Why Walmart is closing half its stores in Chicago

CNN

By Nathaniel Meyersohn, CNN

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

Walmart announced Tuesday that next week it will close four poor-performing stores out of the eight it operates in Chicago. Three of the locations are located in Chicago’s South and West Side neighborhoods, which are predominantly minority and have long struggled with grocery and retail access. One of the stores is in Chicago’s North Side, which is predominantly White and more affluent.

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

“Chicago will be an example of what’s 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 draw Walmart and other chains to 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 tried several strategies to improve the stores and invested hundreds of millions of dollars in the city. “Unfortunately, these efforts have not materially improved the fundamental business challenges our stores are facing,” Walmart said in a blog post.

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

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

The closures call attention to the recent pullback in major US cities by Walmart and other national chains. They also raise questions about the effectiveness of government strategies that closely rely on national chains to improve food and retail access in underserved areas.

David Merriman, a professor of public policy, management and analytics at the University of Illinois Chicago, found in a 2012 study of Walmart’s impact in Chicago that businesses closer to Walmart were significantly more likely to close than similar businesses farther away. The study also found that the number of jobs lost by nearby retail competitors essentially offset the number of jobs created at the new Walmart stores.

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

‘An example of what’s possible’

In 2020, Walmart temporarily closed all eight of its stores in Chicago during protests in the city and across the country over Floyd’s murder by police. There were fears that Walmart and other businesses 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 a training academy for employees in Chicago.

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

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

Walmart “may have to revisit these decisions again” if they weren’t working after a few years, he cautioned, “but that’s not what we hope for or plan on.”

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 determined to see Chicago fulfill its potential.”

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

“Unceremoniously abandoning these neighborhoods will create barriers 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 significant community engagement so they can find a new use to serve their neighborhoods.”

Struggles in cities

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

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

In 2006, Walmart overcame opposition in Chicago and opened its first store. Chicago’s mayor at that time, 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 bringing in Walmart and national chains as a way to boost the economy and provide access to fresh food in Chicago’s predominantly Black South Side area.

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

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

“Chicago city leaders bent over backwards to lure Walmart to the city,” she 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 is retrenching in some cities. It has also closed stores in Portland, Oregon, recently.

The benefits of Walmart’s ability to drive down costs and keep prices low have proven less effective in cities. Walmart’s typical 180,000 square-foot supercenter model is not 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 is also not the only national chain that has closed stores in major cities. A Whole Foods flagship closed in San Francisco on Monday, citing concerns about worker safety. Walgreens and CVS have also closed in San Francisco and New York, while Starbucks closed 16 locations across various cities.

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

In addition, Covid-19 pandemic safety lockdowns and the rise of remote work have hurt foot traffic and sales to stores. And the growth of Amazon and same-day delivery has made going to stores less appealing for urban residents.

Correction: A previous version of this story incorrectly identified the location of one of Walmart’s shuttered locations.

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