What Walmart’s retreat from Chicago says about Corporate America’s limits

New York (CNN) A succession of Chicago mayors have heavily courted Walmart over the past two decades, brushing aside community protests. And Walmart welcomed the opportunity to show cities that it can be a strong corporate partner.

But now Walmart is withdrawing from Chicago.

The biggest retailer in the country this week announced plans to close four of its eight stores in the city, citing mounting financial losses. Three are in predominantly black and low-income neighborhoods, and their closings with little warning mean residents — including senior citizens and people without reliable transportation — must travel farther to buy groceries and pick up their medications.

“These stores are losing tens of millions of dollars a year, and their annual losses nearly doubled in just the last five years,” Walmart said. Despite years of different strategies, the company said, it did not see a path to profitability for these stores. Walmart, which earned $20.6 billion in 2022, did not specify why losses increased in Chicago.

City leaders “spent a lot of political capital and their trust was questioned, now it’s kind of like, ‘I told you so,'” said Chicago Alderman-Elect Ronnie Mosley, who will represent a Chicago ward where one of Walmart’s the groups are positioned. to close His predecessor, who is retiring, was a big proponent of drawing Walmart to Chicago.

Mayors and key political leaders had pushed to pull Walmart, despite protests from small businesses, labor groups and community activists. Critics pointed to studies that suggested a Walmart presence could crowd out mom-and-pop stores and drive down wages, as it had done in smaller cities.

But at the time, officials argued opening Walmarts would bring jobs, economic development and convenient places to shop for affordable groceries and pharmacy services in some of the city’s low-income communities.

Meanwhile, Walmart, which rose mainly in rural and suburban areas, also fought hard to enter Chicago. Walmart saw it as a two-pronged opportunity: expand its customer base while proving to skeptical officials in other cities that it was a strong corporate partner.

‘I told you so’

The closures are another example of the shortcomings of local authorities and even national political leaders who are banking on leading chains to provide essential public services and fill gaps.

If the government couldn’t provide for a population in desperate need of jobs and fresh food, the thinking went, for-profit corporations would.

But in Chicago, that’s not what happened. A 2012 study of Walmart’s impact in Chicago found that businesses closer to Walmart were significantly more likely to close than similar businesses farther away—and the number of jobs lost by nearby retail competitors essentially outweighed the number of jobs created in the new Walmart stores.

This is a particular problem in predominantly low-income minority areas experiencing economic neglect, and other chains have recently closed stores in these areas as well.

Whole Foods closed in Chicago earlier this year, along with CVS, Aldi and Save A Lot. In 2019, Target closed two stores, angering residents. Chains like Dollar General and Family Dollar are expanding in low-income areas, but they don’t sell fresh groceries.

Unlike local authorities, which are theoretically accountable to the electorate, the companies only answer to their shareholders and do not have an obligation to live in communities if they are not making money.

Whether it’s handing over the responsibility of providing public bathrooms to Starbucks and McDonald’s or vaccines and basic healthcare to CVS and Walgreens, the public is left vulnerable when these companies’ business priorities change or they close locations.

“We’ve been asking business to solve problems that we don’t want government to solve anymore,” said Bryant Simon, a professor of history at Temple University who studies the role of corporate America and government. “We’re happy to have them do that, and then shocked when they act like a business again.”

Solve “food deserts”

A similar strategy of relying on national chains to help alleviate so-called “food deserts” was a focus at the national level during the Obama administration. It also fell short.

Walmart, Walgreens (WBA)SuperValu and other store leaders joined Michelle Obama at the White House in 2011 to announce a pledge to open a combined 1,500 stores in communities that have limited access to nutritious food by 2016.

But that effort stalled. The Associated Press found in 2015 that leading chains built only 250 new supermarkets in these areas.

“The assumption that there is a single player in the nation that will work in every market is proving to be untrue,” said Liz Abunaw, who founded Forty Acres Fresh Market, a grocer startup, in response to the lack of fresh food options on Chicago’s west side. “Even in Chicago, the solutions differ by neighborhood.”

Placing a large chain in the middle of a struggling neighborhood is not an effective strategy on its own, she said, and more holistic solutions are needed, including improving housing, jobs and public transportation: “It’s not one thing. All these things are connected. “

There may also be unintended consequences for chains that open in neighbourhoods. Sometimes companies open, small retailers close — and then the chain closes, leaving a larger void in some cases than when it first entered.

“The idea that Walmart did the city a big favor by moving in is highly debatable,” said David Merriman, a professor of public policy, management and analysis at the University of Illinois Chicago and co-author of the study of Walmart’s presence in Chicago.

Instead of relying on big companies to bolster local economies, some experts say, another solution might be to craft policies that better support smaller, family-owned supermarkets, cooperatives and farmers markets like Yellow Banana and ChiFresh Kitchen in Chicago.

“Their loss is one of the main reasons communities lack grocery stores and other basic retail in the first place,” Abunaw said.

Crushed hopes in Chicago

Despite fierce opposition from unions, grassroots groups and some local leaders in Chicago, Walmart has been embraced by the city’s last three mayors as an economic development model.

In 2006, Chicago Mayor Richard M. Daley issued a rare veto to override a City Council bill that required large stores such as Walmart to pay workers a $10 minimum wage. In 2013, Mayor Rahm Emanuel cut the ribbon on a new Walmart in an underserved neighborhood, saying it was “another example of a company seeing an alignment of what’s good for their bottom line with what’s good for our neighborhoods.”

In 2020, Mayor Lori Lightfoot held a press conference with Walmart CEO Doug McMillon to announce that the company would expand its investment in the city following local and national protests over George Floyd’s police killing.

But the company struggled in Chicago. Its huge superstores, which are designed for people to drive to and make large shopping trips, have been less suitable for city dwellers who tend to make smaller but more frequent trips to supermarkets.

Walmart tried to open smaller stores, known as neighborhood markets, that serve mainly groceries — but these lower profit margins than other items such as electronics or clothing. Walmart is closing neighborhood markets around the country, and three of the four stores closing in Chicago fall into that category.

In Chicago, Walmart is closing in both low-income and high-income neighborhoods, a sign that it is struggling across the city. But it is the shops in low-income areas that will feel the loss the most.

“We’re in an area where CVS and Walgreens have closed,” Alderman-Elect Mosley said. “Walmart has become the de-facto” store and the closure is “traumatizing.”

“Walmart is leaving and they can do what’s best for them,” he said. “Now I have to figure out with our community what’s best for us.”