Monday, June 27, 2005

The inexorable corruption of simplicity.

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Upscale Tastes Invade Wal-Mart's Hometown
Migration of High-Priced Executives Transforms Arkansas County
By Michael Barbaro
Washington Post Staff Writer
Monday, June 27, 2005; A01


BENTONVILLE, Ark. -- Wal-Mart's folksy, baseball cap-wearing founder, Sam Walton, so despised public displays of wealth that, after his death in 1992, the billionaire's heirs decided to enshrine his prized possession, a battered Ford pickup, behind a simple storefront on the town square here.

But Walton's spirit of restraint is harder to find next door to the museum at Fusion, a new fine-arts gallery that sells $2,500 abstract paintings and $1,200 urns. Or at the nearby Landers Hummer dealership, crowded with $62,000 sport-utility trucks. Or inside Shadow Valley, a gated community where four-bedroom houses fetch $1 million.

The hard-nosed retailing tactics of Wal-Mart Stores Inc. have transformed communities across the country, but none more so than the one in its own back yard. Benton County, once a sedate backwater, is quickly morphing into a swanky oasis in the middle of the Ozarks.

Wal-Mart's unchallenged dominance in American retailing--it now sells about 30 percent of many household consumables--has persuaded scores of suppliers to open satellite offices around its headquarters to ensure their products remain on the chain's coveted shelves.

The result is an unprecedented migration of high-paid executives to the northwest corner of Arkansas -- professionals from amenity-rich cities like New York, San Francisco, Atlanta and Miami, who bring not only their six-figure salaries, but an appetite for Jaguars, sushi, pet day-care centers, Gucci shoes and Chanel sunglasses.

Every week or so a new retailer, restaurant or spa sprouts up amid the cow patches here to satisfy their every need and, seemingly overnight, a county synonymous with a purveyor of cheap socks, dolls and televisions is earning a reputation for something altogether different: luxurious living.

Until recently, being dispatched to a supplier's Wal-Mart office was a dreaded assignment -- two years of eating at a nearby Applebee's and shopping at, well, Wal-Mart. "Nobody wanted to do it," said Ron Johnson, who runs the Wal-Mart office for Walt Disney Co.'s consumer products division. "That's not a problem anymore. So much has changed."

Wal-Mart has produced a fair share of millionaires, but Walton's rigid code of humility -- even top executives stay at a Holiday Inn when traveling on the company dime -- remains deeply ingrained in the company's culture, discouraging conspicuous consumption.

Wal-Mart's suppliers, however, honor no such vow of modesty.

In Rogers, just north of Bentonville, nattily dressed executives from Kellogg Co. and Colgate-Palmolive Co. sip lattes and lunch on cold Thai salmon at the Market, a gourmet grocery store that offers sushi-making lessons. Up the street, at Murphy's Jewelry, the latest Versace fashion show flickers on a flat-panel television and $100,000 necklaces glimmer from behind a glass case.

Jeff Collins, an economist the University of Arkansas's Sam Walton School of Business, said the thousands of suppliers who have moved to the region are "trying to recreate the world they knew back home, wherever that was, and they have the money to do it."

From 1990 to 2000, Benton County's population jumped 57 percent, to 153,406 from 97,499, while the average household income rose to $40,281 from $26,021, according to census data.

Wal-Mart is not the only company cranking out wealth in northwest Arkansas. J.B. Hunt Transport Inc., the trucking company, and Tyson Foods Inc., both major employers, are based here. But neither has the global reach or supplier network of Wal-Mart. "Around here, Wal-Mart is the catalyst," said Bill W. Schwyhart, a partner at Pinnacle Group, which is developing a $200 million upscale shopping center near Wal-Mart's headquarters.

And by Wal-Mart, Schwyhart means its vendors.

In nondescript office parks that have cropped up across the region, the biggest names in consumer goods--Procter & Gamble, Gillette Co., Nestle and PepsiCo Inc.--are packed in cheek-by-jowl with tiny manufacturers such as Dolly Inc., a children's clothing firm, and cigar-maker Swisher International Inc.

No one knows the exact number of suppliers who have opened shop near Wal-Mart, but local officials put the number at 2,000, and predict the figure could eventually double.

