hour is a reasonable upper estimate of union grocery wages, allowing for the full mix of occupations and experience levels. Note, however, that the Albertsons estimate (admittedly a rough measure) includes some management level employees, whose higher earnings will skew the estimate upwards. UFCW Local 770 The United Food and Commercial Workers Union Local 770 provided information on its website at part of its public education efforts during the Southern California grocery workers labor dispute. The UFCW describes a typical union member working at a Southern California grocery store as working an average of 30 hours per week, noting that between 70 and 75 percent of its members work part-time. The UFCW variously describes the average hourly wage of its members in Southern California as $12.30, $12.50, and $12.00 to $14.00.23 The gap between the overall average pay rate at unionized grocery stores in Southern California and what Wal-Mart would pay its Supercenter workers in this market is $2.50 to $3.50 per hour. Comparing the reported average wages of unionized grocery employees in Southern California ($12.00-$14.00 per hour) to a snapshot of Wal-Mart grocery workers in Las Vegas ($9.95) suggests a maximum wage gap in the range of $2.05 to $4.05 per hour. The actual range is probably closer to $2.50 to $3.50. According to Retail Traffic, an industry trade magazine, “Morgan Stanley Equity Research indicates that major grocers pay 20-30 percent more in wages and benefits to their workers than Wal-Mart.”24 And the United Food and Commercial Workers, in an update to its members, approvingly cited a study by the Institute for Women’s Policy Research that “reported employees represented by the UFCW earn thirty-one percent (31%) more than their non-union counterparts.”25 Using the high end of average grocery union workers’ wages ($14.00), these studies suggest a maximum wage gap of $3.23 per hour. This result is consistent with the position of the UFCW, which argues on its website that the wage gap is roughly $3 per hour.26 Our analysis suggests the $3 per hour figure is probably correct. OCBC Study of Cumulative Wage Loss Next, we use the wage gap estimates to replicate the OCBC study. Wal-Mart opponents believe that competitive pressures will drive wages down in the grocery industry. The OCBC analysis of Wal-Mart’s impact on wages in the grocery sector in Southern California is widely cited, but flawed. We begin by addressing these flaws, before replicating and extending the original analysis. We add calculations of the potential jobs impact of varying levels of household income loss. This will allow comparison with the job creation numbers from the section on the impact of lower prices. The OCBC study suggests that (a) Wal-Mart pays far less than the unionized grocery chains; (b) Wal-Mart’s entry into the grocery market will lead employers to demand and January 2004 29 LAEDC Wal-Mart Economic Impact Study receive wage cuts from unionized workers, such that (c) all unionized workers will earn wages equivalent to what Wal-Mart pays, representing a massive wage loss. The first flaw in the OCBC study is that its calculated wage gap is much too large, mainly because the assumed Wal-Mart wage rate is unrealistically low. There are several problems with additional assumptions buried in the OCBC formulation of the wage gap issue, which we will address after correcting the OCBC calculations. The overall wage loss in Southern California was calculated by multiplying the wage gap number by the total number of hours worked each year by all union grocery employees. The OCBC study said 80,000 of 128,471 grocery workers in Southern California were union members in 1999. Assuming the percentage of union workers has remained constant suggests 81,874 of 131,481 grocery workers were union members in 2001. (These figures are based on 2001 industry employment data, the most recent available.) The OCBC study also said that union grocery workers averaged 35.5 hours per week. Yet, the extensive use of part time labor in unionized grocery stores – up to 75 percent of the employees are part time – the assumption of 35.5 hours per week seems unrealistically high. At 52 weeks per year, 35.5 hours per week, 81,874 union grocery workers would log more than 151 million hours annually. The aggregate number of hours worked annually is closer to 123 million if we assume a weekly average of 30 hours per worker. Table 2.3 shows the potential income loss if all union workers in the Southern California grocery industry were to earn the same wages as Wal-Mart pays its Supercenter employees. Table 2.3 What if Wal-Mart Were Here? Potential Loss If All Union Grocery Workers Earned the Same Wages As Wal-Mart Employees Cumulative Annual Wage Loss Los Angeles County 7-County Southern California Low Range Estimate $150 million $307 