Why is Walmart about to close half of its Chicago stores?

New York () — Walmart plans to close half of its Chicago stores, a move contrary to a commitment the retail giant made in 2020 when it expressed its desire to expand in the city as part of its corporate initiative for racial justice in the wake of the murder of George Floyd at the hands of from the police.

Walmart announced Tuesday that it will close four underperforming stores of the eight it operates in Chicago next week. Locations are in Chicago’s South and West Side neighborhoods. These areas are predominantly inhabited by minorities who have long struggled with access to supermarkets and retail stores.

The announcement comes after Walmart highlighted its efforts in Chicago as a “critical part” of its broader $100 million commitment to advance racial equity in 2020.

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

It also follows more than a decade of intense efforts by Chicago political leaders to lure Walmart and other chains into underserved areas to spur economic development.

But Walmart said Tuesday that these four stores lose tens of millions of dollars a year and that annual losses have nearly doubled in the last five years. The company said it has tried various strategies to improve stores and has invested hundreds of millions of dollars in the city. “Unfortunately, these efforts have not materially improved the fundamental business challenges facing our stores,” Walmart said. in a blog post.

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

Walmart said its four remaining Chicago stores “continue to face the same business difficulties,” but believes that closing these four will give the others the best chance of staying open.

Closures draw attention to the recent setback in major cities in the US by Walmart and other national chains. They also raise questions about the effectiveness of government strategies that rely heavily on national chains to improve access to food and retail in underserved areas.

David Merriman, a professor of public policy, management and analysis at the University of Illinois Chicago, discovered in a 2012 study that businesses closest to Walmart were much more likely to go out of business than similar businesses further away from the retailer. The study on the impact of Walmart in Chicago also found that the number of jobs lost by nearby retail competitors essentially offset the number of jobs created at new Walmart stores.

“City communities should not view Walmart or other large retailers as a panacea for local economic woes,” he said.

‘An example of what is possible’

In 2020, Walmart temporarily closed its eight Chicago stores during protests in the city and across the country over the police killing of Floyd. There were fears that Walmart and other businesses would leave Chicago, but Walmart made a commitment to stay and invest in the city.

Chicago Mayor Lori Lightfoot and Walmart’s McMillon announced in June 2020 that Walmart would reopen its stores and also build two health centers and an employee training academy in Chicago.

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

Also he said at that time that Walmart’s Chicago stores collectively operate at a loss due to a “combination of our sales, product margin and expenses.” He said Walmart would try to cut losses without raising prices or cutting workers’ wages or hours.

Walmart “might have to review these decisions again” if they don’t work out after a few years, he warned, “but that’s not what we hope or plan for.”

One year later, McMillon 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 reach its potential.”

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

“Roughly abandoning these neighborhoods will create barriers to the basic needs of thousands of residents,” he said. “I am asking Walmart to ensure that these soon-to-be-closing stores are repurposed with meaningful community involvement so they can find a new use to serve their neighborhoods.”

His fight in the city

Walmart’s move follows years of attempts by the company to move into America’s big cities.

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

In 2006, Walmart overcame opposition in Chicago and opened its first store. Chicago’s mayor at the time, Richard M. Daley, paved the way for Walmart by vetoing an ordinance that required all big box stores to pay their employees a $10 minimum wage.

Other Chicago leaders saw the addition of Walmart and national chains as a way to boost the economy and provide access to fresh food in the predominantly black area of ​​Chicago’s South Side.

“This Wal-Mart is a win-win-win: a win for the local economy, a win for local job creation, and a win for Chicagoans,” then-Chicago Mayor Rahm Emanuel said in 2012. when Walmart opened a store in the city’s Chatham neighborhood. (It’s one of the stores now scheduled to close.)

But this strategy was misplaced, said Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, a research and advocacy organization challenging economic concentration. She believes the city should have done more to support small supermarkets that have been squeezed by big chains.

“Chicago city leaders did everything they could to bring Walmart to the city,” he said. “What they should have been doing was supporting the development of local businesses with a real commitment to the city and its residents.”

Walmart’s presence is shrinking in some cities. It has also closed stores in Portland, Oregon, recently.

The benefits of Walmart’s ability to cut costs and keep prices low have proven less effective in cities. Walmart’s typical 180,000-square-foot (17,000-square-foot) supercenter model isn’t as well-suited for urban neighborhoods as it is for suburban and rural areas, said Ray Wimer, a professor of retail practice at Syracuse University.

Walmart isn’t the only national chain to close stores in major cities, either. A Whole Foods flagship store closed in San Francisco on Monday, citing concerns about worker safety. Walgreens and CVS also closed in San Francisco and New York, while Starbucks closed 16 locations in various cities.

These retailers face several challenges in the cities. Urban locations have higher rents, which means they need to hit higher sales targets to break even, Wimer told . Some retailers have also cited higher levels of theft and other crime at stores in their city.

In addition, the restrictions due to the covid-19 pandemic and the increase in remote work have affected foot traffic and sales to stores. And the growth of Amazon and same-day delivery has made going to the stores less appealing to urban residents.