Walmart abruptly announced Friday that it was abandoning a promise to build stores in Washington’s poorest neighborhoods, an agreement that had been key to the deal allowing the retailer to begin operating in the nation’s capital.
The giant retailer cited increasing costs for the new projects and disappointing performance at the three D.C. stores it opened over the past several years. But news that Walmart would pull out of two supercenters planned for east of the Anacostia River, where its wares and jobs are wanted most, shocked D.C. leaders. In one case, the city had already committed $90 million to make a development surrounding one of the stores viable.
“I’m blood mad,” D.C. Mayor Muriel E. Bowser (D) said at a Friday news conference.
“It’s an outrage,” said former mayor Vincent C. Gray (D), who in 2013 completed the handshake deal for the stores. “This is devastating and disrespectful to the residents of the East End of the District of Columbia.”
The decision to withdraw from the planned D.C. locations came as part of a broader strategic move by the nation’s largest retailer to shutter 269 of its stores around the world — but not the existing D.C. stores, the company confirmed — a plan Walmart hopes will allow it to focus on becoming a more serious player in online shopping and to improve its remaining fleet of supercenters and grocery stores.
But in the nation’s capital, the two stores were more than statistics. For D.C. leaders, they amounted to Walmart’s breaking a promise that had allowed it to win a public relations coup at a critical point for the company.
After saturating the nation’s rural landscape with big-box stores at the turn of the decade, Walmart had been blocked by liberal politicians and unions in New York and Boston from its next frontier, remaking retail in the nation’s urban core. But in the District, Walmart won the right to open stores surrounding the U.S. Capitol — and a symbolic victory for its belief that low-price goods help its poor customers more than low-wage jobs hurt its workers.
Under the initial deal, Walmart could build stores almost anywhere in the District, as long as it opened two stores in its poorest wards and areas of the city sometimes referred to as food deserts, with few — if any — options for fresh produce and groceries. One was planned for Skyland Town Center in Southeast Washington and the other at Capitol Gateway Marketplace in Northeast Washington.
The deal came at significant cost, however. Pushed by labor unions, a majority of the D.C. Council at first pushed back against welcoming Walmart to the city. Opponents cited Walmart’s large profits and refusal to let workers unionize, as well as its reputation for low wages.
But as recently as last week, all of that seemed like a distant memory. In her list of first-year accomplishments, Bowser had included a ribbon-cutting ceremony at the city’s latest Walmart, at Fort Totten, in a video montage and listed a technical deal signed in the fall that cleared a final roadblock for construction at Skyland.
Then on Friday, the deal was off. Walmart officials entered the mayor’s office early in the morning and apologized, saying plans and economics had changed. Large urban Walmarts were more expensive to build and less profitable to operate than expected — especially, it turned out, in the District.
Mike Moore, Walmart’s executive vice president of supercenters, said in an interview that the decision to pull out of the projects at Skyland and Capital Gateway was based on fresh assumptions the company was making about the potential profitability of those stores. The officials said that they did not feel confident that the planned stores would generate healthy sales volume. Their latest math suggested that construction and operating expenses were going to be higher than they had originally budgeted for.
So far, Moore added, the three stores Walmart has opened — one blocks from Union Station in the trendy NoMa neighborhood and two in gentrifying areas along Georgia Avenue and at Fort Totten — were underperforming and “just not anywhere close to your expectation.”
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.
“They were saying, ‘How are we going to run the three stores we have, let alone build two more?’ ” Evans said.
“The optics of this are horrible; they are not going to build the stores east of the river, in largely African American neighborhoods? That’s horrible; you can’t do that,” Evans said. “A deal’s a deal.”
It was immediately clear that Walmart’s announcement could also reverberate in a city election year. Gray, who is considering an effort to resurrect his political career after prosecutors dropped an investigation into his first mayoral run, said he was outraged.
Gray cast blame on Bowser’s team, saying he had met with the project’s developers two weeks before he left office last year and “everything was on track.”
“What did the administration do to stay on top of this? There is no bigger project going on than this one, maybe in all of the East End,” he said of Skyland.
Gray could run this year against Ward 7 Council member Yvette M. Alexander (D) or in an at-large race. But on Friday, he sounded more like a mayoral candidate.
“If I were mayor, I’d get on a plane and go to Bentonville,” to Walmart’s global headquarters in Arkansas, Gray said. “They should be held accountable.”
Speaking to reporters, Bowser was more muted. She said she was disappointed but stressed that the District’s three existing Walmarts were not on the closure list.
Michael Czin, her communications director, said that Walmart had signed a lease at Skyland, but attorneys for the administration and the developer were still analyzing whether either could be entitled to legal recourse.
“We’re assessing options and looking at everything,” he said. “We continue to talk to legal counsel. It’s still somewhat early; folks are looking into how everything was written.”
Fenit Nirappil contributed to this report.