million High Range Estimate $258 million $529 million Source: LAEDC The low range estimate assumes a $2.50/hr wage gap, and a weekly average of 30 hours worked per union employee. The high range estimate assumes a $3.50/hr wage gap, and a weekly average of 35.5 hours worked per union employee. The Los Angeles County total alone ranges from $150 million to $258 million. The 7-county Southern California total of $307 million to $529 million in lost annual wages, while far less than the $1.37 billion figure from the OCBC study, still represents a great deal of money. The first question, however, is whether the loss is real. By themselves, the OCBC study’s wording and calculations create the impression that current workers in the grocery industry and their families will suddenly find their paychecks considerably smaller because Wal-Mart has entered the Southern California grocery business. The economic dislocation caused by a loss of up to roughly one half billion dollars, annually, in spending power would be substantial both for the families themselves, and for the indirect workers supported by their spending. (See below.) Yet, this situation is unlikely to materialize. January 2004 30 LAEDC Wal-Mart Economic Impact Study Missing from the OCBC study is any consideration of how the dynamics in the grocery industry are likely to unfold. Just as the price pressure described in Section 1 will take years to develop as Wal-Mart gradually rolls out Supercenters, any downward wage pressure will develop over time as well. (See Section Three for more on this issue.) A more likely scenario would be for the unionized grocery chains to seek a two-tier system in which newly hired workers start and remain on a lower wage scale than existing employees. Alternatively, the chains could keep future pay raises for current employees below the consumer price index. (This would keep nominal wages up while gradually eroding their real value over time.) Both of these scenarios eventually lead to lower average real wages in the grocery sector, but they suggest a situation more accurately described as “wages forgone” than “wages lost”. And gradual declines in average real wages over time and lower pay scales for new hires (while certainly not a good thing) are less bad than a sudden, sharp drop in the wages of existing workers. Cost to the Economy In Section 1, we demonstrated the economic benefits of falling prices. Money previously spent on groceries could be redirected to other purchases, effectively raising real household income, boosting spending, and thus creating new jobs in the area. Setting aside the issue of timing, we apply the same logic in reverse to the forgone wages of unionized grocery workers assuming they eventually earn the same wages as their WalMart Supercenter counterparts. If grocery workers as a group earn less money, their collective spending will be reduced which means they could sustain fewer jobs. Table 2.4 shows the potential cost to the Southern California economy. Table 2.4 What if Wal-Mart Were Here? Potential Jobs Lost due to the Decrease in Household Income If All Unionized Workers in the Southern California Grocery Industry Earned Wages Equivalent to those at Wal-Mart Supercenters Los Angeles County 7-County So. California Total Decrease in Purchasing Power (millions) $150 to $258 $307 to $529 Total Full-Time Equivalent Jobs Lost 1,500 to 2,500 3,000 to 5,100 Sources: U.S. Department of Commerce, Bureau of Economic Analysis; LAEDC. If all current unionized grocery employees were to eventually earn the equivalent of WalMart Supercenter employees, the lost spending due to eroded household income could cost Los Angeles County alone 1,500 to 2,500 jobs. The 7-county Southern California region could lose 3,000 to 5,100 jobs. Note that these jobs losses would be among the indirect workers – those people sustained by the spending of the direct workers – and not among the grocery workers themselves. We’ll have more to say about the supermarket chains and their employees in the next section. January 2004 31 LAEDC Wal-Mart Economic Impact Study Section 3: Weighing the Impacts Wal-Mart is planning to enter the grocery sector in Southern California. The LAEDC has calculated both the potential upside and the downside, assuming Wal-Mart eventually gains a 20 percent market share. Upside Savings for Consumers and New Jobs outside the Grocery Industry Wal-Mart Supercenter customers will enjoy the benefits of “everyday low prices,” saving an average of 15 percent on their groceries. Intense price competition will lead Wal-Mart’s grocery competitors to reduce their prices, offering their customers average savings of 10 percent. Increased price competition in non-grocery items will lead to price reductions averaging 3 percent among general merchandise and apparel sector competitors. Money that people