Wednesday, June 20, 2007
Checking Out Wal-Mart's Urban Expansion
Wal-Mart Stores Inc. is pretty good at making enemies.
This week, the "Big Box" chain announced it's going toe-to-toe with the nation's check-cashing industry. The superstore is dramatically expanding its Wal-Mart MoneyCenters to 1,000 outlets by 2008 from the current 225 venues. It's also going to offer a debit card from Visa.
Why is Wal-Mart picking this fight?
Of course, it sees an opportunity to make a buck. But on top of that, this battle may help Wal-Mart achieve its plan of beating a path into more urban areas, including many Chicago neighborhoods where its expansion has been opposed by community groups, unions and local politicians.
In the Chicago area, check-cashers are known as currency exchanges. They market themselves as the "poor man's bank" because they operate primarily from small storefronts in neighborhoods that no longer have a community bank, branch or even an ATM.
The currency exchanges (there's about 400) charge hefty fees for providing basic financial services, including: cashing state welfare checks (which some currency exchanges actually distribute to the recipients), cashing payroll checks, making money transfers and selling money orders. You can also use them to pay utility and cable TV bills.
The kissing cousins to the currency exchanges are payday loan and car title lenders, which are often owned and operated by currency exchange proprietors or their relatives.
Usually there's a huge outcry when Wal-Mart targets an industry like check-cashers, which is dominated by small chains and independent owners. But that's not likely to happen this time. In the Chicago market, the currency exchanges have long been viewed with suspicion and contempt from community activists and church groups, which cringe at the high fees charged to cash checks
Critics contend those charges outstrip the risk the currency exchanges are bearing. State public aid checks aren't likely to bounce, nor are payroll checks, they say. Among the industry's harshest critics is Lieutenant Gov. Pat Quinn, who has been dueling with them since he was state treasurer back in the 1990s, and has pressed banks and credit unions to help inner-city residents become less dependant on check-cashers.
Considering all this bad blood, Wal-Mart has an opportunity to score some important points with community leaders, who still are smarting from Mayor Daley's veto of a "Big Box" ordinance that would have forced large city-based retailers to pay employees a so-called living wage of at least $10 an hour with $3 an hour worth of benefits by 2010.
With the MoneyCenter expansion, Wal-Mart can make the case that it's providing neighborhood residents with an alternative to predatory check-cashing practices. What's more, Wal-Mart is offering these essential financial services in a safe and bustling retail environment, rather than from a small storefront in a strip mall.
(Currency exchanges are built with bullet-proof glass cages, cast-iron walls and floors designed to keep thugs out and workers safe.)
Wal-Mart's reputation for providing "everyday low prices" would likely mean undercutting the fees now charged by currency exchanges. Wal-Mart may even provide some services at cost, or even as a loss-leader, in order to lure more neighborhood residents to its stores.
Indeed, Wal-Mart notes that last year it handled nearly two million check cashing, bill payment and money transfers at its MoneyCenter outlets. Most people using these services are immigrants sending cash out of the country to their families, the company said.
Don't underestimate the need for affordable financial services within the city's working-class enclaves. Having to repeatedly pay over one percent of a pubic aid or payroll check's face value can really take a chunk out of a poor family's budget.
I'm not saying that offering affordable financial services totally overrides concerns that Wal-Mart is under-paying local workers and not proving ample benefits. Nor do I believe that Wal-Mart is getting into check-cashing out of the goodness of its corporate heart (the chain is dying to get into full-service banking and this may just be the start!)
But using Wal-Mart's size and scope to provide relief to local currency exchange users is something critics and decision-makers should concede is a greater good.
Who knows? If Wal-Mart is offering these services, what's to stop Target Corp. and other Big Box retailers from doing variations of the same? Already food chains and liquor stores cash checks.
All of a sudden, you could see some real competition for the check cashing and wire transfer business, not only in Chicago but throughout the country.
As for Chicago's currency exchanges?
I suspect they'll rev up their significant lobbying efforts in Springfield, and Chicago, and try to blunt Wal-Mart's expansion into their backyard. I'm not sure how they'll make their case but don't sell their clout short.
This contest has all the trappings of a "David vs. Goliath" battle. But this time, it's okay to root for the big guy.