The phenomenon began in 1989 after Procter & Gamble, Wal-Mart's largest supplier, opened a 10-person office in Fayetteville, Bentonville's neighbor to the south. Today, P&G's Wal-Mart staff has ballooned to 200.

There are now 20 office parks dedicated to Wal-Mart vendors. Disney, for example, shares a building with Vivendi-Universal, Welch Food Inc. and Sargento Foods Inc. Signs on the office doors read "Wal-Mart-support unit" or "Team Wal-Mart" and, inside, the walls are covered with photos of and quotes from Sam Walton, a tribute designed to catch the attention of visiting Wal-Mart executives more than the supplier's staff.

A long-running debate rages about whether Wal-Mart encourages its suppliers to operate in the area -- Wal-Mart says it takes no position on the issue -- but no one underestimates the importance of being in town. Suppliers who live and work near Wal-Mart's headquarters can schedule last-minute meetings with buyers, hand-deliver samples of their latest products at all hours and, most importantly, cultivate strong personal ties with company executives.

A decade ago, Wal-Mart's suppliers flew into town for a round of meetings with buyers and returned home to Cincinnati, Houston or Boston at the end of the day. Now suppliers and buyers live on the same street, attend the same churches and coach the same little league teams.

"Suppliers know that if they don't have a presence here, their competitors will," said Chuck Sharpe, whose company, C. Sharpe Real Estate Group, owns eight Bentonville office parks occupied by Wal-Mart vendors. "They can't afford that."

Once here, suppliers demand the life they left behind--and, if they cannot find it, they build it. Lou McCleese, a logistics expert for Johnson & Johnson's Wal-Mart office, plowed her savings into Fusion, the art gallery and supply store in downtown Bentonville.

When Phyllis Charette, the wife of a Johnson & Johnson executive, could not find the kind of upscale women's apparel store required to fill out her wardrobe, she started her own, calling it All About Her.

Across the street from Wal-Mart's headquarters, several out-of-town Jewish suppliers have converted a three-room office into a prayer space, available whenever they come through town. A basket of yarmulkes sits on a conference table and copies of the Old Testament line a bookcase.

A new synagogue, Benton County's first, recently opened with 37 families, a large number of them transplants dispatched to Bentonville by a Wal-Mart supplier.

As suppliers move in, their spending power is transforming the lives of those with no connection to Wal-Mart.

Catherine Holmes, 31, bought a hair salon in 1997 that employed 12, most of them earning about $25,000 a year. As more suppliers arrived, she moved closer to an office park filled with executives from Eastman Kodak Co. and Kraft Foods Inc. and began offering exotic facial scrubs, massages and therapeutic baths.

Now she has a staff of 50, several of whom earn $100,000 a year. "Half of my clients are vendors," said Holmes, the daughter of a Wal-Mart employee who drives a $50,000 Cadillac Escalade. "They are a totally different customer than what we were used to."

But not everyone is overjoyed by the influx of high-rollers. Rising housing prices have cost long-time Bentonville residents hundreds of dollars in higher property taxes. "We used to have moderately priced homes here," said John Rickert, who has lived in Bentonville for 41 years. "Now it's all exclusive, planned developments."

At the same time, gentrification is creating some powerful--and, to some local residents, troubling--juxtapositions. In Bentonville, a Golf Headquarters shop that uses high-tech computers to analyze a player's swing opened next to the U.S. Army recruitment center. Nearby, a contemporary furniture store selling pink leather club chairs opened across the street from a pawn shop.

"Everything is higher-end now," said Rickert, who manages a cafe in downtown Bentonville.

Some residents are scrambling to slow the explosion of new housing and retail complexes that are gobbling up farm land and clogging traffic. But most are just watching quietly from the sidelines, with a mix of frustration and wonder, as the little-known rural community that Sam Walton picked to start his company four decades ago grows into a bustling global capital of retail.

"People are tired of sitting in traffic, tired of waiting in line for dinner at their favorite restaurant, tired of change, really," economist Collins said. "But Wal-Mart isn't going anywhere. You cannot put this genie back in the bottle."


Staff researcher Richard Drezen contributed to this report.

© 2005 The Washington Post Company

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