save on groceries will be redirected to other items, including housing, savings, entertainment, and transportation. As households redeploy their savings, their spending will create jobs outside the grocery industry. These jobs do not include people who work for Wal-Mart or its suppliers. City of Los Angeles Consumers in the City of Los Angeles are conservatively estimated to save at least $668 million annually, or $524 per household per year. Redirected grocery savings will create 6,500 additional full-time equivalent jobs. Los Angeles County Consumers in the Los Angeles County are conservatively estimated to save at least $1.78 billion annually, or $569 per household per year. When the savings are redirected to other purchases, the county-wide job creation will total 17,300 jobs. Southern California Consumers in Imperial, Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura counties are conservatively estimated to save at least $3.76 billion annually, or $589 per household per year. The seven-county Southern California job creation total is 36,400 jobs. January 2004 32 LAEDC Wal-Mart Economic Impact Study Assessment The potential benefits of Wal-Mart’s entry into the grocery market in Southern California are substantial and diffuse. Lower prices in the grocery sector will be shared among millions of households, meaning gains at the individual level will be relatively modest. Collectively, however, the savings are vast. Families in the City of Los Angeles together will save hundreds of millions of dollars per year. Across Southern California, the savings are in the billions of dollars per year. When all of this money is reallocated within household budgets, the increased spending will create new jobs. No one will be able to identify an individual outside of the grocery industry and say: “She owes her job to Wal-Mart’s everyday low grocery prices.” Nonetheless, the statement will be true of thousands of people in the City of Los Angeles, and tens of thousands of people throughout Southern California. Timing will affect the potential benefits in two respects, both of them positive. If WalMart gains market share rapidly, consumers in the City of Los Angeles and the rest of Southern California will reap the benefits sooner rather than later. If, on the other hand, Wal-Mart expands its presence in the region cautiously, it may take ten or fifteen years or more before the benefits described in this report materialize. In such a scenario, our estimate of the total savings will be too low, because the size of the market on which it is based will have increased. Downside Major Grocery Chains Have Used Fear of Intense Competition to Seek Wage Concessions from their Unionized Employees Wal-Mart’s cost-control ethos pervades every aspect of its operations, including wages. Supercenter employees will likely earn $2.50-$3.50 per hour less than unionized employees at major grocery chains. If the average wage among all current unionized employees at major grocery chains in Southern California were the same as the average wage at Supercenters, union workers in Los Angeles County would collectively earn $150 million to $258 million less than they do currently. For all of 7-county Southern California, (including Los Angeles), the range is $307 million to $529 million. These forgone wages would reduce overall household spending, potentially costing Los Angeles County alone the 7-county region 1,500 to 2,500 jobs and the 7-county region 3,000 to 5,100 jobs. Assessment Economic change is often accompanied by turmoil, from which some people benefit and some people lose. To compete with Wal-Mart major supermarket chains with union contracts will try to close the wage gap between their employees and Wal-Mart’s. They will close the gap not through outright wage reductions for existing employees, but through lower starting rates for new employees and gradual erosion of real wages over time. Employees in a single sector of the retail industry will thus bear the brunt of competition with Wal-Mart. Even if offsetting gains in the rest of the economy are much January 2004 33 LAEDC Wal-Mart Economic Impact Study larger, the losses are not trivial. Since the costs are concentrated among a relative few, they will be acutely felt. On the other hand, the downside is unlikely to be as awful as previous studies have indicated. First, instead of the sharp, sudden reduction in wages forecast by some, major supermarkets will likely reduce their real average wages gradually. This reduction will matter, particularly to those affected: each $1 per hour represents at least $1,500 in annual income for grocery workers. Yet, the most likely mechanism of payroll reduction is some combination of a separate, lower pay scale for new hires, and future pay raises that are kept below the consumer price index. (The latter strategy keeps