Walmart closes stores in Chicago, signaling struggle in urban cities

Walmart attributed the closure in Chicago to a lack of profitability — the stores there have collectively lost money every year since the first opened 17 years ago.

The stores being closed “are losing tens of millions of dollars a year, and their annual losses have nearly doubled in just the last five years,” the company said in a press release. “The remaining four Chicago stores continue to face the same business difficulties, but we believe this decision gives us the best chance to keep them open and serve the community.”

Walmart warned of possible belt-tightening this year in its February earnings call. Despite a strong holiday season, executives offered a subdued outlook for next quarter, and they’re not alone: ​​Home Depot offered a similar narrative. Dealers noted that buyers are feeling the pressure of inflation and are continuing to cut discretionary spending from their budgets. Total retail sales fell 0.4 percent last month, and although government data shows inflation has eased in recent months — prices rose 5 percent in March — costs remain at historic highs.

Both companies are seen as watchdogs for consumer behavior, making it unsurprising that several major retailers are wary of 2023. Whole Foods closed its flagship store in downtown San Francisco.

Retailers assess performance on a store-by-store basis to see which are profitable and gauge their growth prospects, said Neil Saunders, managing director of research firm GlobalData. He expects this to continue through the year.

“I think the overall message is that in this very tight environment we can no longer carry dead wood and we have to throw it overboard,” Saunders added.

News of closures on the south and west sides of Chicago quickly brought an outcry from city leaders. Mayor Lori Lightfoot said she is “incredibly disappointed” by Walmart’s decision.

“Unceremoniously leaving these neighborhoods will create barriers to basic needs for thousands of residents,” Lightfoot said so in a statement to The Washington Post.

In its press release, Walmart said employees at the closing stores will be eligible to transfer to other locations or Sam’s Club facilities. The company will also “continue to work with local organizations, creating solutions to challenges facing the city and the country, including racial inequality and food deserts.”

Walmart has a history of being reluctant to expand into urban areas. In 2016, the retailer pulled out of a deal to open stores in some of Washington’s poorest neighborhoods.

Of the four stores closing in Chicago, one is a Supercenter and three are Neighborhood Markets, which are mostly groceries. Saunders said these stores have never performed as well as the traditional format and are particularly weak in urban areas.

As a low-margin business, Walmart depends on customers making large shopping trips.

“Where Walmart works best is really in the suburbs,” Saunders said. “That’s where they can have a huge store, they can have huge parking lots, people can drive up to the store, they can load up the car.”

In urban areas there are many people who do not have a car and therefore are limited by how much they can take at home, Saunders said. Those who drive to Walmart in cities may be deterred by small parking lots, he said.

However, Target has outperformed its competitor in urban areas. The higher-margin model allows for smaller shopping trips, Saunders said, adding that a scaled-down version of a Target has the same feel as a full-size store.

“I think it’s much more successful in urban areas because Target is much more of an inspiration store, especially in urban areas,” he added. “It’s the kind of store where people want to go in there, they want to buy some beauty, they can buy some clothing, they can buy some essentials and do a little bit of a fill-up shop. And those things are generally much easier to carry.”