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Jun 09, 2023

Why are stores from Walmart to Nike closing in major cities?

Keith Redmond wasn’t thrilled when Giant Food closed one of the entrances to its

Keith Redmond wasn't thrilled when Giant Food closed one of the entrances to its supermarket in Bowie, Md., because it created a longer walk to the pharmacy for his elderly father.

So when Redmond spotted company president Ira Kress walking past oranges in the produce section recently, he made a point of politely voicing his concerns for his father. "He's got mobility issues," said Redmond, who recognized Kress from his photo on signs around the store. "From a customer's point of view, it's frustrating."

Kress would rather not make it harder for shoppers to enter the supermarkets he oversees, but closing the entrance is worth it, he said, because it creates more obstacles for shoplifters and allows for fewer guards. It's one way the regional grocery chain is trying to confront a trend reported by retailers across the country: rampant and pervasive theft.

Crime isn't the only problem retailers face right now. There's also decreased foot traffic in urban centers and inflation-related issues such as higher labor and real estate costs. Combined, these forces are leading some of the country's largest companies to take a hard look at underperforming markets, and in some cases, close stores.

But shoplifting is high on Kress's mind these days.

"To say [theft has] risen tenfold in the last five years would not be an understatement," Kress said, noting that violence has also "increased exponentially."

The Bowie store is about 19 miles east of downtown D.C. But the problems retailers face have been particularly pronounced in larger cities — Walmart, Whole Foods, Nike, Kroger, Nordstrom, Old Navy and Target have announced exits from major urban areas. In addition to D.C. itself, other cities seeing news of stores pulling out include San Francisco, Portland, Philadelphia, Chicago, Atlanta and Seattle.

U.S. consumers take frugal turn as inflation persists

The trend, which industry experts say is in its beginning stages, could foreshadow a further emptying of downtowns already wounded by the pandemic. Although retail vacancy rates for dense urban centers have been declining over the past decade, figures from real estate data firm CoStar show the numbers inching up in some cities.

"For the big box and the grocery [stores], which are trying to optimize a single-digit margin, it is very difficult to operate, and you will see more and more exits happening," said Lakshman Lakshmanan, senior director in Alvarez & Marsal's consumer and retail group.

Giant Food — which has 165 supermarkets across D.C., Delaware, Maryland and Virginia — hasn't closed any stores yet, and Kress said he's taking certain actions, knowing they inconvenience shoppers, because "the alternative is worse for customers."

"The last thing I want to do is close stores," Kress added. "But I’ve got to be able to run them safely and profitably."

Idling near the bakery display, waving hello to associates stocking produce, Kress reminisced about his early years at the supermarket chain. As an 18-year-old working as a part-time cashier at a store in Montgomery County, Md., Kress often saw people snatch cigarette boxes from a large display at an aisle endcap.

Thieves now target many other goods, Kress said. "It's continued to escalate," he said. "So now it's Tide and Dove and razor blades and Olay, or roasts or shrimp or crab legs."

And violence has become a constant worry for him.

"We used to chase shoplifters," he said. "And you’d get the product back, and nobody would ever fight you. … I didn't worry about somebody pulling a knife or gun on me [40] years ago."

Kress frequently considers the worst-case scenario. Last year, a woman at a Giant store fired her gun at an armed guard after he confronted her for stealing. The guard also discharged his weapon, and they both died.

Shoplifting has also become a form of organized crime involving coordinated operations "from the theft of goods through the laundering of proceeds generated from the resale of stolen merchandise," according to a study from the National Retail Federation.

"We’re seeing the highest level of organized retail crime and theft ever," Lakshmanan said.

Retailers reported that incidents of organized retail crime increased in 2021 by an average of 26.5 percent, according to the retail federation. Store owners, the report says, blamed organized retail crime for about half of the $94.5 billion lost that year to retail shrink — the depletion of inventory caused by something other than sales.

Stores are experimenting with ways to mitigate the issue. Giant Food has hired security guards — some of them armed, depending on the history of violence in a given store — and limited self-checkout to 20 items. The company also secured items such as razor blades in wall dispensers that make noise when items are removed.

REI, which announced it is closing its Portland, Ore., location next year after nearly 20 years there, spent more than $800,000 in 2022 on additional security at the location, a spokesperson told The Washington Post. This includes new windows with security glass, around-the-clock patrols, better outdoor lighting and a new security camera system.

Nordstrom leaves downtown San Francisco, joining big-city retail exodus

A Whole Foods store in downtown San Francisco placed fliers on shelves instructing customers to find a team member to retrieve alcohol, supplements and other high-value merchandise such as Manuka honey from the back, according to Chris Torossian, a former manager in the bakery department.

"I was kind of surprised at the amount of effort that went into trying to mitigate the situation," he said.

Theft occurred "pretty much daily," Torossian added, and he frequently heard from co-workers who felt unsafe. Team members were instructed not to chase or accuse shoplifters. In one instance, someone threw a cup of hot coffee on an employee's face after they confronted the individual for stealing the drink, Torossian said. He also heard of instances where thieves brandished knives.

In April, the company said it was closing the location "for the time being" to "ensure the safety of our Team Members."

(Whole Foods's parent company, Amazon, was founded by Jeff Bezos, who owns The Washington Post)

That San Francisco location had a police presence, Torossian said. But most retailers don't get that kind of support, Kress noted.