nominal wages up while gradually eroding their real value over time.) The typical unionized grocery store workforce may change over time as a result, with more people viewing the job as an entry into the workforce rather than as a career. The eventual reduction in real household income (and hence spending) from lower wages paid to grocery workers will also cost the region jobs outside the sector. As with the jobs created by lower prices, no one will be able to identify an individual and say “He lost his job because grocery workers earn less than they used to.” Nonetheless, the statement will be true of as many as 5,100 workers across Southern California. These losses will be offset by region-wide gains of 36,400 jobs, meaning that outside the grocery sector at least 7 jobs will be added for every one lost. Next, we turn to the grocery stores themselves. Their competition with Wal-Mart will be shaped by the crucial issue of how quickly Wal-Mart adds market share. The potential benefits as well as the costs of Wal-Mart entering the Southern California grocery market are based on calculations that assume Wal-Mart gains a market share of 20 percent. This assumption is perfectly reasonable in the long run (i.e. any time frame longer than ten years), but strains credulity in the near to medium term. Critically for this discussion, the magnitude and type of Wal-Mart’s negative impacts vary greatly depending on the rate with which it gains market share. To see why, consider two scenarios. In one, Wal-Mart plunges into Southern California with its Supercenters, rapidly gaining 20 percent of the market in the near term. Such explosive growth would virtually guarantee severe consequences for the major supermarket chains and their employees. One national estimate, which appears to presume no growth in market size, “predicts that for every new Supercenter Wal-Mart opens, two supermarkets will close.”27 This prediction is excessively dire for the Southern California market. Still, at least some direct competitors in the local grocery industry will lose a portion of their existing sales to Wal-Mart if it grows quickly. Some competitors would probably have to close their hardest hit stores, which would have a further impact on neighboring tenants and real estate investors. In short, this “rapid market entry” scenario suggests layoffs and additional job losses at the traditional grocery chains, which would probably exceed the job gains at the new Wal-Mart stores. Fortunately, this gloom and doom scenario is not plausible since Wal-Mart only plans to open 40 Supercenters over the next 3-5 years throughout all of California. In the alternate “gradual market entry” scenario, Wal-Mart market share builds at a gradual pace following its initial foray into Southern California. This scenario is based on several assumptions. First, Wal-Mart appears to be proceeding cautiously in California. Of the 1,000 Supercenters planned for the next three to five years, only 4 percent (40 stores) will be built in California. Based solely on the state’s share of the national January 2004 34 LAEDC Wal-Mart Economic Impact Study population (and potential market size), we would have expected the number of Supercenters in California to be in the 100 to 150 range. If we factor in the distribution of existing Supercenters we would have expected the California number to be higher still. (Texas, the nation’s second most populous state, has many Supercenters while California, the most populous state, has none.) Second, the OCBC study arrived at a 20 percent market share estimate based on the number of Supercenters typically served by a Wal-Mart distribution center. Their estimate of 57 stores within a day’s drive of a Southern California distribution center is reasonable. Yet, we can already account for the stores this distribution center will serve. All 40 planned stores in California will be within a single day’s drive, and trucks returning from northern California will probably pick up produce in the Central Valley on the return trip. Reno, Las Vegas, Salt Lake City, Phoenix, and Tucson – all markets within a day’s drive from Southern California – will probably account for the rest. (Supercenters now served by distribution centers to their east will be shifted west to the one in Southern California, making way for expansion in other markets.) Eventually, more distribution centers could be built, freeing capacity locally to serve additional stores in Southern California. Third, gaining a twenty percent market share will take time. The OCBC study notes that after six years in the market, Wal-Mart Supercenters in Fort Worth had gained a 6.5 percent share. In Texas, unlike Southern California, Wal-Mart can quickly build as many stores as it desires. Permitting, environmental regulation, and community opposition are not generally a