Why Walmart is closing half of its stores in Chicago [Boss Insurance]

Why Walmart Is Closing Half Of Its Stores In Chicago

New York (CNN) Walmart plans to close half of its stores in Chicago, a reversal of the retail giant’s high-profile 2020 pledge to expand in the city as part of its corporate racial justice initiative in the wake of George’s murder Floyd by the police.

Walmart announced Tuesday that it will close four underperforming stores of the eight it operates in Chicago next week. The locations are in Chicago’s south and west neighborhoods, which are predominantly minority and have long struggled with access to grocery 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 attract Walmart and other chains to underserved areas to spur economic development.

“We’re not going anywhere,” Walmart said in 2020. Now it’s closing four stores in Chicago.

But Walmart said Tuesday that these four stores losing tens of millions of dollars a year and that annual losses have nearly doubled in the past five years. The company said it has tried several strategies to improve stores and 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 those stores will be eligible to move to other Walmart stores and will work with local leaders to help find reuse options for the buildings.

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

The closures draw attention to the recent pullout in major US cities of 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 at Chicago, found in a 2012 study of Walmart’s impact in Chicago that companies closer to Walmart were significantly more likely to close than similar businesses further afield. The study also found that the number of jobs lost by nearby retail competitors essentially offsets the number of jobs created at new Walmart stores.

“Communities around town shouldn’t see Walmart or other big-box retailers as a panacea for local economic problems,” he said.

“An example of what is possible”

In 2020, Walmart temporarily closed its eight stores in Chicago during protests in the city and across the country over the police killing of Floyd. There were concerns that Walmart and other companies would leave Chicago, but Walmart pledged 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.

He also said at the time that Walmart’s Chicago stores were collectively operating 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 “may have to revisit these decisions again” if they don’t work out after a few years, he cautioned, “but that’s not what we’re hoping or planning for.”

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

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

“The unceremonious abandonment of these neighborhoods will create obstacles to basic needs for thousands of residents,” she said. “I call on Walmart to ensure that these soon-to-be-closed stores are repurposed with strong community engagement so they can find new use to serve their neighborhoods.”

Struggles in the cities

Walmart’s move follows years of the company’s attempts to expand into major US 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 faced stiff resistance in New York , Los Angeles, Chicago and other cities from unions and Democratic opponents who feared that non-union Walmart would drive down wages and hurt small businesses.

In 2006, Walmart overcame opposition in Chicago and opened its first store. Then-Chicago Mayor Richard M. Daley paved the way for Walmart by vetoing an ordinance requiring all big-box stores to pay their employees a $10 minimum wage.

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

“This Wal-Mart is a win-win – a winner for the local economy, a winner for local job creation, and a winner for the people of Chicago,” Chicago Mayor Rahm Emanuel said in 2012. , when Walmart opened a store in Chicago. the Chatham district of the city. (This is one of the stores now scheduled to close.)

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

“Chicago city leaders have bent over backwards to bring Walmart to the city,” she said. “What they should have done was support the development of local businesses with a real commitment to the city and its people.”

Walmart is entrenching itself in certain cities. It 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 supercenter model isn’t as well-suited to urban neighborhoods as it is to suburban and rural areas, said Ray Wimer, a retail professor at Syracuse University.

Nor is Walmart the only national chain to have closed stores in major cities. A flagship Whole Foods shut down Monday in San Francisco, citing worker safety concerns. Walgreens and CVS also closed in San Francisco and New York, while Starbucks closed 16 locations in different cities.

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

Additionally, security lockdowns related to the Covid-19 pandemic and the rise of remote working have hurt foot traffic and in-store sales. And the growth of Amazon and same-day delivery has made stores less appealing to city dwellers.