Wal-Mart Goes to Washington

By Erika Morphy

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Earlier this month Wal-Mart announced it was opening more stores in the DC area -- six to be exact, which is two more than many who had been watching the retailer’s negotiations with city officials had been expecting.

If any city is under-Wal-Marted it would be the District and its immediate suburbs. I will leave the debate as to whether this is a good thing or not -- as well as Wal-Mart’s forthcoming push into the area -- to neighborhood activists and economic development officials.

From a commercial real estate perspective, however, Wal-Mart’s decision to take on DC’s higher retail costs and more affluent consumer base is a decidedly very good thing. If nothing else, it is sign of health - and a welcome one as the government continues to scale back its space needs, to noticeable effect in the DC area office market.

In addition, many of the stores are going to be located in low-income urban areas that have few other retail options -- areas that could use the 1,800 retail jobs that Wal-Mart says its stores will create. Certainly the local construction industry will welcome the 600 related jobs the development of these stores will bring.

It is also a sign of health for the retail real estate industry in general. Retailers, including big box retailers, have been fighting off the erosion of margins from e-commerce for years. This year will be especially harsh for the brick-and-mortar stores. eMarketer recently reported that retail ecommerce holiday sales are projected to rise 16.8% this year, compared to 2010, to reach $46.7 billion. By contrast, brick and mortar retailers - the stores that provide rental income flow -- are expecting a mere 1.6% growth in Black Friday sales, their biggest day of the year, according to a separate survey from BDO USA.

So that Wal-Mart is moving in, despite these headwinds, is good. Also, good are the efforts other retailers are making to counter not only e-commerce trends but other developments that are eroding margins.

In the Chicago suburbs, for instance, Macerich is building a $200 million fashion outlet center, according to the International Council of Shopping Centers.  Located in Rosemont, the shopping center will be a two-level, 528,000-square-foot complex near O’Hare International Airport. It will also, according to ISCS, be an outlet center unusually close to the city itself. Normally, retailers don’t like to see outlets spring up so close to city areas because it cannibalizes full-price sales.

But changing times call for changing strategies -- including for giants like Wal-Mart and Macerich.

(To search across all ALM blogs, go to www.Lexis.com.)