factor in Texas. Nor is land availability an issue. Wal-Mart will struggle to find suitable locations for its stores in many areas of heavily urbanized, built-out Southern California. The unique high-density urban environment of Southern California will slow Wal-Mart’s expansion here, and make it all but impossible in some areas. Thus, Wal-Mart could eventually gain 20 percent market share in the Southern California grocery market, but it will not happen overnight over even in the next five years. This is good news for Wal-Mart’s competitors, since it will give them time to adapt. Furthermore, the local market is not static; it’s growing. The 7-county Southern California region will add over 6 million people (more than twice the population of Chicago), 2000-2020. This means the region will need to add service capacity, across all sectors of the economy, equivalent to that which exists in Chicago today, twice, just to maintain the status quo. Wal-Mart may well enter the grocery sector, capture virtually all of the growth, and get quite large without making serious inroads into the customer base of the major chains. While a scenario in which Wal-Mart captures most of this growth may not be particularly appealing to the major supermarket chains, competing for growth has considerably different implications than competing for existing customers. Conclusion All indicators suggest that Wal-Mart will gradually enter the grocery market in Southern California. A 20 percent market share seems plausible, but is a long way off. The comparatively slow roll out of Supercenters (in relation to the rest of the country) will delay the arrival of the benefits described in Section 1 of this study. The negative impacts described in Section 2 will also be delayed, and critically, lessened by this slower build out. Wal-Mart’s competitors in the grocery industry will have more time to January 2004 35 LAEDC Wal-Mart Economic Impact Study adapt to direct competition. Over a longer time frame, Wal-Mart may be able to increase its presence by taking a disproportionate share of overall market growth, instead of competing directly for existing customers of the large supermarkets. January 2004 36 LAEDC Wal-Mart Economic Impact Study Section 4: City of Los Angeles Response Summary Wal-Mart Stores, Inc. is already the largest grocery retailer in the country by sales, and plans to build Supercenters, which combine a large general merchandise store with a full service grocery market, in Southern California. With 3.61 million people, 1.28 million households, and annual food store spending of approximately $5.65 billion, the City of Los Angeles is an enticing market. The company has announced plans to build 40 Supercenters in California, which presumably will include one or more stores in the City of Los Angeles. If Wal-Mart is unable to open Supercenters within the city, however, the logical response would be for the company to build Supercenters in neighboring jurisdictions just outside Los Angeles city limits. The real choice facing the City of Los Angeles is whether Wal-Mart will serve residents from within the city’s boundaries or from without. If Wal-Mart decides to open Supercenters to serve demand in the region, the stores could conveniently serve customers residing in the City of Los Angeles from within the city, or from neighboring jurisdictions. In the former case, the city government would have the opportunity to influence Wal-Mart’s presence. The City of Los Angeles could guide Wal-Mart and other large scale retailers to sites where their presence and spending would be a boon for local redevelopment. If, however, Wal-Mart builds in neighboring jurisdictions, the City of Los Angeles will have no control over the development. Wal-Mart customers in Los Angeles would leave the city to shop, taking their taxable spending (and any resulting local sales tax revenues) with them. Many cities throughout Southern California face the same questions. The results of this analysis apply to them as well. Wal-Mart will enter the Southern California grocery market. Southern California is a wealthy market that is simply too large and too important for Wal-Mart to ignore. There are 3.61 million people in the City of Los Angeles, 38 percent of the countywide total of 9.52 million. In Southern California – Imperial, Los Angeles, Orange, Riverside, San Diego, San Bernardino, and Ventura counties – there are 19.33 million people. Considered as a separate state, Southern California would rank third by population, ahead of New York and Florida, and trailing only (all of) California and Texas. Southern California will only become more attractive as a potential market because it is also growing rapidly. The region is forecast to add more than 6 million people, 2000-2025. The median household income in Southern California is approximately $46,000, which is higher than the overall U.S. median household income of $42,000. Consumers in the City of Los Angeles spend an estimated $5.65 billion at grocery stores annually. Regional grocery store spending (across the 7 counties of Southern California) is an estimated $29.3 billion dollars annually. Wal-Mart will enter this market as it continues its nationwide rollout of Supercenters. In the fall of 2003, there were almost 1,400 Wal-Mart Supercenters in the United States, yet none in Southern California. With Wal-Mart planning to add 1,000 Supercenters in the next five years, this region will eventually play a large role in the company’s future growth. Nonetheless, Wal-Mart appears to be proceeding cautiously in California. Of January 2004 37 LAEDC Wal-Mart Economic Impact Study the 1,000 Supercenters planned for the next three to five years, only 4 percent (40 stores) will be built in California. Based solely on the state’s share of the national population (and potential market size), we would have expected California’s share of the new Supercenters to be in the 100 to 150 range. If we factor in the distribution of existing Supercenters we would have expected the California number to be higher still. Texas, the nation’s second most populous state, has many Supercenters while California, the most populous state, has none. Indeed, even tiny Fayetteville, Arkansas, population 59,000, has more Supercenters (2) than all of California. Wal-Mart faces opposition in some California communities. Supercenters have proven enormously popular with the shoppers in communities across America. Wal-Mart will soon open its first California Supercenter in La Quinta. The City of Inglewood is considering a ban on stores larger than 155,000 square feet if 20,000 square feet or more is devoted to non-taxable items. In the City of Oakland, “big box” stores that also sell groceries cannot be larger than 100,000 square feet. Contra Costa County voters are considering a measure that would place restrictions on the percentage of floor space that can be devoted to non-taxable goods in stores of more than 90,000 square feet. Supporters claim these ordinances are not aimed at any one store. Yet, the measures were motivated by, and their impact is largely restricted to, Wal-Mart Supercenters. In Los Angeles, the city council is investigating the merits of adopting similar restrictions. Option #1: Ring around Los Angeles The City of Los Angeles could adopt an ordinance that precludes the development of Wal-Mart Supercenters within city limits. If Wal-Mart is unable to build within the City of Los Angeles, it will undoubtedly attempt to serve the city’s residents from neighboring communities. There are 88 cities in Los Angeles County, plus the unincorporated areas. The borders between these cities are rarely obvious, since the cities tend to blend into one another. Traveling from one to the next is often a matter of crossing the street, or taking the next freeway exit. With so many communities nearby, including many which are adjacent to or even, as with the City of San Fernando, completely surrounded by the City of Los Angeles, Wal-Mart will have plenty of alternatives. If Los Angeles passes an ordinance that makes the city an unattractive place to do business, Wal-Mart will just surround the city with Supercenters. Los Angeles consumers will still shop at Wal-Mart; they will just do so outside the city’s borders. The implications of a Los Angeles ringed by Wal-Mart Supercenters are clear. First, many residents of the City of Los Angeles will travel outside the city to shop. Consumers who live in the City of Los Angeles already spend tens of millions of dollars each year at traditional Wal-Mart discount stores located within the county but outside the city’s political boundaries. The lure of inexpensive groceries – with potential savings of up to 20 percent compared to the large supermarket chains – available just outside the city limits would accelerate this trend. We expect that even more city residents would shop outside the city than do today. Second, the City of Los Angeles will lose substantial taxable sales. Supercenters have become the focus of union concerns because they compete with unionized grocery chains. Groceries, which are non-taxable, account for 30 to 40 percent of the sales at January 2004 38 LAEDC Wal-Mart Economic Impact Study Supercenters, meaning 60 to 70 percent of the sales are taxable. The appeal of Supercenters, for both Wal-Mart and the consumer, is that they allow shoppers to combine trips and do all of their purchasing in one location. If city residents choose to buy their groceries at Supercenters outside of the city, the City of L.A. will lose out on the local share of any taxable purchases shoppers make on those trips. Third, the forgone local share of sales tax revenue from