When Wal-Mart announced on January 15 that it will close 269 stores, including 154 U.S. units, it didn’t mention that it would also discontinue its plans to build two new Wal-Mart stores in Washington, DC.
Those stores, which were to be located in two of the most economically challenged and underserved areas of the District – Alabama Avenue and Good Hope Road SE (Skyland Town Center) and East Capital Street and Southern Avenue NE (Capital Gateway Marketplace) – will not be built, according to company officials.
In late 2010, the Bentonville, AR merchant and the District of Columbia (then under the governance of Mayor Vincent Gray) struck a deal in which the world’s largest retailer would construct six stores in the nation’s capital. In fact, the initial agreement would allow Wal-Mart to open additional stores anywhere in the District as long as it would build two stores in the city’s poorest wards.
Over the course of the next three years, Wal-Mart pulled out of a preliminary deal to build a new store on New York Avenue and Bladensburg Road NE. What remained were promises to open five stores – H Street, NW; Georgia Avenue, NW (both of which opened in December 2013) and Riggs Road and South Dakota Avenue, NE (which opened in October 2015). The two other units – Skyland and Capital Gateway – were delayed, but those projects were still alive until “Black Friday.”
According to the The Washington Post, Wal-Mart officials entered the office of current Mayor Muriel Bowser saying those two stores were not going to be built; the withdrawal was part of a larger 154 store U.S. downsizing affecting multiple banners – Wal-Mart, Express, Sam’s Club, supercenters and Neighborhood Markets.
Mike Moore, the company’s executive VP of supercenters said that the three existing Wal-Mart stores were underperforming and company officials were not confident that the two unbuilt units would generate enough sales.
Needless to say, Mayor Bowser was angry (she termed it “blood mad”), not only because the city had worked long and hard to attract Wal-Mart (which would be a major contributor to adding new jobs and increasing the city’s tax base), but because it already spent an estimated $45 million on the Skyland project alone to acquire land via eminent domain and also committed another $40 million in tax increment financing before Wal-Mart signed a lease. Moreover, it agreed to pay Safeway $3.6 million beginning in 2019 (contingent on a new store opening) to address a covenant preventing other grocers from operating close by, The Post story noted.
Longtime City Council member Jack Evans was even more blunt in his assessment of Wal-Mart’s actions: “The optics of this are horrible. They are not going to build stores east of the (Anacostia) river, in largely African-American neighborhoods? That’s horrible; you can’t do that. A deal’s a deal.”
Included in the overall U.S. store closures are all 102 “Express” small format units, 23 Neighborhood Markets, 12 SuperCenters, seven stores in Puerto Rico, six discount centers and four Sam’s Clubs. There are no “Express” units in the Northeast, although a “Division 1” Wal-Mart store in Baltimore closed on January 17 and three Sam’s Club’s in New England – Fall River, MA; Seekonk, MA; and Warwick, RI – closed on January 28.
Prior to this announcement, Wal-Mart said in October 2015 that it had begun an active review of its portfolio to ensure assets were aligned with strategy. These announced store shutterings follow a thorough review of Wal-Mart’s nearly 11,600 worldwide stores that took into account a number of factors, including financial performance as well as strategic alignment with long-term plans. In total, the impacted stores represent less than 1 percent of both global square footage and revenue, the Bentonville, AR retailer noted. “Actively managing our portfolio of assets is essential to maintaining a healthy business,” said Doug McMillon, president and CEO. “Closing stores is never an easy decision, but it is necessary to keep the company strong and positioned for the future. It’s important to remember that we’ll open well more than 300 stores around the world next year. So we are committed to growing, but we are being disciplined about it.”
Wal-Mart noted that it will focus on strengthening SuperCenters, optimizing Neighborhood Markets, growing the e-commerce business and expanding pickup services for customers. Internationally, the company said it is also following a disciplined strategy of actively managing its portfolio. Consistent with this strategy, the company is closing 115 stores outside the United States. This includes 60 recently-closed, loss-making stores in Brazil, which represents only 5 percent of sales in that market. The company has already been able to relocate many affected associates in Brazil to other stores. The remaining 55 stores are primarily small, loss-making stores in other Latin American markets. Wal-Mart will disclose more details about those actions, including the number of stores per market, after completing local associate and community outreach. Wal-Mart said it will continue to invest in its future, with plans to open stores worldwide in the coming fiscal year. Domestically, Wal-Mart intends to open 50 to 60 Supercenters and 85 to 95 Neighborhood Markets in fiscal 2017, which began February 1. In the same period, Sam’s Club plans to open seven to 10 new locations. Internationally, Wal-Mart intends to open between 200 and 240 stores during the coming year.
The financial impact of the announced closures is estimated to be approximately $0.20 to $0.22 of diluted earnings per share from continuing operations, with approximately $0.19 to $0.20 expected to impact the fourth quarter of fiscal 2016. The remainder of the impact will fall into the first half of fiscal 2017. Approximately 75 percent of the impact relates to U.S. closings and the remaining portion involves Wal-Mart International, with a large majority of the international impact relating to the closures in Brazil. Wal-Mart will report its fiscal 2016 fourth-quarter and full-year results on February 18. The estimated financial impact is not included in the company’s fiscal 2016 fourth quarter and full year earnings guidance.
In total, approximately 16,000 associates will be impacted by the decision, about 10,000 of them in the U.S. The world’s largest retailer stated that more than 95 percent of the closed stores in the U.S. are within 10 miles on average of another Wal-Mart, and the hope is that these associates will be placed in nearby locations. Where that isn’t possible, the company will provide 60 days of pay and, if eligible, severance, as well as resume and interview skills training. Whether with Wal-Mart or elsewhere, the company’s objective is to help all associates find their next job opportunity. “The decision to close stores is difficult and we care about the associates who will be impacted,” McMillon said. “We invested considerable time assessing our stores and clubs and don’t take this lightly. We are supporting those impacted with extra pay and support, and we will take all appropriate steps to ensure they are treated well.” After Wal-Mart came clean with the analysts during its “Black Wednesday” Investors Day, there was little doubt that every area of the Behemoth’s operation was going to be scrutinized.
Now the bloodletting has begun.