As big box operators' revenues grow, so does the pressure to share their bounty with their employees.
In July, the Chicago City Council became the biggest city to date to pass an ordinance mandating that retailers with more than $1 billion in annual profits and stores larger than 90,000 square feet pay its workers a living wage — a minimum of $10 an hour, plus at least $3 an hour in benefits. The law is aimed primarily at Wal-Mart, which has come under repeated fire for paying low wages. But other operators are bristling at the measure as well.
Wal-Mart said that it will still open its first store in the city, located on Chicago's West Side, but would halt the rollout of approximately 20 additional outlets it had planned to build in the area. Target also threatened to pull the plug on plans to become the anchor for a $90 million shopping center development on Marshfield Avenue and the $113 million Wilson Yard project. Lowe's noted that it might not go ahead with the two stores it planned for Chicago either.
Wal-Mart has recently been trying to appease its legion of critics by raising wages at 1,200 of its stores by roughly 6 percent. But the retailer has been fighting the Chicago legislation. Wal-Mart, Target and Lowe's did not return calls for comment.
Several members of the City Council, as well as Chicago Mayor Richard Daley, have backed big-box operators on the issue. They say they are worried that if Wal-Mart abandons plans to build new stores, many of the city's poorest residents will lose steady jobs. Daley still may veto the law. It will not take full effect until 2010.
“Until this legislation shakes out a bit, you are not going to see any big-box retailers doing things within Chicago city limits,” says Curt Bailey, Chicago-based director of retail investments with the Archon Group, a retail developer with projects throughout the Midwest. “That will help to stagnate development for any kind of retail of any size.”
But according to Annette Bernhardt, deputy director of the poverty program at the Brennan Center for Justice at New York University School of Law, Wal-Mart's and Target's threats are just posturing. She has conducted economic studies and believes that big-box stores need to be located in urban centers if they plan to grow their operations.
“We estimated that on the South and West Sides of Chicago, annual consumer power is about $2.3 billion and almost half of it is not being met,” Bernhardt says. “In our analysis, retailers are simply not going to walk away from those kinds of markets. The suburbs are completely saturated. I think that when the dust settles, what we'll find is that these retailers can stay in the city and will continue to expand.”
Bernhardt brings up the example of other municipalities, like Santa Fe, N.M. and San Francisco, where living wage legislation has not had a negative impact. She points out that Wal-Mart is currently building a Supercenter in Sante Fe and that Home Depot announced that it would top the living wage standard at its new San Francisco store.
“All of these retailers are paying very high minimum wages and there is no reason they won't be able to adjust,” she says.
Whether other cities will follow Chicago's example is harder to predict. Washington, D.C. officials are in the early stages of passing such legislation, and Orlando, Fla., officials are considering it as well.
“It's very early and a lot of [people] are waiting to see what happened in Chicago, but cities across the country are experiencing the same big wave of retail expansion inside their urban core,” Bernhardt says. “I think it will really depend on what type of economy the city has and what type of retail it has.”