"We have the police come to our stores … they’ll take the information, they’ll record it," he said. "But there's really nothing being done with that, because they had two homicides that were a bank robbery and two shootings. So it's like, where are they going to focus their time and attention?"

Whole Foods did not respond to a request for comment for this story.

As Kress stood near the customer service counter with the store manager for the Bowie location, the health and beauty care aisle manager approached with a dilemma. Giant Food had a new policy to thin the shelves of high-value, frequently stolen items, but she couldn't limit her inventory of vitamins that day because the store was running a buy-two-get-one-free special.

An easy solution would have been to skim the shelves and keep an associate nearby who could quickly replenish items out of stock. But the aisle manager was leaving at 2 p.m., and there wasn't enough staff to take over afterward.

"You couldn't ever do that — and schedule people and pay for it," Kress said. "That's why all of this is so hard."

Like most retailers, Giant Food operates on slim profit margins. Retailers’ costs for operations, labor and rent have all increased during this inflationary era, and the issues have been exacerbated in large urban areas, where minimum wages are higher and store inventory delivery is more complicated and often accrues traffic fines, according to Lakshmanan.

Survey: How is inflation impacting you? The Washington Post wants to hear about it.

Meanwhile, the labor market remains hot, with unemployment rates hitting a post-pandemic low of 3.4 percent.

"It's harder to hire people," said Mark Zandi, chief economist at Moody's Analytics. "Labor shortages are a real problem, and wage costs have risen dramatically."

Rents are still elevated, Zandi added, though he expects them to start declining in urban centers as more retailers leave.

Shifting consumer behavioral trends aren't helping. New government data and earnings reports indicate that more Americans are being strategic — hunting for deals, settling for more affordable options and focusing on essentials.

There was a lot of buzz among Whole Foods staff in San Francisco when the 65,000-square-foot flagship store opened last March at Eighth and Market streets. Torossian, who had worked in stores for seven years prior, was among them. But it became clear soon after opening that things weren't going as planned.

"I can say for sure that the sales and the traffic … were definitely lower than what we were projected to do," Torossian said.

Nordstrom cited diminishing foot traffic as a reason for not renewing leases for its store in Westfield Mall and a Nordstrom Rack across the street in downtown San Francisco. Target said it was a reason for store closures in Philadelphia and Minneapolis.

Tom McGee, president and chief executive of the ICSC, formerly known as the International Council of Shopping Centers, said remote work has had the "most significant" impact on retail in urban areas.

"People aren't going into the offices at the same level of frequency that they did pre-pandemic," he said, and these stores "are very dependent upon office traffic."

Findings from foot traffic analytics firm Placer.ai showed that nationwide retail foot traffic fell 5 percent in March year-over-year. New York saw a 14.2 percent drop in April compared with the same period in 2019. Los Angeles foot traffic fell 12.6 percent, and Chicago's dropped 7.2 percent.

Some of the larger U.S. cities seeing higher retail vacancy rates include Los Angeles, Chicago, San Francisco, D.C. and Detroit, according to data from CoStar.

In many cases, stores are moving to the suburbs. After Nike closed its downtown Seattle store in January, it opened a new location months later at an upscale shopping center in nearby Bellevue, Wash. The company would not tell The Post why it closed its Seattle store but said: "We regularly evaluate our store locations to give us the best opportunity to personally connect with consumers through premium products, experiences and services."

Retail in the suburbs is doing "exceptionally" well, McGee said, with re-leasing rates up and vacancies low. In this case, remote work has helped these stores, he added. Plus, many millennials moved to the suburbs during the pandemic and retailers followed, according to Ethan Chernofsky, senior vice president of marketing at Placer.ai.

"It's not an exodus, it's a transfer," he said. "It's some leaving, other things coming in, to create a new equilibrium."

Bryson Wilson worked at the Walmart on D.C.'s H Street for three years before he left in 2020, but he returned often as a customer. In the past year he noticed uneven inventory on shelves and saw videos of broken freezers. But Wilson still found news of the store shutting down earlier this year shocking and devastating — not just for himself, but for his former colleagues and the community.

In a statement to The Post, a Walmart spokesman said "there is no single cause" for the D.C. closure. "Ultimately, these decisions are based on a number of factors, including performance, population, customer needs, and proximity to nearby locations," said Charles Crowson, Walmart's senior director of global communications.

Many older shoppers on fixed incomes rode the bus to the store, where they bought groceries and filled their prescriptions, Wilson said. Walmart was also the cheapest check-cashing option in the area, he added.

"That's what I find really heartbreaking," Wilson said. "Where are these senior citizens, who don't have access to cars and have limited income, going to shop?"

That kind of consequence weighs heavily on Kress, he said, because Giant Food embeds itself in communities, partnering with local nonprofits and sponsoring Little League Baseball teams. It fuels his frustration when political leaders criticize retailers for leaving cities.

"It's laughable for any of our politicians — and I’ve offered to meet and talk with any of them — to be ignorant to what's going on in their communities, in their jurisdictions, with their constituents," he said. "And for politicians to blame businesses … for leaving is embarrassing."

Back near the oranges in Bowie, Redmond listened as Kress explained the store's reasons for closing the entrance near the pharmacy.

And after making his complaint to the company president, the shopper commiserated with him: "I’m sorry you’re going through all these problems," Redmond said.

Cate Brown contributed research to this report.