LOL: Walmart closing stores, announces it won't move forward with two stores in lower income areas of DC

More than five years ago, Walmart announced plans to open five stores in DC (Georgia Avenue NW, Riggs Road NE, East Capitol Street NE, New Jersey Avenue NW, and New York Avenue NE).

This was heralded by urbanists as an indication that retail chains were now committed to center cities.

The announcement was when DC's real estate market outside of Metrorail station catchment areas was in the doldrums, and many real estate development projects had been cancelled, and the city's elected officials were desperate for a win and jobs suitable for less educated people.

Demonstration at Union Station, Washington, DC.

There was a lot of opposition to the company's entry, although for the most part, the city's elected officials smoothed the course and put up no opposition.  I got involved in the issue on the margins, because one of the stores proposed (now open) is about three-quarters of a mile from where I live.

I co-chaired a committee of our local Advisory Neighborhood Commission addressing that particular project, and we produced a great set of recommendations on mitigating the potential negatives from the project, which the city categorically ignored, because for the most part the city's elected officials made it clear to the Office of Planning and Department of Transportation that their job was to facilitate Walmart's entry, not to put up roadblocks.

-- ANC4B Large Tract Review Report on Walmart, 5/2011
-- ANC4B Large Tract Review Report on Walmart, Summary Recommendations
-- "Temper Walmart Glee with Planning," Washington Business Journal

Substantive issues during the process concerning the effect of the stores on local business and the company's employment practices were lost in the general noise associated with the company's entry. That noise is something that Walmart relies on facilitate their entry into new locations with minimal cost.

Also veiled threats in other cities (for example, in San Diego, the company helped to bring about a referendum overturning legislation imposing special requirements on big box stores like Walmart) puts cities on notice that they can't be too demanding.

Lessons.  My summary of lessons from Walmart's foray into DC are topic of many past blog entries:

-- Lessons from Walmart's foray into Washington, DC
-- Piling on City Council for Walmart
-- I hope for Aspen Hills' sake that Montgomery County is smart enough to learn from DC's planning errors with regard to Walmart's entry
-- Urban bets on Walmart are probably a losing wager
-- The reason why Walmart is committed to a store that is part of a mixed use development
--6Ps, Walmart in DC and "I hate to say I told you so"

The two most important lessons are:

(1) Walmart makes business decisions, not decisions based on sentiment

(2) there is a difference between locating a store in the center city and creating an urban-appropriate big box store.  WRT the latter, Walmart is willing to locate in cities, but they are agnostic on the urban form of the store.  If the site is in a location they want that's the most important.  They won't exert any pressure on a developer to build "urban" vs. a store that's in the city but single use.

Walmart is in this development at New Jersey Avenue and H Street NW.

Two of the stores already built in Washington, DC are what we would call "urban", that is part of vertical mixed use projects, incorporating either commercial or residential along with retail at Fort Totten (residential above) and on New Jersey Avenue NW (commercial).

 By contrast, the store on Georgia Avenue is single use--the site had been approved for a mixed use development with 400+ apartments, but the developer wasn't interested in jumping hoops to come up with the construction financing.  By contrast, Walmart brings their own financing.


Georgia Avenue Walmart, Flickr photo by BeyondDC.

Once upon a time: plans for a sixth store to anchor DC's Skyland Center.  During the process, in what I thought was more theater than reality, the then Mayor, Vince Gray, "conditioned his approval" (note that most of the stores and the ones that opened were all "matter of right" and for the most part did not require any substantive special approvals by city agencies) on the company agreeing to open a sixth store at Skyland Shopping Center, a redevelopment project in Ward 7 that the city had been working on for more than ten years, with minimal success.

... not to mention that in most zoning and building approval matters, DC law does not provide a way for a Mayor to either approve or disapprove a project.

I think the company had agreed to the store already, as part of the "dance" between the city and Walmart, but the "theater" allowed the city/the Mayor to demonstrate to citizens that they "exerted pressure on Walmart to do more for the city than they originally intended.

After I finished the report (I was the primary author but by no means are all the proposals and recommendations expressed therein mine), and it was submitted I realized I screwed up in not highlighting the company's low customer satisfaction ratings (Wal-Mart - The American Customer Satisfaction Index) and that at least then, the company was in a sales free fall, having registered sales declines quarter after quarter since the onset of the recession.

In other words, should the city have been making such a big bet on a company in decline?

