Wal-Mart goes urban with push into DC

More shopping options and jobs are good, but low wages and competition for mom-and-pop business may be bad.

By InvestorPlace Nov 17, 2011 12:25PM
By Jeff Reeves, InvestorPlace.com

Wal-Mart (WMT) has taken a beating lately. Disappointing earnings showed higher costs sapped profits, and the retailer recently lowered its full-year forecast. Costco (COST) and others continue to overshadow Wal-Mart in the discount market. WMT stock has gone pretty much nowhere in two years.

But there are signs that things could be turning around. The company has stopped its slide in U.S. same-store sales at its stores recently and is embarking on an ambitious campaign to tap into urban markets.

Ground zero for the expansion is Washington, D.C., where the big-box retailer plans to open six stores.

Wal-Mart has been working on a scheme to open stores in the nation's capital for some time, but this week the company announced it will be rolling out two more stores than originally planned. The locations include neglected urban areas with few retail options and persistent unemployment. City leaders partnered with Wal-Mart on the idea that new stores would provide a much-needed shopping alternative for residents and offer up new jobs. The retailer claims its stores will create 1,800 retail jobs and 600 construction jobs.

Critics, of course, worry the move will drive out mom-and-pop retailers and provide jobs that offer minimum wage instead of a livable wage.

Whether the move is right for D.C. and its residents is one thing, but it's a no-brainer for Wal-Mart. Typically relegated to small-town America and the suburbs, WMT has struggled to connect with urban shoppers, who represent a huge area of opportunity. Rivals like Dollar General (DG) and Dollar Tree (DLTR) have been eating Wal-Mart's lunch with smaller locations in strip malls. Dollar Tree -- including the company's latest earnings, reported Thursday -- has seen 13 straight quarters of year-over-year profit growth, and Dollar General has seen 10 in a row.

The fact that Wal-Mart, the world's largest retailer, has struggled amid an economic downturn is very counterintuitive. One would think that persistently high unemployment would appear to work in the favor of discounters like Wal-Mart.

But clearly offering just low prices is only part of the equation. Wal-Mart hopes it can see big gains by pushing into a D.C. area with less competition and no current presence. You can be sure that if this model shows material success, the big-box giant will eye other urban areas soon.

Jeff Reeves is the editor of InvestorPlace.com. Write him at editor@investorplace.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. As of this writing, he did not own a position in any of the aforementioned stocks.

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