The king of retailers plans to offer cash grants to stores near some new locations

06/26/2006
By: Susanna Hamner, Business 2.0 Magazine writer-reporter

(Business 2.0 Magazine) -- During its 40 years in business, Wal-Mart has been attacked for forcing mom-and-pop shops out of business by underselling them. But only now has the criticism started to seriously threaten expansion into new neighborhoods, writes Wal-Mart CEO H. Lee Scott Jr. in a letter on the company's internal website. So the $316 billion retailer has come up with an unusual strategy: offering cash and benefits to keep tiny rivals afloat.

In April, Wal-Mart (Charts) announced plans to spend $1.5 million in financial grants, ads, and training seminars for small firms near 10 of the 50 stores set to open in blighted urban areas over the next two years. The chamber of commerce in each city gets a $50,000 donation, and Wal-Mart promises to share its internal report on business trends. Spokesman Dan Fogleman calls it "a commitment to help communities that need the most help."

In return for this investment, which is less than a week's revenue for an average Wal-Mart store, the company gets to produce newspaper ads and in-store radio spots highlighting the small businesses it's helping. Will that be enough to reverse the perception that a new Wal-Mart is a curse on local retailers--and gain the company entry into ever more communities?

The Experts Sound Off

Richard Lipsky, Lobbyist, Neighborhood Retail Alliance: It's a futile gesture. Whatever good they'd generate through this program would be more than offset by the damage they'd do by taking sales away from existing business. Are we to believe that they are going to nurture these businesses and not sell competing products?

Lawrence Gelburd, Lecturer, Wharton Business School: They have mishandled their PR for so long that they are now furiously backpedaling, trying to say the right thing. But I don't think they're licking their chops, saying "Gee, I wish these small companies would go out of business." They actually have an interest in having these stores stick around.

Wal-Mart Employee, San Leandro, Calif., store: Time will tell if it's a PR stunt. Other businesses, I've heard, often close because of Wal-Mart, but I've never seen it. I've actually seen businesses open near my former store, like Trader Joe's and Whole Foods (Charts). So Wal-Mart can help business and the community grow at the same time.

From the July 1, 2006 issue of Business 2.0 Magazine