Wal-Mart’s big-city aspirations may send retailer down some mean streets

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There’s an area about a mile from my home in Chicago’s Lakeview neighborhood that I call Bad Luck Corner. Centered around a three-way intersection of Broadway, Clark and Diversey streets, it’s got the nearly constant hustle and bustle found in many big cities.

But for some reason, retailers have trouble sticking there. Over the past 19 years, I’ve lost count of how many discount shoe outlets, vitamin stores, sunglasses shops and others have come and gone.

Enter Wal-Mart Stores, Inc., which recently targeted Bad Luck Corner as a spot for one of the nine or so locations the big retailer says it will open in Chicago over the next couple years. Wal-Mart’s proposed Lakeview location will partly occupy the site of a shuttered PetSmart, and at 32,000 square feet, the store would be about one-sixth the size of the typical Supercenter.

So as Wal-Mart moves ahead with its plan for Bad Luck Corner, I say to it: Good luck with that.

Wal-Mart is no PetSmart, of course. It’s not anything else, really. The world’s biggest retailer isn’t much for the subtle gesture, and its ambitious plans to add stores in some of the largest U.S. cities, including Chicago, New York and San Francisco, are well-documented. As growth in the retailer’s primary rural and suburban markets levels off, Wal-Mart is aggressively pushing into urban America with plans to open dozens of small to medium-sized stores over the next five years.

But after seeing the retailer turn in another soggy sales performance earlier this month, I’m starting to wonder if instead of shoehorning a scaled-down shop amongst Chicago’s North Side yuppies, the folks in Bentonville, Ark., may be better off propping up the 3,800 or so stores they already have.

In a May 17 financial release, Wal-Mart said comparable store sales in the U.S. fell 1.1 percent in the previous quarter from a year earlier, the eighth consecutive decline.

Comparable store sales are a closely-followed gauge of retailer performance, and this unhappy streak shows that Wal-Mart, like many of its customers, continues to struggle to recover from the recession that ended almost two years ago. More recently, the combination of high fuel prices and high unemployment have increasingly squeezed consumer budgets, Wal-Mart said.

Wal-Mart said its grocery business continues to do well, unlike many other categories. But a huge retailer like Wal-Mart cannot live on food alone, or at least that’s what the market appears to be telling up. Since the beginning of 2010, Wal-Mart shares have eked out a total return of just 3.1 percent, sixth-worst among the 30 companies on the Dow Jones Industrial Average, according to Bloomberg LP.

Might Wal-Mart have to slow its expansion pace or close underperforming stores if sales don’t improve? Nobody that I’ve talked to who follows the company is saying that. But further sales weakness isn’t going to do much good for Wal-Mart’s share price.

Also, there isn’t enough space here for the list of U.S. retailers burned by overexpansion the past two decades. One doesn’t have to venture far outside Chicago’s borders for an example of a once-mighty American retailer that stumbled badly. Out at its headquarters in northwest-suburban Hoffman Estates, Sears Holdings Corp. continues to hang around, though its earnings plunged 49 percent last year.

To be sure, Wal-Mart is still making a pile of money, with net income up 3.9 percent in the previous quarter, to $3.43 billion. And if you’re in the business of producing beef, pork, milk or other foods, Wal-Mart, as the biggest U.S. food retailer, is tough to ignore. Wal-Mart has said most of its urban stores will have fresh food departments, which will require steady suppliers.

Including Sam’s Club warehouse stores, Wal-Mart sold more groceries last year - almost $168 billion worth - than the combined sales of three biggest U.S. supermarket chains (Kroger, Safeway and Supervalu).

I’m also aware of the risks of betting against a company whose global revenue, at nearly $419 billion, topped the combined GDP of Ireland and Pakistan.

But as Wal-Mart forges ahead with store plans in Chicago and elsewhere, I’m also reminded of a line spoken by the hard-charging Manhattan stockbroker Bud Fox in “Wall Street,” a cautionary tale of the big city and on being careful what you wish for.

How much is enough?


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