Shakeout looms for discount retailers as L.A. awaits Wal-Mart.

Shakeout looms for discount retailers as L.A. awaits Wal-Mart

Discount retailing in Los Angeles could be in for a major shake-up: Wal-Mart Corp., the $20.6 billion discount retailer that leads the nation in sales per store, will open its first Los Angeles County outlet in Lancaster this summer.

The first of at least 14 stores planned for California by the end of 1991, the Lancaster store is the beginning of a Wal-Mart incursion that could "re-arrange the deck chairs" in the county's discount retail business, says Jack Kyser, chief economist of the Los Angeles Area Chamber of Commerce.

"Wal-Mart is one of the magical retailers that has done just about everything right for years now. It will definitely turn up the competition. Smaller retail shops, mom-and-pops and competing chains will all be under pressure. Anytime a giant comes into a market, it re-arranges the deck chairs," Kyser said.

All of this competition would be played against a backdrop of lackluster sales. For 1990, Kyser predicted a 5.5 percent growth in retail sales, to about $53 billion, for Los Angeles County. He said that retail sales could increase at a slightly better pace in 1991, but only if the Federal Reserve Board eases interest rates to spark a slight surge. Beyond 1991, the situation looks bleaker, with only slight and "hard-fought" increases anticipated.

"It is going to be slow going throughout the 1990s, a tough time for retailers in general," Kyser said. "Discount retailers will be forced to make adjustments. We could see a blurring of the lines between discount and close-out retailers, for example. And any increase in sales will be hard-fought."

Despite the predictions of decreasing growth, Wal-Mart is entering the No. 1 retail market and the hottest retail hot-bed in the United States.

"Discount retailers look at projected population growth in the already rich Los Angeles market, and its changing ethnicity, and have come to one conclusion: it is essential to develop a presence here," said Kyser, explaining the plethora of discount retailers in the Southland. "Discount retailing could shape up to be a bitter battle for consumer loyalty in the 1990s."

Last fall, rumors that the Arkansas-based Wal-Mart Corp. planned an aggressive California expansion made the rounds on Wall Street.

According to those rumors, Wal-mart reportedly plans to build more than 200 stores in California by 1995. Los Angeles and Sacramento have been cited by Wall Street analysts as Wal-Mart's primary targets in its California thrust. Wal-Mart has refused to confirm or deny the expansion rumors.

"With the announced stores, it is safe to say that we could be scouting for other locations in California and Los Angeles," a Wal-Mart spokesman said.

"The Lancaster store will be the first to open this summer. But we have no comment on any of our other Los Angeles County or California plans."

Wal-Mart's expansion into Los Angeles County will heighten competition in the already competitive discount retail market, said John r. Golisch, a partner in the Los Angeles office of Arthur Andersen & Co. He said that any significant inroads by Wal-Mart will force the competing discount retailers to cut their prices, reducing margins and room for error. Golisch said that "a consolidation of stores" could occur within the next five years, with the weaker chains forced out by the strengthening competition.

"There won't be any room for stubbing your toe in discount retailing," he said.

Thomas H. Tashjian, a retail analyst with Los Angeles-based Seidler Amdec Securities Inc., said Wal-Mart has altered its marketing approach for its California stores. Typically, the chain's massive stores have carved out dramatic sales by offering bargain-basement prices in everything from toothpaste to exercise bicycles. In many regions, it has wiped out the competition, outpricing small pharmacies and mid-sized discounters through sheer sales volume. Attention to clever merchandising has never been the emphasis at Wal-Mart. But that will change at the California Wal-Marts, Tashjian said.

"The stores will be more fashion oriented," he said. "Wal-Mart is taking steps to be more attuned to California style. They will be stocking a higher end of apparel in the California stores. They've come to the market knowing that what sells in Oklahoma may not appeal to Californians or fit into their lifestyles."

As for the competition, Tashjian agreed that it could spark a markdown war among the discount retailers.

"K mart, Target, Pic 'N' Save and SavOn all have big stakes in the county," he said. ` Wal-Mart is a price-aggressive competitor. In other parts of the country, K mart has already cut its prices to deal with Wal-Mart. That is likely to also happen here."

Troy, Mich.-based K mart is gearing up for Wal-Mart's entry in the crucial California market. K mart has 170 stores in California, employing about 24,000 people in the state. One of its strongholds is Los Angeles County, according to a company spokesman. K mart has about 30 stores in the county and more than half of its California stores in the Los Angeles basin. It, too, has plans to expand in the area, with a new slated for Compton this year, as well as an expansion of its Third-Street store. Additional projects are planned for 1991 and 1992 in Los Angeles, according to a company spokesman, and the $27.3 billion chain is indeed tuning up its price-slashing competitiveness.

"We made a strategic decision to lower prices on about 5,000 items," said Orren F. Kanuer, director of investor relations at K mart. "We have accelerated our plans to lower prices. We are making sure that all of our stores are price competitive. We are committed not to be undersold on health and beauty, household detergents, automotive parts and all of those basic items that people keep coming back for. To that extent, you could say that we are in a price-aggressive mode."

With 100 stores in Southern California, Target Stores could be most affected by Wal-Mart's emphasis on clothing in California. A division of Dayton-Hudson Corp., Target has locked on to apparel as its niche in the discount retailing business, analysts said.

"They've made their mark in apparel and as a discounter with an upscale image," Kyser said. "You wouldn't be ashamed to say you bought your clothes at Target. Their image of having good quality and value will help them weather the 1990s. But they will be challenged by Wal-Mart."