Plan Pushes Supercenters to Valley; Hahn Voices Support for Ordinance

Staff Reporter

Retail supercenters in the City of Los Angeles would be limited almost entirely to a narrow swath of the San Fernando Valley between Sun Valley and Northridge under an ordinance being drafted by the City Attorney's office.

The ordinance, being drawn up at the request of the City Council, would block supercenters like the ones planned by Wal-Mart Stores Inc. from about 80 percent of the city's commercial zones. A copy of a map based on the draft ordinance and not publicly released was obtained by the Business Journal.

The measure, which supporters hope to bring before the City Council early next month, would ban building big-box stores of roughly 200,000 square feet, with attached supermarkets, near economic revitalization zones areas targeted for federal, state or local aid to foster development.

Calls to limit development of the supercenters have increased in the Council, where it appears there are enough votes to send the measure on to Mayor James Hahn.

Last week, Hahn for the first time said he would sign the ordinance if it came to his desk.

"It's the right thing to do," Hahn said. "The City Attorney has looked at this, the ordinance is on its way and the city has established the findings that these supercenters don't benefit communities, especially those communities where we have severe economic problems already."

A study paid for by the city concluded that allowing supercenters in or near the broadly defined enterprise zones threatens to undermine established businesses and could jeopardize $40 million in public funds invested in bolstering those communities.

Hahn also took a swipe at a report issued by the Los Angeles County Economic Development Corp., and paid for by Wal-Mart, that found supercenters would generate a net increase in jobs and result in ongoing savings to consumers.

"The LAEDC I think damaged their credibility by allowing Wal-Mart to pay them for a study that shows Wal-Mart would actually benefit the economy," the mayor said in an interview. "Sure, everybody would like to pay the lowest prices, but at some point we have to understand if taxpayers have to pick up the cost of health care for their employees, what are we really saving?"

Political maelstrom

If enacted, the measure would make Los Angeles the largest city in the nation to limit development of supercenters, which are primarily being built by the Bentonville, Ark.-based retailer.

Wal-Mart announced last year that it would build 40 supercenters across California in the next three to four years. The non-union retailer has become a political lightning rod for its practice of paying lower wages and providing limited health insurance compared to the highly unionized supermarket industry.

Peter Kanelos, Wal-Mart's community affairs manager for Southern California, said that city officials, responding to union pressure, have singled out the company for political retribution.

"The fact they are trying to railroad this through as quickly as possible shows there is political motivation here," he said. "What's the urgency? It's not like we're sitting at the city's doorstep with our plans. These stores are way down the line."

To Hahn, the issue boils down to sending a message to Wal-Mart and its founders, the Walton family, about medical insurance. He questioned the company's policy of paying for employees' catastrophic care but denying them coverage enough to afford routine doctor visits.

"I think we have to send a message to Wal-Mart," Hahn said. "The Waltons are one of the richest families in the world. It's nice they'll pay for a heart transplant, but if an employee goes to the doctor to get a vaccination for her kid and she can't get it, then what do you really have there?"

If enacted, the draft ordinance would ban supercenters from a 30-mile stretch between the northeast corner of Griffith Park south to the Port of Los Angeles and from the border of West Hollywood 15 miles east to the communities of East Los Angeles.

Under the proposed ordinance, only the fringes of Marina del Rey, San Fernando and a stretch along the Metrolink railway through the San Fernando Valley could house a superstore. Based on the one-mile test, a supercenter could also go up in Century City, although land availability, costs and market considerations would likely rule that area out.

(There are 12 Wal-Mart stores in Los Angeles County and at least six more under consideration, although none are in the supercenter format selling groceries.)

Kanelos said the ordinance's supporters, including Councilman Eric Garcetti, are seeking to essentially ban Wal-Mart from building supercenters in Los Angeles. "Who knows what businesses he will try to ban tomorrow?" he said.

"We're trying to protect the areas where we are trying to create jobs and eradicate blight," Josh Kamensky, press deputy to the 13th District councilman, said "Supercenters do exactly the opposite. They erode good paying jobs and create blight."

Retail impact

Meanwhile, a report compiled last month by consulting firm Deloitte & Touche found that in cities where Wal-Mart has converted regular stores to supercenters average sales per square foot jumped to $467 from $359.

"That's critical because they don't make much money on the food," said Ira Kalish, Deloitte's global director of research. "But because people cross over to the non-food items, which have a higher mark-up, that's how they make their money back."

Beyond the supermarket industry and small businesses, Kalish said large Los Angeles-based retailers, such as Sport Chalet Inc., Big 5 Sporting Goods Corp. and Smart & Final Inc., could also be affected by Wal-Mart's supercenters.

But analysts tracking Big 5 doubted the depth of the impact from a Wal-Mart expansion in L.A.

"It will create some level of increased competition, but what some people don't understand is the overlap of products with a Wal-Mart is very limited," said G. Murrey Wanstrath, vice president of equity research at New Orleans-based Hibernia Southcoast Capital Inc.

"Big 5 offers brand names at a value price point," said Wanstrath, who has a buy rating on the stock, which he doesn't own. "Wal-Mart offers the value, they just don't have the brands."

The boards of both the Los Angeles Area Chamber of Commerce and the Central City Association have voted to oppose the supercenter ordinance.

Both organizations' directors said the issue is not economic policy but land use, and as a result any ordinance must pass the city's Planning Commission before the Council can consider it.

In late 2000, the Council referred a proposed ordinance that would have placed restrictions on big box stores to the Planning Commission, which rejected it in early 2001.

"We hope the mayor respects the process and encourages the Council to send this land use ordinance to the Planning Commission as he did (when he was City Attorney) to a similar ordinance three years ago," Kanelos said.

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