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Wal-Mart's Next Frontier?

Wal-Mart Stores Inc., whose discount emporiums have become a fixture of the rural and suburban landscape, is now looking for growth in urban markets, too. The latest sign: This fall Wal-Mart plans to open a store in Los Angeles' Baldwin Hills Crenshaw Plaza — its third LA store in four years.

The 3-story building is a former Macy's that was an anchor in Baldwin Hills Crenshaw, an 820,000 sq. ft. enclosed mall owned by Manhattan Beach, Calif.-based Center Trust Inc.

“Obviously, when you are building stores, there comes a time when you move into areas where you haven't been traditionally focused,” says Peter Kanelos, Wal-Mart community affairs manager. “This is part of what's driving this.”

The Bentonville, Ark.-based retailer, now the largest in the world, started in rural towns, moved into the suburbs in the 1980s and 1990s, and now is inching into the nation's largest cities.

Wal-Mart opened its first Los Angeles-area store in 1998. The company constructed the second Los Angeles Wal-Mart in the Porter Ranch section of the city in 2000.

In addition to the three Los Angeles discount stores — plus a potential fourth in Los Angeles' Harbor Gateway area that is in the early stages of planning — the retailer is building a Supercenter, or a combination discount and grocery store, on an 11-acre site in Dallas near Love Field. Other discount store openings in the past year include seven stores in Houston and two in Milwaukee.

In the case of Baldwin Hills Crenshaw Plaza, the center offered Wal-Mart a dense urban demographic profile. Approximately 360,000 people live within three miles of the center, and 2 million live within seven miles. Average annual household income ranges from $49,000 within the three-mile radius to $59,225 within seven miles.

The 150,000 sq. ft. Baldwin Hills store is larger than most Wal-Mart discount stores, which generally span about 125,000 sq. ft. According to Kanelos, some of the extra space is needed to accommodate escalators and elevators for moving customers and shopping carts between the building's three floors.

A New Strategy

The decision to locate at Baldwin Hills Crenshaw Plaza indicates Wal-Mart's willingness to alter its prototype to penetrate a dense urban market, says Daniel Millman, vice president of leasing and asset management for Center Trust.

Given an attractive location such as Baldwin Hills, Wal-Mart will occasionally forego its traditional building program and retrofit an existing location. “More often than not, we build our own stores,” says Kanelos. “But in some communities, there aren't 20 acres available for a Wal-Mart.”

The building Wal-Mart is moving into, constructed in 1947, features a 100-foot tall art-deco fin and two art-deco towers. When Macy's left Baldwin Hills Crenshaw Plaza in 1998, Center Trust acquired the building and brought the site to Wal-Mart's attention. “We made a list of potential occupants, and Wal-Mart was on top of the list,” says Millman. The firm made a deal with Wal-Mart quickly, executing a lease in early 1999.

The company declined to disclose the cost of the build-out and the rental rate for the space. The market price is $10 to $15 per sq. ft. for properties of this kind, says Curtis Fralin, first vice president in the Century City office of CB Richard Ellis.

How far will Wal-Mart go with its urban push? Spokesman Kanellos declined to comment. But, he says: “We are not simply looking at traditional sites. Wal-Mart is continually evolving to meet our customers' needs, which is why we are willing to do non-traditional Wal-Marts such as Baldwin Hills.”

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