Walmart expanding: The big guys come to town

Each day on his drive home, Keith Lovell gets a quick glimpse of what is about to become his newest competitor.

Wal-Mart is building a new store alongside Interstate 5 in Lacey, Thurston County, about a mile from Lovell's paint store on Martin Way East. Lovell, whose NorthWest Paint & Supply opened its doors just two months ago, speaks almost stoically about Wal-Mart's arrival.

"They're the world's largest retailer, and they're not going to get any smaller," Lovell said. "There's not a heck of a lot I can do from my little store that is going to change what they do.

"As long as I keep my eye on the ball and do what I do very well, that gives me the best opportunity to build a good business."

More Western Washington retailers like Lovell are grappling with the prospect of competing with Wal-Mart. When it first came to Washington in 1993, the Arkansas-based über-retailer opened most of its stores in the central and eastern parts of the state. But the company is steadily creeping its way west of the Cascades, coming closer to the state's urban centers.

Only 35 of Wal-Mart's 3,300-plus U.S. stores are in Washington, but the company is working to deepen its footprint in the state, especially in the Puget Sound region. Stores are under construction in Lacey and Bonney Lake, Pierce County, and applications are pending for three others in Covington, Lacey and Lakewood, Pierce County. And company officials say they're targeting the state's I-5 corridor for even more expansion.

Amy Hill, Wal-Mart's community-affairs manager for the West region, said the company's methodical expansion strategy first focused on the South and Midwest, then the Northeast, then the Rocky Mountain region and the Southwest. Now, Wal-Mart is beefing up its presence on the West Coast and is zeroing in on Western Washington.

"Retail follows growth; we build where the people are," Hill said. "There's been a lot of growth in the Northwest market and Washington, particularly Western Washington, in the last decade.

"We entered Washington state in 1993 with a boom of stores. We're kind of going through that wave again."

Bob Buchanan, retail analyst for A.G. Edwards & Sons, said Wal-Mart has ample room to grow in Washington and neighboring states.

"Definitely the West Coast is a major push for them right now — not only the Northwest, but also California," Buchanan said. "It's one of the few markets where they're under-penetrated."

To bolster its growing business in the Northwest, Wal-Mart will open a huge food-distribution center next year in Grandview, near Yakima. The new center will help support more grocery-selling Supercenters, Wal-Mart's major growth segment. The company is converting nine Washington Wal-Marts into Supercenters this year, and the store in Lakewood also could expand into a Supercenter.

The company's aggressive foray into groceries, coupled with the Grandview distribution center, could present a formidable challenge to the region's grocery stores in coming years. Wal-Mart is looking to wrestle a chunk of Western Washington's grocery market away from such chains as Safeway, Albertson's and QFC and from independent grocers.

"I'm anxious to see how Wal-Mart does when it steps into a market that has been highly innovative and competitive," said Doug Henken, president of the Washington Food Industry, an Olympia-based lobbying group. "This is one of the markets in the country where there's been a good mix of independent operators and chain stores. ... I think our market is going to be a good test for Wal-Mart because the consumers are pretty savvy in this market."

Wal-Mart's designs on Western Washington also carry implications for the region's dominant general-merchandise retailers, which include Fred Meyer, Target and Kmart. Buchanan said the struggles of Kmart — which recently decided to close six stores in Washington — can only help Wal-Mart as it opens more stores here. And even in areas served by big-box stores, Buchanan said, Wal-Mart's reputation for having low prices still will draw shoppers.

For all its planned expansion, Wal-Mart conspicuously hasn't announced plans to add more warehouse clubs in the state. It runs just two Sam's Club stores in Washington, both in the Seattle-Tacoma area.

Is Wal-Mart shying away from building Sam's Clubs in the Puget Sound region because it's the back yard of Costco, the Issaquah-based warehouse industry leader? Hill dismissed that idea, saying Wal-Mart isn't daunted by Costco's hold on the local warehouse-club market and may well add more Sam's Clubs.

"Competition makes us all better," Hill said. "Our best-performing Sam's Clubs are near Costcos, and our best Supercenters are near Big K's."

Wal-Mart's impact on mom-and-pop businesses has been debated endlessly in retail circles. In 1997, an economics professor at Iowa State University found that some small towns in Iowa had lost as much as 47 percent of their retail sales 10 years after Wal-Mart opened nearby. But the company says its stores are a regional draw, bringing customers who also shop elsewhere in town.

Robert Spector, a Seattle retail expert and author, said that whenever Wal-Mart opens a store, neighboring small businesses should resist the urge to cut prices and instead focus on providing something customers can't find anywhere else.

"Their systems are legendary, and if anybody tries to go up against Wal-Mart in a price game, Wal-Mart will always win that game," Spector said. "The challenge for other retailers is to present a reason for their customers to keep shopping at their stores."

For Lovell, the paint-store owner, that reason is emblazoned on his business card: "Quality makes the difference."

Lovell has faced the big-box threat before. Before opening his store in Lacey, he ran paint shops with his father and brother in Poulsbo, Sequim and Port Townsend. The Lovells saw giants such as Wal-Mart, Home Depot and Eagle Hardware open in nearby Bremerton and Silverdale, but they still managed to keep sales rising.

Once the Wal-Mart in Lacey opens in October, Lovell said he'll continue to rely on top-notch customer service and his technical expertise on the premium paints he offers.

"I'm sure it'll be a pinch for a while — it'll take some business," he said. "But I don't know if they'll hold their business. Everyone's got to try the new guy.

"I don't sell on price, I sell on quality. I'm not going to sell the least expensive anything in town, but I'm going to sell the best."

Jake Batsell: 206-464-2718 or jbatsell@seattletimes.com