L.A. residents shopping in other cities will not be limited to sales at Wal-Mart Supercenters. Wal-Mart stores act as powerful magnets for major retail developments, drawing in shoppers who also patronize other stores nearby. To the extent that city residents change their shopping patterns, Los Angeles will lose additional sales tax revenue. This would occur each time residents combine trips, and shop at the nearby Wal-Mart and adjacent stores, and purchase taxable items outside Los Angeles city limits. Thus, any perceived negative implications of Wal-Mart Supercenters will still occur if the City of Los Angeles makes doing business within the city too unappealing. City residents who prefer to shop at Wal-Mart will still be able to do so, potentially saving money in the process. Wal-Mart customers and their taxable spending will leave the city to shop, supporting Wal-Mart and other businesses outside city limits. The City of Los Angeles will forego any potential benefits from having the stores located within the city. Indeed, the city will have effectively exported money (in the form of the local share of sales tax revenue) to its neighbors. Option #2: Working Together Wal-Mart will build Supercenters to serve residents of the City of Los Angeles. The real choice, therefore, is not between Wal-Mart and no Wal-Mart. Rather, the choice is whether Wal-Mart will serve Los Angeles residents from within the city’s boundaries or from without. Given that the scarcity of large parcels of land suitable for Supercenters and other big box retail stores will limit the number of such businesses within city limits, restrictions based on the size or merchandise mix of large stores may be moot. Realizing this, the City of Los Angeles could choose to work with Wal-Mart, guiding WalMart to sites where its presence would be welcomed. For this type of partnership to work, Wal-Mart would need to be able to serve its customers under conditions similar to those available in neighboring jurisdictions. Several possibilities are described below. First, Wal-Mart could be used as a catalyst for redevelopment, particularly in areas saddled with struggling (or failed) retail centers. In Panorama City, the Panorama Mall lost its primary anchor tenant in 1996 when Federated Department Stores closed its Broadway store. Wal-Mart replaced the Broadway store in 1998, bringing local jobs and revitalizing the mall. Sales are up at other stores in the mall, which benefit from the increased foot traffic generated by Wal-Mart’s presence. The locally owned grocery store in the neighborhood, La Curaco, expanded to meet the additional demand. Other stores such as Food 4 Less and Pep Boys have also opened nearby. And in the five years since Wal-Mart opened, the neighborhood has been revitalized, too. Crime rates have fallen and housing values have risen more rapidly than in the surrounding community.28 Second, Wal-Mart has demonstrated a willingness to enter communities that other businesses appear uninterested in serving. In Baldwin Hills, the Crenshaw Plaza mall January 2004 39 LAEDC Wal-Mart Economic Impact Study also had a Broadway store as an anchor tenant. Federated Department Stores converted the Broadway store into a Macy’s in 1996, and then closed it two years later. Wal-Mart opened a store in the vacant space in early 2003, bringing jobs and retail opportunities to this underserved community.29 A local resident, describing her community prior to the opening of the Crenshaw Plaza Wal-Mart, said “We always felt like we had to go out of our neighborhood to shop – like our neighborhood wasn’t good enough for a good store.”30 Other parts of South Los Angeles and in the city as a whole continue to be underserved by retail. The need is acute in the grocery sector, and these communities stand to gain the most if Wal-Mart were to enter the market and offer lower prices. Third, Wal-Mart has also demonstrated a willingness to adapt to the urban environment of Los Angeles. The Panorama City store was the first ever multi-story Wal-Mart and the Baldwin Hills was the first three-story Wal-Mart. In both cases, Wal-Mart altered its traditional layout to work with existing structures. This flexibility suggests that Wal-Mart is willing to deviate from its usual pattern of operations in order to gain access to the City of Los Angeles market. Wal-Mart may therefore be willing to work with the City of Los Angeles to determine reasonable variations that suit both the company and the community. Conclusion The City of Los Angeles is a large, growing market, giving Wal-Mart a powerful incentive to expand here. Wal-Mart’s eagerness to serve customers in L.A. gives the City of Los Angeles some leverage in dealing with the company. The city could use this opportunity to direct investment to communities that need it most. If the city asks too much, however, or attempts to shut Wal-Mart out altogether, the company will serve its customers in the City of Los Angeles from neighboring communities. Many cities throughout Southern California face the same questions. The results of this analysis apply to them as well. January 2004 40 LAEDC Wal-Mart Economic Impact Study 1 Information from Wal-Mart’s annual report; “SN’s Top 75,” a list of top grocery stores compiled by Supermarket News <www.supermarketnews.com>; Anthony Bianco, Wendy Zellner et al., “Is Wal-Mart Too Powerful?” Business Week, October 6, 2003; Kristin Young, “Wal-Mart Faces Calif. Roadblocks To Supercenters,” Women’s Wear Daily, September 17, 2003. 