Photo: Walmart
April 12, 2023
Do Walmart’s Stores Just Not Fit in Chicago?
Walmart is closing four of the eight stores it operates in Chicago after concluding that it could no longer sustain the losses it has experienced since it opened its first location in the city 17 years ago.
The retailer said it has lost “tens of millions of dollars a year” in Chicago and its “annual losses nearly doubled” over the last five years. “The remaining four Chicago stores continue to face the same business difficulties, but we think this decision gives us the best chance to help keep them open and serving the community.”
Walmart’s failure in Chicago has not been for a lack of trying. The company said it had built smaller stores, localized product assortment and expanded services beyond traditional retail to improve results. The retailer has spent $70 million in recent years to upgrade its stores in the city, build two new Walmart Health facilities and a Walmart training center.
The company said it had enlisted the support of local civic and government leaders to share the challenges it faced in Chicago and yet nothing made a material difference in its results.
The seemingly sudden nature of the closings has surprised many in Chicago. Walmart said the shuttered stores would be closed to the public after this Sunday. Pharmacies inside the stores will remain open to patients for up to 30 days.
Walmart said associates affected by the store closings may transfer to its other stores or Sam’s Club locations. Company representatives are working with associates to help match them to available jobs.
All associates will be paid until Aug. 11 unless they transfer during that time. Those who do not transfer by Aug. 11 will receive severance benefits.
The stores closing in Chicago come on the heels of Walmart’s recent announcement that it was shuttering its last two locations in the Portland, OR market.
“The decision to close these stores was made after a careful review of their overall performance,” a Walmart spokesperson told KPTV. “We consider many factors, including current and projected financial performance, location, population, customer needs, and the proximity of other nearby stores when making these difficult decisions.”
Walmart has also announced layoffs of over 2,000 warehouse workers at online fulfillment centers in California, Florida, New Jersey, Pennsylvania and Texas.
Discussion Questions
DISCUSSION QUESTIONS: Why do you think Walmart has failed to become profitable after operating stores for 17 years in Chicago? Are these same issues as prevalent for Walmart in other urban centers?
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Dick Seesel
Principal, Retailing In Focus LLC
Ray Riley
Chief Executive Officer, Progress Retail
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Editor-in-Chief, CPGmatters
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Good question! How is it that the most prolific retailer in modern times can’t turn a profit in one of the largest markets in the U.S. after 17 years of trying? I can’t help but wonder if there is more to this decision than what’s being reported.
The article doesn’t go deep enough into the math the really understand the root cause of the location failures. Sales per square foot shortfall? Sales never grew enough to cover rent and other fixed cost? Shrinkage and/or theft–and they don’t want to say that out loud? Walmart fits everywhere, so there’s an aberration of some kind at work here.
Exactly right–they don’t want to say it out loud based on where three of the four stores are located. It is very unfortunate that they could not control what goes out the door.
I count a couple dozen Target stores inside the Chicago city limits, although heavily skewed toward the North Side. Obviously they succeeded where Walmart has failed, despite the city’s well-publicized crime and shoplifting problems. Is it possible that Target’s merchants understood the Chicago customer better than Walmart did?
Walmart doesn’t bother understanding the customer. They expect that their business model is so brilliantly executed that we will just naturally want to go there — without any direct communication, local advertising, store visibility and so on. Open the doors and let it fall where it may. Focus on operations–not creating a link to the community.
Organized retail crime could be a factor yet Walmart rarely cuts out or launches until many boxes are checked. Walmart mentioned localization. In a diverse market like Chicago where true stores of the community still enjoy tremendous loyalty, localization efforts by national retailers can fall flat. The good news is Walmart has the flexibility to take up some of the slack through digital outreach or try again through smaller formats.
Timing and context matter. Last week’s mayoral election has rattled the business community and, after years of deterioration, no doubt Walmart made a quick calculation that the cost/benefit simply isn’t there. Similar decisions are being made by Whole Foods, Walgreens, and others in markets such as San Francisco plagued by similar issues.
