Why Target Walked Away from Chicago

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In a big-city showdown with Chicago’s “big box ordinance,” Target announced today that it was scrapping plans to build a store on the city’s North Side. Big-box ordinances, a relative of living-wage laws, require large retailers like Target, Home Depot and Wal-Mart to pay a minimum wage closer to $10 an hour versus the Federal minimum of $5.15 and in some cases offer health coverage. The ordinances have become popular in big cities, a relatively unexploited market so far for big-box retailers. But are the ordinances ultimately hurting the very city residents they allege to protect?

Big-box stores claim that the laws drive up the costs of doing business in the city, and ultimately deprive residents of services, low prices and jobs. There also is the race factor. In Chicago, like in many big cities, the most overlooked neighborhoods are often predominantly black. Wal-Mart has sought to score points and profits in the black community, but on its own terms — the company made a hard sell to black neighborhoods in Chicago and Los Angeles, where residents are desperate for big stores. Earlier this year, the company announced its “Jobs and Opportunity Zone Initiative,” a campaign to open 50 stores in blighted, high-crime areas. Exploitation or economic expansion? That’s the wedge Wal-Mart has driven between residents of these neighborhoods. Labor and community activists have kept Wal-Mart out of some neighborhoods, but minority real estate developers — and the lure of jobs, whatever the wage — have prevailed in others. But Wal-Mart’s wedge strategy may be hard to maintain.

In Chicago, big-box retailers have been successful on a site-by-site basis. But the City Council vote — a 35-14 drubbing — takes the issue citywide. Furthermore, retailers like Target and Wal-Mart have to answer to their shareholders, who demand growth. “The cities are really the last frontier for big-box retailers,” says Arindrajit Dube, a research economist at the University of California, Berkley. “The only place they are growing is global, but the urban market is just too lucrative for them to ignore.”

In the short term, the ordinance will hurt the citizens who are most desperate for better choices of retail outlets. In Chicago, Wal-Mart said it would scale back its plans and focus on the inner-ring suburbs. That’s not exactly a plan for the future — it might instead be a game of economic chicken.