In 2016, Walmart pulls back on its "commitment" to DC.  Friday, the answer came back definitively, as in advance ("Wal-Mart nixes stores at Skyland, Capitol Gateway," Washington Business Journal) of the company's national announcement of store closings across the country and the shuttering of the Walmart Express small store initiative, Walmart announced that the stores planned for East Capitol Street NE and Skyland Shopping Center were cancelled.


Skyland Center was oriented to the low income demographic.  The city spent many years acquiring the separately owned properties which collectively made up the shopping center and tore them down, in a quest "to upgrade" it.  The center had a Safeway, CVS, and an auto parts retailer, among major retail chains. Photographer unknown.

From the WBJ article:

Wal-Mart has canceled long-standing plans to build two stores in D.C., raising doubt about the future of Skyland Town Center, the massive project in Ward 7 a decade in the making. The news came Friday morning as part of an announcement that the world's largest retailer would close 269 stores worldwide, including 154 in the United States. Prior to releasing its full list of store closings (none in Maryland or Virginia), Wal-Mart said it will pull out of the Skyland and Capitol Gateway projects in Southeast and Northeast D.C., respectively.

Walmart had already cancelled a fourth store that was planned for New York Avenue NE in Ward 5. But that shopping center, which was also supposed to be anchored by a Lowes store, and would compete with the nearby South Dakota Crossing center, anchored by a Costco, didn't go forward--Lowes shifted their own plans and just opened up a new store there.

The lesson there was that there wasn't enough demand to support two large shopping centers within close proximity to each other--less than two miles apart.

Two of the three stores the company has opened are in the Northwest quadrant of DC--the highest income section of the city, but all the stores are in middle income, not low income, areas.

Note that Walmart isn't exactly shrinking, but they do have weaknesses.  Even though they are closing 154 stores, the company will still open new Supercenters and Neighborhood Markets in the US this year and going forward, so their store count won't change much.

Out of stocks at a Walmart in California.  Photo from Yelp.

But it does communicate that the firm isn't all-knowing or impregnable or a superb operator.

For the last few years, Walmart has gotten a lot of attention for inventory problems and poorly maintained stores ("Is Walmart Really Fixing Its Out Of Stock Problems?," Forbes).

And in the meantime, the competitors that remain are stronger.  For example, after decades of competition with supermarkets, while many companies went out of business because of Walmart's perception as the low cost seller and the company's strong capital position and nonunion wage structure, for the most part, grocery stores surviving today have found their competitive position vis-a-vis the company, and some companies, like the supermarket chain WinCo and the deep discount grocery Aldi, even undercut Walmart pricing significantly while providing superior service (yes, even Aldi provides better customer service than Walmart).

Walmart isn't the only company closing stores.  Many of the big retailers are slimming down their portfolio of stores, in response to lower sales.  Macys is closing stores.  Kohls is looking at its options.  Other companies are closing stores too.

While there are advantages to physical stores, there is no question that shopping patterns have changed in part in response to Internet and mobile commerce taking an increasing proportion of sales in certain retail categories, as well as lingering impacts from the recession, which have changed consumption patterns--people are buying less, and the lower income segments of the population which Walmart has relied upon to drive store sales continue to languish in the face of limited job opportunities for the less skilled.

DC elected officials are "upset" at the news.  According to the WBJ article, both Ward 7 Councilmember Yvette Alexander and Mayor Bowser are miffed about the decision:

“I am angry and I take this personally as I advocated to bring them to Ward 7. The District had a deal with Walmart to bring in five stores with two coming to Ward 7. They signed leases and now they have broken their deal,” said Councilmember Yvette Alexander, D-Ward 7, in a statement. “This has racial and social-economic discrimination implications. This is a major setback but I am confident that the District will do everything possible to move forward with the projects.” D.C. Mayor Muriel Bowser said she's "blood mad" about Wal-Mart's decision, according to NBC4.

Also see "District leaders furious Walmart breaking promise to build stores in poor neighborhoods," Washington Post.

I was always skeptical that the city had enough population to support six Walmart stores. Typically each store draws on hundreds of thousands of residents, and DC has fewer than 700,000 residents, enough to support two or three Walmart stores. 

For a long time there hasn't been a substantive reason for suburban residents (5.3 million people) to shop in the center city, as they have plenty of shopping options closer to home, including a much greater variety of choices when it comes to big box shopping options.

The problem with these two projects--East Capitol Gateway and Skyland--is that there isn't much market demand for them, and residents in those areas have other options already.  That's why it has taken 15 years or more to move those projects forward.  (That doesn't mean that it is bad to foster such developments or direct city monies to them.  But at the same time, stakeholders have to be realistic.  These projects are hard to develop for a reason.)