I can only guess that perhaps it’s an assortment issue? Maybe Walmart has struggled to find the right product mix for the Chicago market? Seems odd that Chicago would present unique challenges that Walmart’s merchants could not overcome, but I have no other reasonable guesses!
One of Target’s most successful stores is Chicago Near North. The other stores in Chicago’s more affluent suburbs are booming. While I’m sure that there’s more to this story, this might illustrate the gap between Walmart and Target’s customer bases. Target dominates more affluent demographics when compared to Walmart. Walmart has struggled to penetrate this same group. I can’t help but wonder if this is what’s happening in Chicago.
This should not be a surprise as Walmart has mentioned challenges in specific markets in the past. In the fourth quarter of 2022, both the CEO of Walmart and the CFO of Target shared publicly that theft is up considerably across the nation. Organized theft is a problem in certain cities and without enough local enforcement, it may not change. Both Whole Foods and Walmart have closed stores in Chicago. Being from Chicago I can say some of these conditions are tough to operate in and make a profit. Unfortunately, this pullout will affect the local community’s access to affordable fresh food.
I remember when Walmart opened its first store in Chicago. Not 17 years ago, but in 1977. The Chicago adventure failed then. That failure was the talk of retail at the time. It was the first failure of what was becoming a juggernaut. The assumption at the time was Walmart wasn’t an urban retailer.
Maybe the more interesting discussion is why it took Walmart so long to surrender in Chicago. Now more than 30 years later, Walmart is not a successful urban retailer. No Walmarts exist in New York City, Boston, or San Francisco. With the Chicago closings, there are no Walmarts in the six most urban cities in the U.S. Why?
I readily recall in the early 90s how business books and magazines were loudly proclaiming how Walmart was going to conquer Urban America the same way they took over rural markets – even here in the Twin Cities there are only a couple locations inside the belt loop (they’re closing one of them as well). Whatever is going on, it isn’t a Biden Administration problem or anything unique to the post-Covid landscape.
Target was right on this respect all along – if you get the logistics and selling proposition right in the core metros, then the exurbs are gravy. But then, Target is HQ’d in a major city, so their executives and staff are better tuned to metro merchandising and marketing.
Interesting observation. “Target is HQ’d in a major city, so their executives and staff are better tuned to metro merchandising and marketing.”
The four stores targeted for immediate closure are not a big surprise. Three of the four are in neighborhoods serving lower- to middle-income households and my guess is that they are unprofitable not because of poor real estate/location decisions but rather due to competition plus shrinkage. Three of the four serve large household-sized families with children at a high rate of penetration as a percent of population, plus college students. Walmart relies on national advertising for awareness. There is zero local advertising support for a location remaining open in close proximity to my residence — in Crystal Lake, IL. We only shop that store because Toys “R” Us is no longer open and Walmart has a deep toy inventory for holiday shopping. Chicago and Portland are in the news for many reasons over the past four years and my assumption is that urban locations will not be where new store expansion is pursued.
A lot of their stores are in the older urban neighborhoods in proximity to the lake — not the best “suburban” target market that could make a store profitable. Did Walmart play the “let’s go downscale” card in those stores, the tactic that helped along the death of Kmart?
Walmart’s DNA is volume and mass. It’s never been about niche, hyper-local offerings. Should this surprise anyone? The Chicago closings signal that despite a valiant attempt to be an urban retailer, it’s just not their cup of tea.
The surprise is they tried so hard and for so long in Chicago. Walmart is not an urban retailer and has never been.
Where are the stores? Are they in the city proper? I assume a big factor is the inability for cities to control crime. There is news about businesses closing in Portland and San Francisco (main store for Whole Foods) because of theft, crime, and fear for the safety of employees. Even in New York, I went into a Duane Reade near Mount Sinai Hospital on 102th Street and 5th Avenue and EVERYTHING was locked up, even the gum in the front. I am shocked these issues were not mentioned here either as a root cause or to say that it was not the cause but, either way, it is certainly an elephant in the room these days.
