In Tight Spaces,
By KRIS HUDSON
March 1, 2006; Page B1
EL CAJON, Calif. -- The most revolutionary part of the Wal-Mart store here is found at the top of the escalator: a second floor.
Over the past couple of decades, Wal-Mart Stores Inc. has made its sprawling single-story stores the most feared force in retailing. But as the company tries to penetrate urban areas that have lofty land prices and entrenched antidevelopment movements, it's increasingly building up, not out.
Wal-Mart now operates roughly 20 multilevel stores, many of them housed in buildings vacated by other retailers. Over the next five years, the company is planning to open an additional 50 to 60 on lots one-third the size of its traditional 25-acre swaths. Many of these stores will be "supercenters," which often measure 200,000 square feet and offer a full complement of groceries in addition to the apparel, toys and other general merchandise found in Wal-Mart's traditional discount stores.
The multilevel stores are just a tiny portion of the 3,900 U.S. stores operated by the world's biggest retailer. But they represent a significant shift for a company that has long thrived by sticking to a cookie-cutter store format designed to minimize costs and coax the most sales out of every single square foot. Here in the El Cajon store, which opened in October 2004 as Wal-Mart's first multilevel store built from the ground up, store managers had to wrestle with issues like which departments to locate on each floor and how to lure shoppers to the second floor. Wal-Mart even trained workers to help shoppers confused by the device next to the escalator that lifts shopping carts from one floor to the other.
Other big-box retailers are also expanding the box vertically. Minneapolis-based Target Corp. operates more than 30 multilevel stores, including one attached to the same shopping mall in El Cajon as the Wal-Mart. Atlanta-based Home Depot Inc. has five such stores, including two in New York City. Costco Wholesale Corp., Issaquah, Wash., counts three multilevel warehouses among its 346 in the U.S.
More are on the way. Mike LaFerle, vice president of real estate at Home Depot, said the home-improvement retailer is considering roughly 80 "urban opportunities" as store sites to serve patrons who want to live, work and shop in downtowns. Some of those will be multilevel stores. "As the consumers continue to move back into the urban core of cities, retailers will continue to follow them," Mr. LaFerle said.
In the case of Wal-Mart, the retailer is experimenting with several different multistory approaches. In Portland, Ore., the company proposes to build a supercenter on a plot smaller than eight acres with two levels of parking buried beneath the store's selling floor and none above ground. In White Plains, N.Y., Wal-Mart will open in April a discount store with two levels of selling floor and six parking levels stacked above it. In downtown Honolulu, Wal-Mart built a Sam's Club warehouse store atop a supercenter on 10 acres.
The next phase of the evolution is already in the works: Wal-Mart has drawn up plans for its first multistory supercenter, which will divide its 170,000 square feet between two floors with most of its parking below grade. Wal-Mart executives declined to reveal the location of that project, which has yet to go through the government approval process.
"Historically, if a site didn't fit our size, if it didn't fit our parking ratio -- 1,000 spaces and a 195,000-square-foot supercenter -- we would walk away and chase other opportunities," Rob Bray, Wal-Mart's senior vice president of real-estate construction and design, told Wall Street analysts last year. "Today, we say, 'How?' "
Those who have criticized Wal-Mart for contributing to sprawl aren't necessarily impressed by the new, more compact stores. Al Norman, founder of Sprawl-Busters Consultants in Greenfield, Mass., likened it to Wal-Mart's nascent program to open environmentally conscious stores. "If they have two or three green stores out there out, who cares?" Mr. Norman said. "It's so clearly tokenism."
Others, however praise Wal-Mart for re-examining its store formats. In Chamblee, Ga., a city near Atlanta, Wal-Mart is building a supercenter on 12 acres with most of its parking spaces in underground levels. Mayor Eric Clarkson says Wal-Mart readily complied with the city's zoning guidelines requiring retail builders to conceal parking lots and forgo car-related uses such as lube shops. "It's something we can point to for everyone else looking to develop in Chamblee, that Wal-Mart, the world's largest retailer, was willing to work with the zoning requirements in Chamblee," Mr. Clarkson says.
In Pass Christian, Miss., a coastal town mostly leveled last year by Hurricane Katrina, Wal-Mart is considering rebuilding a supercenter in a new-urbanist format once the town's population returns. If Wal-Mart adopts suggestions from regional planners, which it has yet to do officially, the Pass Christian design would call for encircling the store's parking lot with multilevel retail shops and apartments. That, regional planners say, would hide the parking lot from view from the street and provide Wal-Mart a base of potential shoppers in the apartments. Several of Wal-Mart's high-level real-estate officials spent time in community-planning sessions in Pass Christian in January to brainstorm designs for the store, which might include multiple levels.
Can Wal-Mart balance its urban accommodations with its own famous bottom-line mentality? Its own real-estate experts say multilevel stores cost more to build and operate than the traditional single-level big box. Yet they add that each one built still must meet Wal-Mart's standards for return on investment before it is approved. And, in some cases, building a multilevel store appeals to a given community's leaders or neighbors, much as Wal-Mart seeks to do in tailoring the facades of new stores to reflect regional architecture when local leaders request it.
At the two-level, 167,000-square-foot Wal-Mart store in El Cajon, just east of San Diego, the retailer has crafted and honed a delicate balance of merchandise between its two floors. Fast sellers such as food, cosmetics, cleaning supplies and pet supplies are located on the first floor so customers making quick stops can get to them easily. So-called destination departments such as electronics, housewares and sporting goods are located on the second floor.
The trick for Wal-Mart and others is to avoid designing a store that encourages shoppers to buy low-margin, high-turnover items on the first floor and ignore the second floor's more profitable wares. Thus, in El Cajon, Wal-Mart dedicates several first-floor aisle displays to merchandise aimed at luring shoppers to second-floor departments, such as new-release DVDs. Children's apparel is on the second floor because Wal-Mart shoppers tend to be less finicky and fashion-conscious about kids' clothes, making that section a destination department. Meanwhile, men's and women's apparel -- departments where Wal-Mart is making a push to bolster sales with more fashionable styles -- is downstairs in broad view.
Wal-Mart market manager John Teel demonstrated the point recently on the El Cajon store's first floor. "For every bag of dog food [the store's manager] sells, I need him to sell one of these," Mr. Teel said, plucking a white Starter T-shirt from a rack. "I don't make any money on dog food."