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Size matters in California
Wal-Mart's battles with communities lead Home Depot, Lowe's to cry foul.
April 7, 2004: 1:58 PM EDT
By Parija Bhatnagar, CNN/Money staff writer

NEW YORK (CNN/Money) - Residents of Inglewood, Calif., voted Tuesday not to let Wal-Mart have its way in a piece of the Los Angeles suburb.

The special referendum centered around the world's largest retailer's plans to build a supercenter as it wishes in Inglewood without being encumbered by Inglewood's zoning regulations.

It's no secret that California isn't exactly enamored with Wal-Mart, a sentiment that has stymied the retailer's expansion plans in the Golden State. Now other big-box retailers like Home Depot and Lowe's say they're unfairly caught in the crossfire.

In some counties and cities in California, so-called "Wal-Mart-inspired" zoning ordinances are restricting retailers from operating stores that exceed 100,000 square feet, or about 2.5 acres.

Wal-Mart has most prominently run into opposition in Inglewood. City Council members, community activists aided by the Rev. Jesse Jackson, and private residents have demonstrated against the retailer's plans.

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Home Depot (HD: Research, Estimates), the No. 1 home improvement store, has an average store size of about 108,000 square feet. "With the type of merchandise that we sell, smaller stores hold less of our inventory. So we're forced to make more frequent deliveries to replenish smaller stores," according to a Home Depot spokesman who didn't want to be identified.

"Home Depot is closely monitoring the legislative situation in California," the company said in a separate statement to CNN/Money.

Home Depot's rival Lowe's, the No. 2 player in the space, has a similar grudge.

"Home improvement retailers like Lowe's have large bulky merchandise in our stores and we carry big quantities of these products, as many as 40,000 products," said Chris Ahearn, spokeswoman for Lowe's (LOW: Research, Estimates).

With the average square footage of a Lowe's store at about 116,000 square feet, Ahearn said the company also has had to deal with size restrictions in the state.

Blaming Wal-Mart

Big box retailers are eager to sink their teeth into California, which boasts a $1 trillion economy. Industry watchers say it's a lucrative market in an otherwise mature domestic retail market.

California is already the biggest market for Home Depot, which has 188 stores in the state, representing more than 10 percent of the company's total systemwide sales.

"We have 53 stores in California and we consider it to be a major area of expansion," said Lowe's Ahearn.

At the same time, Wal-Mart (WMT: Research, Estimates) has faced a lot of opposition in California, particularly to its oversized supercenter-type stores, which average close to 190,000 square feet.

CNN/Money erroneously reported in the original version of the story that Wal-Mart first opened its supercenter format in 1998.

The retailer first introduced the supercenters in 1988, adding groceries to the mix of products. Since then, it has opened 1,471 supercenters around the country but only one in California. The plan, however, is to open at least 40 of these stores in the state over the next couple of years.

While some communities in the state have passed measures limiting the size of grocery stores allowed to operate in their neighborhood, others have outright banned big-box formats. They say the huge centers, specifically the Wal-Mart supercenters, will cause traffic congestion, hurt smaller independent businesses and drive out better-paying jobs.

Peter Kanelos, spokesman for Wal-Mart Stores, disagrees.

Said Kanelos, "In 90 percent of the cases, we've noticed that any opposition to our supercenters is at the behest of labor unions or our competitors in the grocery space," namely Safeway, Kroger and Albertson's.

Indeed, grocery workers in Southern California ended a five-month strike last month that was sparked by the companies' attempts to cut health care and other benefits in a bid to offset competition from Wal-Mart.

Home Depot and Lowe's think it's unfair that they're being penalized by measures intended primarily for Wal-Mart. "In some instances we've petitioned the zoning board for variances," said Lowe's Ahearn.

Home Depot said the company has either looked for alternative locations or asked for a waiver of the ordinances in a handful of cases.

"Lowe's and Home Depot may have got caught in the middle of this," said George Whalin, an independent retail consultant. "Retailers are under tremendous pressure by Wall Street to keep growing.... Should that be at the cost of a community? I don't think so."

Said Whalin, "If you're not wanted in one neighborhood, California is big enough for retailers to find someplace else where they will be welcome."  Top of page

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