Why is Walmart closing half of its Chicago stores?

New York
CNN
–

Walmart plans to close Half of its stores are in Chicago, a reflection of the high-profile retail giant’s commitment in 2020 to expand into the city as part of the corporate’s racial justice initiative in the wake of the police killing of George Floyd.

Wal-Mart announced Tuesday that it will close four underperforming stores of the eight stores it operates in Chicago next week. Three of those locations are located in Chicago’s South and West Side neighborhoods, which are mostly in the minority and have long struggled with access to grocery and retail stores. One store located on Chicago’s North Side is predominantly white and richer.

The announcement comes after Walmart highlighted its efforts in Chicago as an “important part” of its broader $100 million pledge to advance racial equality in 2020.

“Chicago will be an example of what is possible when we leverage business, government, and community organizations for the benefit of all,” said Doug McMillon, CEO of Wal-Mart in 2021.

It also comes after more than a decade of intense efforts by political leaders in Chicago to lure Wal-Mart and other chains into disadvantaged areas to stimulate economic development.

But Wal-Mart said Tuesday that these four stores You lose tens of millions of dollars annually and annual losses have nearly doubled in the past five years. The company said it has tried several strategies to improve the stores and has invested hundreds of millions of dollars in the city. Wal-Mart said in a blog post.

The company said workers at these stores will be eligible to switch to other Walmart stores and will work with local leaders to help find reuse options for the buildings.

Walmart said its four remaining Chicago stores “continue to experience the same business difficulties,” but it believes closing those four stores will give others the best chance of remaining open.

The closures have drawn attention to the recent downturn in major US cities by Walmart and other national chains. It also raises questions about the effectiveness of government strategies that rely closely on national chains to improve access to food and retail in underprivileged areas.

David Merriman, professor of public policy, management, and analytics at the University of Illinois Chicago, found in A 2012 study An effect of Walmart in Chicago is that businesses closer to Walmart were more likely to close than similar businesses further away. The study also found that the number of jobs lost by nearby retail competitors mainly offset the number of jobs created in new Wal-Mart stores.

“Communities across the city should not see Wal-Mart or other large retailers as a panacea for local economic problems,” he said.

In 2020, Walmart temporarily closed all eight of its Chicago stores during protests in the city and across the country over the killing of Floyd by police. There were concerns that Wal-Mart and other companies would leave Chicago, but Wal-Mart vowed to stay and invest in the city.

Chicago Mayor Lori Lightfoot Walmart McMillon announce In June 2020, Walmart will reopen its stores and also build two wellness centers and an employee training academy in Chicago.

“Walmart’s commitment to Chicago remains strong. We’re not going anywhere,” McMillon said.

he is too He said At the time Walmart stores in Chicago collectively are operating at a loss due to “a combination of our sales, product margin and expenses.” He said Wal-Mart would try to minimize losses without raising prices or cutting workers’ wages or hours.

Wal-Mart “may have to reconsider those decisions again” if they don’t work after a few years, he warned Wal-Mart, “but that’s not what we’re hoping or planning for.”

A year later, McMillon He said “Walmart wants to serve the people of this great city, build a successful business and work with those who are determined to see Chicago fulfill its potential.”

In a statement released Tuesday, Lightfoot said it was “incredibly disappointed that Walmart, a strong partner in the past,” was closing stores.

“The unofficial abandonment of these neighborhoods will create barriers to the basic needs of thousands of residents,” she said. “I’m calling on Walmart to ensure these soon-to-be-closed stores are redirected with significant community engagement so they can find a new use for serving their neighborhoods.”

Wal-Mart’s decision comes after years of attempts by the company to move into major US cities.

Wal-Mart expanded into rural and suburban areas during the 1980s and 1990s and began trying to enter cities in the early 2000s. But the company met stiff resistance in New York, Los Angeles, Chicago and other cities from unions and Democratic opponents who worried that a non-union Wal-Mart would cut wages and hurt small businesses.

In 2006, Wal-Mart overcame opposition in Chicago and opened its first store. The mayor of Chicago at the time, Richard M. Daley, paved the way for Wal-Mart by vetoing an ordinance that required all large stores to pay their employees a minimum wage of $10.

Other Chicago leaders saw bringing in Wal-Mart and the national chains as a way to boost the economy and provide access to fresh food in Chicago’s black South Side.

Rahm Emanuel, then-mayor of Chicago, said in 2012 when Wal-Mart opened a store in the city’s Chatham neighborhood. (It’s one of the stores slated to close now).

That strategy was misplaced, said Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, a research and advocacy organization that challenges the economic focus. She believes the city should have made stronger efforts to support smaller grocers who are being squeezed out by the big chain stores.

“Chicago’s city leaders bent over backwards to lure Wal-Mart into town,” she said. “What they should have done is support the development of local businesses with a real commitment to the city and its people.”

Wal-Mart is falling behind in some cities. Stores in Portland, Oregon, also closed recently.

The benefits of Walmart’s ability to cut costs and keep prices low have proven less effective in cities. The typical 180,000-square-foot Wal-Mart mall isn’t as well-suited for urban neighborhoods as it is for suburban and rural areas, said Ray Weimer, a professor of retail practice at Syracuse University.

Wal-Mart is also not the only national chain that has closed stores in major cities. San Francisco’s flagship Whole Foods closed Monday, citing worker safety concerns. Walgreens and CVS are also closed in San Francisco and New York, while Starbucks has closed 16 locations across various cities.

These retailers face many challenges in cities. Urban locations carry higher rents, Weimer told CNN, which means they need to hit higher sales targets to break even. Some retailers also reported higher levels of theft and other crimes in their stores in their city.

In addition, the Covid-19 pandemic safety shutdown and the advent of remote work have hurt foot traffic and in-store sales. And the growth of Amazon and same-day delivery has made going to stores less attractive to urbanites.

Correction: An earlier version of this story incorrectly located a closed Walmart location.