Why Are There So Few Big City Walmarts?

Big-box stores have long been an integral part of U.S. suburban life, offering better deals and selection. But they’re less common in cities. There is still no Walmart in New York, Boston, Detroit, San Francisco or Seattle. In the 2010s, Walmart experimented with a smaller-scale model targeted at urban neighborhoods, but the results have been poor. And more recently, large chains that typically have better penetration in cities have closed. The reason for this poor performance is partly due to economics, but can also due to regulatory hostility and other ills of legacy municipal government.

Walmart has a smaller store concept, known as Neighborhood Market. There are 800 of them, focusing on a grocery store-like experience, not the big-box one found in the 180k-square-foot “supercenters.”

The company had previously operated a subchain of similar stores called Walmart Express, which sought to challenge budget grocery stores such as Aldi or America’s many dollar stores. But these folded in the mid-2010s.

The main challenge, according to industry observers, was a supply chain ill-suited to the needs of smaller groceries. Walmart and other big box chains achieve economies of scale through their high sales volume. Walmart Express, which had locations typically spanning 15k square feet, lacked the regular Walmarts’ ability to have many goods at low unit costs, reports Money.com. They also used the same storage facilities used for Walmart supercenters, creating inefficiency.

“Their supply chain system is optimized for the supercenter. It can work reasonably well for a Neighborhood Market of 38,000 to 42,000 square feet,” Kantar Retail’s Dave Marcotte told Money.com. “But when you keep going down in size, eventually it’s going to become an issue.”

Other big-box stores struggle in urban markets too – including Costco, CVS and Rite Aid. Amazon Fresh, which looked to offer a “cashierless” checkout experience, has gone from 1 to 28 stores in 4 year–not exactly a breakneck pace–and most of those are in suburbs.

Along with the supply chain issues, these urban stores deal with high land costs, high labor costs, and retail theft that results from soft prosecutorial policy. Delivery is harder in cities than in suburbs, because more cars are competing for a relatively fixed amount of road space. Together, it makes the entire “big box urban retail” model tough.

But these market challenges don’t even factor the ones tacked on by government, namely in Democratic-run cities. There is a mindset that big box stores are giant evil corporations that underpay their workers and rip off their customers (just note the latest rhetoric about “price gouging” from Kamala Harris’ presidential campaign).

Walmart in particular has long been criticized by legislators for paying minimum wage or close to it. This prompted legislators in cities like Washington, DC to attempt to control wages, causing Walmart to back out of a plan to build six stores (currently there are two in the city).

Another point of opposition stems from the belief that big-box retailers have unfair advantages over locally-owned retailers. A proposed Walmart Neighborhood Market in Boston was abandoned in 2011 after objection from local officials. This is despite the fact that in both Boston and D.C., the stores would have served low-income neighborhoods.

Anti-Walmart nimbyism rang out at the mere idea that one might locate in Seattle, which perhaps explains why the city still doesn’t have one despite many Walmarts dotting the Seattle suburbs.

Target has faced similar criticism, though opposition was less successful–presumably because Target appeals, more than Walmart, to the lifestyle brand of affluent liberals who have decision-making power in big U.S. cities.

If left-wing politicos could look past what they dislike about big-box chains–including what ultimately may be an aesthetic grievance about their big signs and parking lots–there would be some real chance for innovation. Stores could use taller buildings to compensate for the lack of horizontal space. This would help the declining commercial real estate sector, but would likely require zoning changes to allow multi-story retail. Target already does this in some locations.

Big box retailers could also do more to blend their storage and retail facilities, reducing traffic. That too would require rezonings to allow more “industrial flex” space.

Lastly, there could be more housing close to these retail options. A Costco planned in Los Angeles will include 800 apartments on site, thanks to a deregulation effort that allowed for this use mixture.

But to an extent the big box model is one that pencils best in suburban contexts, where land values are low and political opposition distant. It has caused the “weekend shopping trip to the suburbs” to become baked into the routines of many urban residents. Where demand does exist for urban big-box retail, such as low-income communities with less car ownership, there is enough entrenched resistance from labor unions, resident NIMBYs, politicians, and “community groups” looking for their cut, that many of these projects fall through.

The end result is urban retail deserts and more shopping going online to companies like Amazon– a corporate behemoth if there ever was one. Perhaps politicians shouldn’t be so hostile to such stores, whether big or small, just because they don’t fit every last progressive ideal.

This article, originally published by The Independent Institute, contains additional reporting from Market Urbanist content staffer Ethan Finlan.