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

New York (CNN) – Walmart plans to close half of its stores in Chicago, in a move that contradicts a commitment the retail giant made in 2020 when it expressed interest in expanding into the city as part of a corporate racial justice initiative in the wake of the killing of George Floyd at the hands of police.

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

The announcement comes after Walmart highlighted its efforts in Chicago as an “important part” of its broader $100 million commitment to promoting 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 those four stores lose tens of millions of dollars annually and that annual losses have nearly doubled in the past five years. The company said it has tried various strategies to improve the stores and has invested hundreds of millions of dollars in the city. “Unfortunately, these efforts have not materially improved the core business challenges facing our stores,” Walmart said. in a blog post.

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

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.

Closing draw attention to Recent setback in major cities in the United States by Wal-Mart and other national chains. It also raises questions about the effectiveness of government strategies that rely heavily on national chains to improve access to food and retail in underprivileged areas.

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

“City communities should not view Wal-Mart or other major retailers as a panacea for the problems of the local economy,” 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 concerns that Walmart and other businesses would leave Chicago, but Walmart vowed to stay and invest in the city.

Chicago Mayor Lori Lightfoot Walmart McMillon Announced in June 2020 That Walmart will 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.

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

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

after one year, 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 released Tuesday, Lightfoot said it was “deeply disappointed that Wal-Mart, a strong partner in the past,” was closing stores.

“Strictly 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-closed stores are redirected through meaningful community engagement so they can find new use for serving their neighborhoods.”

His fight in the city

Wal-Mart’s move 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 was met with stiff resistance in New York, Los Angeles, Chicago and other cities from unions and Democratic opponents who feared not unionizing 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 big box stores to pay their employees a minimum wage of $10.

Other Chicago leaders saw the addition of Wal-Mart 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: a win for the local economy, a win for local job creation, and a win for Chicago,” Rahm Emanuel, then mayor of Chicago, said in 2012. Chatham neighborhood of the city. (One store is now scheduled to close.)

That strategy was misplaced, said Stacey Mitchell, co-executive director of the Institute for Domestic Self-Reliance, a research and advocacy organization that challenges the economic focus. She thinks the city should have done more to support small stores that have been pressured by the big chains.

“Chicago’s city leaders have done everything they can to bring Wal-Mart into town,” he said. “What they should have done is support the development of local businesses with a real commitment to the city and its residents.”

Wal-Mart’s presence is shrinking in some cities. Stores in Portland, Oregon, also closed recently.

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

Wal-Mart isn’t the only national chain closing stores in major cities, either. The Whole Foods flagship store in San Francisco closed Monday, due to 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 many challenges in cities. Wimmer told CNN that urban locations have higher rents, which means they need to hit higher sales targets to break even. Some retailers also reported higher levels of shoplifting and other crime in stores in their city.

In addition, restrictions caused by the COVID-19 pandemic and the increase in telework have affected foot traffic and in-store sales. And the growth of Amazon and same-day delivery has made going to stores less attractive to urbanites.