2 www.supermarketnews.com; Bryan Roberts, “Wal-Mart Extending Grocery Market Leadership in the US,” M+M Planet Retail, February 25, 2003. Progressive Grocer, the sector’s definitive trade publication, placed Wal-Mart at the top of its annual ranking of the country’s largest supermarket chains for the first time in 2003. The discrepancy arises because PG only counts supermarket sales in its rankings, and excludes other formats such as discount stores and warehouse clubs that sell groceries. See Tom Weir, “Wal-Mart’s the 1,” Progressive Grocer, May 1, 2003. 3 www.acnielsen.com 4 www.walmart.com 5 Susannah Patton, “Food Fight,” CIO Magazine, October 15, 2002. 6 Jerry Useem, “One Nation Under Wal-Mart,” Fortune, February 18, 2003. 7 www.supermarketnews.com 8 Bianco, Zellner et al., op.cit. 9 Patricia Callahan and Ann Zimmerman, “Price War in Aisle 3,” Wall Street Journal, May 27, 2003. 10 Ibid. 11 Study cited in Andy Kish, “The Most Important Tenant,” The Dismal Scientist (from Economy.com), September 23, 2003. 12 Kirsten Orsini, “Food Fight,” Coloradoan, April 13, 2003. 13 Neil Currie and Jennifer Justynski, “There Goes the Neighborhood: Wal-Mart Expands in Vegas” (UBS Warburg, November 14, 2000). 14 Ibid. 15 Note that the RIMS II model is county-based. This means that the 6,500 jobs created by spending in the City of Los Angeles include jobs located throughout Los Angeles County. 16 Bernard Wysocki Jr. and Ann Zimmerman, “Wal-Mart Cost-Cutting Finds A Big Target in Health Benefits,” Wall Street Journal, September 30, 2003. 17 “Employers’ liability,” The Economist, September 20, 2003. 18 Percentage of Wal-Mart mangers that started as sales associates from Wal-Mart Stores, Inc. Management positions to be created through expansion from Wal-Mart Vice-Chairman Thomas M. Coughlin, quoted in Anthony Bianco, Wendy Zellner et al., op. cit.. 19 See, for example, Frank Green, “Food Fight,” San Diego Union-Tribune, August 18, 2002. 20 A good overview is offered by Dennis Farmer et al., “Dynamics of the LA Supermarket Industry,” in a paper from the Center for Regional Employment Strategies. 21 Nancy Cleeland and Melinda Fulmer, “Supermarkets, Clerks Gird for Possible Strike,” Los Angeles Times, September 29, 2003. “War on Wal-Mart?; Grocer Union Pledges to Resist Megastore Expansion),” Los Angeles Daily News, August 8, 2002. Anita French, “Local Merchants Find Ways to Compete,” The Morning News of Northwest Arkansas, August 1, 2003. 22 Vacation and premium pay brought the average up to $15.57. Marlon Boarnet and Randall Crane, “The Impact of Big Box Grocers on Southern California: Jobs, Wages, and Municipal Finances,” (Orange County: Orange County Business Council, 1999). 23 For information attributed to the UFCW in this section, see www.ufcw.org and www.ufcw770.org. Similar information has been presented by union representatives and members quoted in various new articles related to the labor dispute in the Southern California grocery industry. See, for example, Jack Katzanek, “Union uneasy with grocers’ proposals,” The Press-Enterprise, September 23, 2003; and others articles in the San Diego Union Tribune (October 20, 2003); San Jose Mercury News (October 10, 2003); North County Times (December 28, 2003); Ontario Daily Bulletin, (October 19, 2003). 24 Brannon Boswell, “Grocers to get tough with unions,” Retail Traffic, July 9, 2003. January 2004 41 LAEDC Wal-Mart Economic Impact Study 25 UFCW Local 1428, “March 2003 Food Contract Negotiations Update,” www.ufcw1428.org/master_food_contract_update_30203.htm. 26 UFCW Local 770, “Say NO to Wal-Mart in your neighborhood!” www.ufcw770.org/walmart.htm. 27 Retail Forward, cited in Bianco, Zellner et al., op.cit. 28 Brent Hopkins, “No. 1 retailer breathes life into blight area,” Los Angeles Daily News, May 24, 2003. 29 Kristin Young, “Wal-Mart’s New Look in L.A.,” The Wave, January 29, 2003; and Lela Ward, “Baldwin Hills Wal-Mart Celebrates Grand Opening,” Los Angeles Sentinel, January 16-22, 2003. 30 Quoted by Abigail Goldman in “Wal-Mart’s Move into Urban Markets Reaches a New Level,” Los Angeles Times, January 23, 2003. January 2004 42 ...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online