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January 19 2016

What's Going on with Those Walmart Closures?

Patrice J. Lee

Residents of Oakland, San Jose, Los Angeles, and Washington, D.C., rallied for years for to bring Walmarts to poorer neighborhoods.

Walmart would bring better prices and more shopping options to these neighborhoods. But now Walmart seems to be more in the business of closing than opening stores. 

Walmart announced recently that it is closing 269 stores worldwide, 154 of which are U.S. locations. Some 10,000 associates will be affected by the U.S. store closures.  

Walmart is closing its smaller Walmart Express  stores, which it had been pioneering in urban areas where there isn't appropriate space to build a big outlet, and focusing on strengthening their Supercenters. This doesn’t bode well for inner city residents who welcomed relief from the premium prices and more limited choices common at corner stores and liquor shops.

In Los Angeles, one of the stores being closed served the Asian and Hispanic immigrant communities which derived jobs and lower prices from the 33,000 square-foot store.  

Meanwhile, the closing of an Oakland store puts 400 people out of work and will be a tax loss to the community (the store is one of the 25 biggest earners in the city).

No doubt there are many factors contributing to Walmart's decision to shutter these stores, but it appears that minimum wage hikes figure into the decisions.  

For example, Walmart is closing stores in Oakland and San Jose but not two nearby Walmarts in San Leandro where there is no local minimum wage mandate above the state’s wage floor. SFist reports:

Walmart spokesperson Delia Garcia tells the Chron that the decision did factor in a store's financial performance, though that could well include the issue of wages — Oakland has a $12.55 minimum wage, with a 30-cent bump that took effect January 1, compared to the state minimum wage of $10, and the abysmal federal minimum wage of $7.25. With the prices of goods likely fairly similar nationwide, one can easily see how Walmart's bottom line would be different at a store with a $12.55 wage versus stores in the nine states that either use the federal minimum or do not dictate a minimum of their own, including Arkansas, Georgia, Minnesota, Alabama, and Mississippi.

As for the San Jose store, where the minimum wage is a mere 30 cents over the state's, at $10.30, perhaps other factors were at play.

In D.C., Walmart is abandoning plans to build two superstores in two of the city’s poorest neighborhoods. This was part of a move to bring Walmarts to the city. Against union pressure, city officials agreed to let Walmart open stores anywhere in the city as long as they built two stores in the Southeast part of the city, home of deep poverty and crime. Three stores were opened in gentrifying neighbors and, apparently, haven’t been as profitable as Walmart expected. However, behind closed doors Walmart officials were more frank as the Washington Post reports:

Council member Jack Evans (D-Ward 2), head of the council’s finance committee, sat in on the meeting Friday morning with Walmart officials and Brian Kenner, Bowser’s deputy mayor for planning and economic development.

Evans said that, behind closed doors, Walmart officials were more frank about the reasons the company was downsizing. He said the company cited the District’s rising minimum wage, now at $11.50 an hour and possibly going to $15 an hour if a proposed ballot measure is successful in November. He also said a proposal for legislation requiring D.C. employers to pay into a fund for family and medical leave for employees, and another effort to require a minimum amount of hours for hourly workers were compounding costs and concerns for the retailer.

Progressives have been pushing hard for minimum wages increases from President Obama’s $10.10 plan to the Campaign for $15 national fast food protestors demanding $15 per hour. And we’re seeing the impact.

Those fighting for $15 an hour failed to recognize that choosing arbitrary wages triggers unintended consequences. They assumed that businesses could afford the increases and that employers would swallow the hikes. But now it appears that they won’t and can’t and remain operational.

The impacts of businesses increasing prices, employers laying off workers, forgoing hiring, or cutting hours have so far received the most attention. Here’s an even more difficult scenario: companies forgoing opening new businesses and shutting their doors. In the latter cases, not only do workers lose their jobs but municipalities lose tax bases. That is going to matter come budget time, when city councilors and elected officials face gaping budget holes they can’t close.

The proverb “Don’t cut off your nose to spite your face” seems apropos.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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