What Walmart's pullback from Chicago says about Corporate America's limits

Chicago mayors have been courting Walmart for the last two decades, despite community protests. Walmart has been happy to show that it can be a good corporate partner.

What Walmart's pullback from Chicago says about Corporate America's limits

New York CNN

Over the past two decades, a series of Chicago mayors have courted Walmart with great intensity and ignored community protests. Walmart was eager to demonstrate that it is a powerful corporate partner.

Walmart has now pulled out of Chicago.

This week, the largest retailer in America announced that it would close four of eight stores located in the city. The reason given was growing financial losses. Three of the stores are located in low-income and predominantly Black neighborhoods. Their sudden closures will force residents, including those without reliable transportation and elderly people to travel farther to get their groceries and medications.

Walmart stated that 'these stores lose tens and millions of dollars every year. Their annual losses have nearly doubled over the last five years'. The company stated that despite years of trying different strategies, they did not see any way to make these stores profitable. Walmart, which earned $20.6 billion by 2022, didn't specify why the losses in Chicago were increasing.

Ronnie Mosley will be the new Chicago Alderman who represents a Chicago Ward where one of Walmart's stores is closing. His retiring predecessor was a strong proponent for bringing Walmart to Chicago.

Mayors, political leaders and other key figures pushed for Walmart to be built despite opposition from community activists, small business owners, and labor groups. The critics cited studies which suggested that a Walmart presence would drive out mom-and pop stores and lower wages as it did in smaller towns.

Officials argued that opening Walmarts in low-income neighborhoods would create jobs, spur economic growth, and provide convenient shopping for groceries and pharmacy services.

Walmart, whose growth was mainly rural and suburban, also fought to enter Chicago. Walmart saw this as a double opportunity to expand its customer base and prove that it is a solid corporate partner.

I told you so

Closures of leading chains are an example of how local governments, and even national politicians, have failed to deliver public services.

The idea was that if the government could not provide jobs and fresh food to a population in dire need, then for-profit companies would.

In Chicago, however, this is not the case. In a 2012 study on the impact of Walmart in Chicago, it was found that businesses located closer to Walmart had a higher likelihood of closing than those further away. The number of jobs lost at nearby retailers essentially equaled the number created by the new Walmart stores.

Other chains have also recently closed stores in areas with a majority of minorities and low incomes.

In Chicago, CVS, Aldi, and Save A Lot closed their doors earlier this year. Target shut down two stores in 2019, angering local residents. Dollar General and Family Dollar have expanded in areas with low income, but do not sell fresh food.

Companies are not bound to remain in a community if they don't make a profit. They answer to shareholders, unlike local governments, who theoretically answer to voters.

When CVS or Walgreens change their business priorities or close stores, they leave the public vulnerable.

Bryant Simon is a history professor at Temple University and he studies the relationship between Corporate America, government, and business. We're glad to see them doing it, but then we're shocked when they start acting like a company again.

Solving the 'food deserts

Obama's administration focused on a similar strategy, relying on national chains to remedy the so-called "food deserts". This too failed.

Walmart, Walgreens(WBA), SuperValu, and other store executives joined Michelle Obama in 2011 at the White House to announce their pledge to open 1,500 stores by 2016 in communities with limited access to healthy food.

But this effort has stalled. In 2015, the Associated Press reported that only 250 new supermarkets were built in these areas by leading chains.

Liz Abunaw founded Forty Acres Fresh Market in response to a lack of options for fresh food on Chicago's West Side. Even in Chicago, solutions vary by neighborhood.

She said that putting a large chain in a neighborhood struggling with poverty is not a good strategy. Instead, more holistic solutions were needed. These included improving housing, employment, and public transport: "It's not just one thing." All those things are interconnected.

Chains opening up in neighborhoods can also have unintended effects. Sometimes, companies open and small retailers close, but then the chain closes. This can leave a larger void than when they first opened.

The idea that Walmart moved into Chicago as a favor to the city is highly debated, said David Merriman. He is a professor of Public Policy, Management and Analytics at the University of Illinois Chicago, and the co-author of a study on Walmart's presence in Chicago.

Experts say that instead of relying solely on large corporations to boost local economies, another option could be to design policies that support family-owned, smaller supermarkets, cooperatives and farmers' markets, such as Yellow Banana in Chicago and ChiFresh Kitchen.

Abunaw stated that 'their loss was one of the primary reasons why communities lacked grocery stores and basic retail'.

Chicago: Hopes dashed

Walmart is a model for economic development in Chicago despite stiff opposition from local leaders, unions and grassroots groups.

In 2006, Chicago mayor Richard M. Daley used a rare veto in order to overturn a City Council Bill that would have required big-box retailers such as Walmart pay their workers a minimum wage of $10. In 2013, Rahm Emanuel opened a new Walmart store in a neighborhood that was underserved. He said it was another example of a business aligning its bottom line to the good of our communities.

In 2020, Walmart CEO Doug McMillon held a joint press conference with Mayor Lori Lightfoot to announce that the company was expanding its investment in the City following protests both locally and nationally over the murder of George Floyd by police.

The company was struggling in Chicago. The company's superstores are designed to be driven to by people who make large shopping trips. They have not been well suited to city residents, who make smaller, but more frequent, trips to the supermarket.

Walmart opened smaller stores called neighborhood markets that sold mostly groceries, but they had lower margins than the other products like clothing or electronics. Walmart is closing neighborhood stores across the country. Three of the four Chicago-area stores that are closing fall into this category.

Walmart has closed stores in Chicago's low- and high-income neighborhoods, which is a sign of its struggles across the city. The stores in the low-income neighborhoods will be the hardest hit.

Alderman Mosley stated that 'we are in a region where CVS and Walgreens closed.' Walmart has become the "de-facto" store, and the closing is "traumatizing."

He said, 'Walmart may be leaving and doing what is best for them.' "Now I must figure out what is best for our community."