When Wal-Mart Comes to Town

As Wal-Mart readied to open its Brunswick store, in late April, concern prevailed in Bath over who would draw the Wal-Mart bullet in this game of Russian retail roulette. "I think that man's business is going to be devastated," says Halcyon Blake over lunch one day, referring to Don Povich, a specialty clothier on Front Street. Povich says he isn't worried. He endured the first wave of flight to the malls, 20 years ago. Another merchant worries that Jayne Palmer at Gediman's would get hurt, while Palmer points out that Wal-Mart seems to be stalking Bob Reny by locating near his stores. Reny foresees his sales initially declining 10%, and then rebounding because Wal-Mart can't match him on value: "With Wal-Mart there's a lot of hype and no reality," he says defiantly.

To date, Wal-Mart has opened seven Wal-Marts and two Sam's Clubs in Maine. It will not reveal how many locations it will eventually have in the state. Company spokesman Don Shinkle says, "Wal-Mart believes that the type of discount retailing we do will be fully appreciated in Maine." He adds, "Regardless of where we locate, acceptance is going to be very good. There is nowhere that we are not accepted with open arms. Our results in Maine to date are nothing short of overwhelming."

Asked for specifics, Shinkle demurs. "We do not share numbers."

Whereas Shinkle showed predictable confidence, the locals displayed a native skepticism, which held that Maine was different and that Wal-Mart's highly centralized operation -- the Rockland store had its lights and thermostat controlled by a company computer in Oklahoma -- would be a negative in a traditional state like Maine. On top of that, Wal-Mart had brought in a manager from Florida to run its Rockland store.

Despite making a huge investment in Maine, Wal-Mart, locals suspected, had done scant market research. A number of sources claim to have heard as much directly from Wal-Mart officials. One source, Amy Naylor, the planner in Brunswick, recalls a meeting where "they told us they just had a feeling it was going to be right."

Don Shinkle replies that Wal-Mart may move fast, but it moves with care. "You can rest assured that some of the finest marketing and real estate minds in the country work for this company." That may be so, but to what extent were those minds, calling the shots from headquarters in Arkansas, oblivious to nuances in regional markets? When the company built its store in Bangor, it installed electric heat, which, as every homeowner who has endured a Maine winter knows, is about three times more expensive than oil heat in the state. In its first month the Bangor store ran up an electricity bill of $80,000 -- whereupon it ripped out its electric heating system and replaced it with oil.

The Bangor blunder, Wal-Mart's opponents contend, revealed the hubris of a large national corporation that was sure it could roll out its formula to every corner of the country. But would the formula work in Maine? A recent study commissioned by a large local business projects that retail sales in Maine will grow only between 1% and 2% in each of the next 15 years. The state's retail environment has already been honed by years of rigorous discounting in the form of numerous factory-outlet stores coupled with an enduring recession. Says Dave Morse, the publisher of a number of weekly Maine newspapers: "If you've survived in Maine to this point, you know what you're doing. You're not just a shopkeeper, you're a merchant."

Maine is not a wealthy state, and its population is older than the national average. Older people tend to shop on Main Street. Living in the land of L. L. Bean, Mainers know the meaning of value and quality. "These are people who will walk into a store, buy the one thing on sale, and walk out," says Morse. "They shop for value, and they shop hard." Many simply have found Wal-Mart lacking. "Everybody I've talked to has said its inventory is phenomenal and the layout is nice," he says, "but its prices are not always the cheapest, and its quality is not always the best."

What's more, Wal-Mart paid far too much for the Rockland site, asserts John Morris, a local architect and developer who six years ago built a nearby shopping center that now competes with Wal-Mart. Morris notes that Wal-Mart paid $2.3 million for an eight-acre site -- and added another $1 million in improvements. "I know a development group that had an option on the site two years earlier for $800,000 and didn't exercise it," he says. He doubts Wal-Mart will be able to generate enough revenues in Rockland to service its debt and turn an acceptable profit. "If your net margin is 5% and you paid $1 million more for the site than you should have, that means you have to generate another $20 million in sales to compensate."

Morris believes Wal-Mart may have overpaid because it had an inflated view of what the Rockland store could produce. In one meeting with local merchants, the store's manager, Kevin Arnold, let slip that he expected to turn over his inventory, valued at $6 million, five times. Says John Morris, "Anyone who believes that store is going to do $30 million in sales should be put in the loony bin." Another local merchant at that meeting recalls Wal-Mart's speaking confidently of exceeding its projections of $22 million for the store. But that number is well above what the average Wal-Mart store grosses, $18 million, and the Rockland site, jutting out on a fjordlike stretch of sparsely populated land into the sea, seems far from ideal.

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