Minority Report: Walmart’s Failed Attempt to Drive Supplier Diversity in Urban Store Construction

I wrote a Friday Rant a while ago about Walmart's attempted expansion into urban Chicago (and specifically how they should stay out of my neighborhood). Plans are on hold for a Lakeview store at the moment -- we especially thank the local Alderman and all the businesses that gave to his re-election campaign for making this happen -- but the big box juggernaut did recently open a branch in the Austin neighborhood. However, as one might expect, Walmart did encounter a fair share of problems as it headed to an urban area of the Longhorn state, especially in terms of minority and woman-owned suppliers and contractors.

A Crain's Chicago Business article highlights one of the quiet growing pains of Walmart's new urban endeavor -- coming in at almost twice the budget and taking more than twice the allotted time to complete construction thanks to set-sides for diversity contractors. Yet not everyone benefited from the company's diversity program -- including diversity suppliers themselves. As Crain's suggests, we see that "as Walmart revs up for a store-building spree in Chicago, a look into its first construction project in the city shows the benefits to minority contractors didn't match the hype."

According to the article (sorry, it's in print only, so no links!), Walmart hired Margaret Garner, owner of construction company Broadway Consolidated in 2005 as the "first black woman contractor to build one of its stores," and she was "hailed as a symbol of the benefits local businesses and minority communities would reap from the retail giant's push into Chicago." Six years later, her company is bankrupt, and most of the work on the project actually went to non-minority firms.

Part of the reason the project was even able to go forward at all was because "Walmart's pitch to city leaders emphasized not just the jobs the store would create, but also the opportunities for minority contractors to help build it" and that "to crack city markets like Chicago, it needed to present a more multicultural image." What ended up happening, however, is that several of the minority subcontractors hired by Ms. Garner ended up "farming out substantial work to a non-minority company," and while 57% of contracts went to minority or woman-owned firms (which far exceeds the city requirement of 24%), no records of the total hires could be found, and several people interviewed expressed concern at the lack of actual verifications in this area.

Finding the firms in the first place may have been the ultimate problem -- "There are only a handful of big, minority owned general contractors in Chicago" and "A study commissioned by the city in 2009 found that minority-owned firms account for 13.3% of the industry, while women-owned firms account for 11.8%." Building in a city with such strict requirements as Chicago is risky business, as is working with a super-corporation with rigid standards like Walmart. General contractors must have high-level executive and political contacts as well as connections to "subcontractors, unions, and tradesmen." Plus, "they often have to take out surety bonds, which work like personal guarantees, for the entire amount of the project." As this project went $10 million over budget, "contractors filed liens for unpaid claims totaling $4.4 million...most were paid eventually, although some accepted lesser amounts."

Was Garner's firm the right choice for the job? Obviously not, as the results show. Was it because it was a minority owned firm? Absolutely not -- Broadway Consolidated simply lacked the experience of working with large-scale companies like Walmart, and it showed. All firms should obviously make an effort to include woman and minority owned firms in their sourcing operations, but should also play to the strengths of a firm based on its long-term proven performance and how it will drive results, not on who owns it. Walmart will now require "general contractors on all future projects to use an online system that tracks the amount of work done by minority and women owned firms." We'll see how the new sites in Chatham and the West Loop go, I suppose.

- Sheena Moore

Share on Procurious

Discuss this:

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.