It doesn’t say where these stores are, but on the empathy note: I worked for an apparel company a long time ago and ran stores in some of Chicago’s tougher neighborhoods. Our theft numbers were off the charts and the daily struggle to keep merchandise from free-flowing out the front and back doors was immensely stressful and in the end not worth it. We wound up closing those stores as well. Chicago’s a tough city but like anything else to do with physical retail, location is everything. So in the end, I totally get Walmart’s move: it was just not worth it, but you have to revisit the initial real estate decisions for the cause.
Crime, an exodus out of the city, and a city government administration that is antagonistic to business is my guess. And they just elected a new leader who is already talking about higher taxes on businesses. I think Walmart executives are being very “politic” in their published reasons for leaving and not mentioning any on my list because they just want to go quietly.
Whole Foods just shut down a store (temporarily they said but I am not holding my breath for the reopening) in San Francisco that had been open for a year. They were more (in my view) up front about the reasons–the safety of their workers.
The only thing that surprises me about this announcement is that they waited 17 years.
As someone who lives in Chicago, I can say that I’ve only ever gone into the Lincoln Park Walmart one time, and it was to see how it differed from suburban Walmarts. Competition is steep in this city, and I don’t think urban Walmarts were providing anything that other nearby stores were lacking.
I think its a combination of a lot of issues- shrink, assortment, tailoring to the community, etc. . I can tell you they have tried assortment changes in other areas, and they did not work there either. Sometimes one size doesn’t fit all . This is a tipping point to step back and really do a post mortem on what happened here.
Profit = Revenue less expenses, so a lack of it is either too little of the former, or too much of the latter. (Once again we’re left with reading Sam’s Choice teas leaves since little real information was provided) Urban areas are typically high cost areas: high shrinkage and security needs, property taxes, various supplemantary minimum wage laws, etc. And, of course, on the other end of the equation, Chicago is a large market with lot’s of competition. Exactly how these came together only WalMart knows. The more puzzling question of course is: WM knew all this going in, so why didn’t it work?? Or maybe we should just give WM the out we always offer to Amazon “they’re experimenting“
I agree with the post that there is probably more to this decision than what is being reported or acknowledged. I suspect crime is a contributing factor, be it retail crime or crime in the areas around the stores affecting shopper visits. Whole Foods recently announced that it is closing its one-year-old store in San Francisco because of crime and other deteriorating city conditions.
Three of these stores are the smaller Neighborhood Market format which Walmart has always struggled with as they are nowhere near as efficient and profitable as larger stores. Generally speaking cities have always been difficult for Walmart due to the high cost of real estate, the (relative) lack of a car-owning population which limits volumes, and the bias towards food in smaller stores which yields much lower margins.
It’s important not to overlook that Target in many ways had a head start on other discount store names before even opening a store in Illinois. Target being from Minnesota had an imbedded base of happy customers within just a few hours drive north of Chicago, which led to brand affinity and good word of mouth advertising up and down I-90. And they set a good tone, a solid expectation for product, service and value.
Walmart may have muscle and buying power, but Target’s approach rings true to midwesterners.
I live close to Chicago and agree with these answers. Shoplifting is organized, and stealing is also from employees, according to local news. Out the back doors.
One difference between Target and Walmart is public attitude. Walmart is perceived as of lower class like K-Mart was, and exploitative by liberal leftists,, and Target enjoys a positive middle class reputation. This is an undeserved and unfair comparison, I think. I shop at both stores and prefer Walmart.
Walmart has been more successful in the suburban and countryside areas as opposed to the city side where they’ve always slightly struggled because of the competition from local stores. Additionally, in terms of size, establishing a big Walmart store amid the city area doesn’t seem practically viable.
In my opinion, adapting to ‘small store formats’ is a much-preferred choice in the cities as compared to big stores. That is why retail brands like 7-Eleven or Dollar Stores are popular in the cities simply because they have successfully implemented the concept of small store format and have also significantly expanded their store network.