Walmart cited a lack of profitability for the closings in Chicago — stores there have collectively lost money each year. First opened 17 years ago.
The closing stores “lose tens of millions of dollars a year, and their annual losses have nearly doubled in the past five years,” the company said in a statement. Press release. “The four remaining Chicago stores continue to face the same business issues, but we think this decision gives them the best opportunity to keep them open and serve the community.”
Walmart warned of some potential belt-tightening this year in its February earnings call. Despite a strong holiday season, executives offered a muted outlook for next quarter, and they weren’t alone: Home Depot offered a similar story. Retailers noted that shoppers are feeling the pressure of inflation and continue to cut discretionary spending from their budgets. Overall retail sales fell 0.4 percent last month and although government data showed inflation has moderated in recent months — prices rose 5 percent in March — spending remains at historic highs.
Both companies are seen as bellwethers for consumer behavior, and it’s no surprise that many major retailers are wary of 2023. Whole Foods has closed its flagship store in downtown San Francisco.
Retailers are evaluating store-by-store performance to see what’s profitable and gauge their growth opportunities, said Neil Sanders, managing director of analytics firm Global Data. He expects that to continue throughout the year.
“In this very tight environment, I think the general message is that we can no longer carry dead wood and have to cut it aboard,” Sanders added.
News of the shutdown in Chicago’s South and West Sides brought a quick outcry from city leaders. Mayor Lori Lightfoot said she was “incredibly disappointed” by Walmart’s decision.
“The sudden abandonment of these neighborhoods will create barriers to basic needs for thousands of residents.” Lightfoot said in a statement to The Washington Post.
In its news release, Walmart said employees closing stores are eligible to transfer to other locations or Sam’s Club facilities. The company will “continue to work with local organizations to develop solutions to challenges facing the city and the country, including racial inequality and food deserts.”
Walmart has historically been reluctant to expand into urban areas. In 2016, the retailer backed out of a deal to open stores in some of Washington’s poorest neighborhoods.
One of the four stores closing its doors in Chicago is Supercenter and three are Neighborhood Markets, which are mainly groceries. Saunders says these stores have never functioned as a traditional format and are particularly weak in urban areas.
As a low-margin business, Walmart relies on customers who make large shopping trips.
“Where Walmart does well is really in the suburbs,” Sanders said. “They can have a big store, they can have massive parking lots, people can drive to the store, they can load up.”
In urban areas, many people don’t have cars, so They are limited in how much they can take At home, Sanders said. Walmart-goers in cities may be deterred by small parking lots, he said.
However, Target fared better than its rival in urban areas. While its high-margin model accommodates smaller shopping trips, Sanders said, Target’s scaled-down version has the same feel as a regular-sized store.
“I think it’s very successful in urban areas because Target is an inspiration-type store, especially in urban areas,” he added. “It’s the kind of store where people go in there, they buy some beauty, they buy some clothes, they buy some essentials and do a little top-up shopping. Those things are usually very easy to carry.