For example, within one mile of Skyland are two shopping centers, once anchored by a Giant supermarket, the other by a Safeway.  I don't believe there is enough market demand in that area to support those centers plus a Walmart.  The same goes for the once proposed center on East Capitol Street NE, which is on the border with Prince George's County, and was presumed to be able to draw customers from Maryland.

At the end of the day, elected officials often forget that these are decisions about business, and while it's easy to jump on a bandwagon, such as the Walmart bandwagon, their foremost responsibility is to protect the city's interests, and to work for the best possible outcome at all times.

A longshot alternative: the Kroger Marketplace concept.  The problem for cities in the 21st Century is that there aren't many alternatives to the broadline discount store--with combined sale of food, apparel, furniture, housewares, and electronics.  Independent  or regionally-centered companies (e.g., Mervyns in California and other Western states) in this category have mostly gone out of business (as have department stores outside of national chains, with a few exceptions).

Where there are plenty of supermarket options at the regional scale, where center cities tend to have major gaps in their retail choices concern apparel especially as well as furniture and electronics--although the latter category is increasingly shifting to online sales channels.

Walmart and Target are the only national discount department store companies present in virtually every market.  Kohls is an apparel focused store that serves similar customer segments and operates with a national footprint.  And of course, there are many other companies in various categories, which may or may not be investing in city locations.

Regionally, there are two companies that operate similar broadline formats, Fred Meyer in the Pacific Northwest, and Meijer, based in Michigan and active in the Midwest.  Fred Meyer is now owned by Kroger, the nation's largest supermarket company.

The Kroger "Marketplace" concept.  Separately from Fred Meyer, a company in Arizona, Smitty's, developed a similar format (note actually that many supermarket companies experimented with such formats in the early 1960s, with the advent of Kmart and other discount formats).

Eventually, this company ended up in the Fred Meyer portfolio, and then in Kroger's when the company purchased Fred Meyer, although now they are branded as Fry's Marketplace (and this particular firm is separate from the Fry's Electronics chain).

Kroger has many divisions, most aren't named Kroger, for example Harris-Teeter in the Southeast, Smith's in Utah, or Ralph's in California.  But other than Fred Meyer multilines store format, the company is focused almost exclusively on groceries (and convenience stores).

(HEB, the Texas supermarket company, has done the same thing, using the banner HEB Plus!  See "H-E-B to spend $14M on first DFW Plus! store in Burleson," Dallas Business Journal.)

Since the acquisition, Kroger has introduced the "supercenter" or "marketplace" format as a store type in many of their divisions.  While modelled on Smitty's, it also incorporates expertise from the Fred Meyer division.

But fewer than 100 of the company's more than 2,600 stores are "Marketplace" stores.  From the Northwest Valley Newspapers story "Fry's Marketplace coming to north Peoria":

Larger than the basic Fry’s Food and Drug store, the Marketplace is one of the company’s signature store models. It typically offers full-service grocery, pharmacy, and health and beauty care departments, as well as fresh-food products, and general merchandise including [apparel], outdoor living products, electronics, home goods and toys.

A Smith's Marketplace in Los Alamos, New Mexico.  Photo: Los Alamos Daily Post.

For about two years, in the DC market, Kroger has owned Harris Teeter, a supermarket focused on selling to higher income market segments as their pricing tends to be higher than both Safeway and Giant, with a broader array of prepared foods and specialty items.

So far, Kroger hasn't introduced the Marketplace store format to the Harris Teeter division, and in any case, were they to do so, likely they would do it in higher income areas, not areas with the kinds of demographics present in the area of the stores just cancelled by Walmart in Ward 7.

Marketplace as a potential independent format for center cities.  DC could approach Kroger/Harris Teeter about creating such stores in those locations, perhaps using a brand different from Harris Teeter.  But the store's positioning doesn't really fit Ward 7 demographics or the demographics in lower income locations.

Footwear section in a Kroger Marketplace store in Ohio.

Kroger could develop this format as an independent store option, with a wholly new name, appropriate for other urban markets besides DC.

For example, the company just acquired Mariano's based in Chicago.  Walmart has opened a number of stores in Chicago.  But while Mariano's is an upscale supermarket, the company could use Mariano's footprint to support a Marketplace offering not branded as part of Mariano's.

This would be a way for cities to expand their retail offerings without having to be dependent on Walmart (or Target).

Note that in Colorado and some adjoining states, Kroger does have a division operating under the City Market name.  They could use a derivative of that name, CityMarketPlace, for a center city focused marketplace approach outside of the current footprint for the Colorado-based City Market chain.