Walmart seeks small answers to big sales problem
In a recent interview with Reuters, Bill Simon, the president and CEO of Walmart’s U.S. business, said the recent improvements in the national economy have not found their way to the chain’s cash registers.
"It’s really hard to see in our business today … that it’s gotten any better," he told the news service.
Walmart, which has seen traffic drop for six straight quarters and same-store sales decline for five, is ramping up the rollout of smaller format stores, including its Neighborhood Market, Walmart To Go and Express concepts, to try and reinvigorate its business. The goal is for smaller stores to fill market opportunities in urban and rural areas not fully supported by the chain’s supercenters.
Earlier this week, the News-Journal (Longview, TX) reported that the retailer was scouting sites to open Walmart Express stores in East Texas.
In Tatum, TX, Walmart is moving into a small market currently served by a B&B Food store as well as Dollar General and Family Dollar.
"I think smaller communities like ours — our people do have a tendency to drive out of town to do a lot of their business," Tatum Mayor Phil Cory told the News-Journal. "I don’t know how to project it, but it might mean that some of that business might stay more local."
- U.S. job rebound not spurring spending, Wal-Mart’s Simon says – Reuters
- Wal-Mart Express eyes East Texas towns – News-Journal
- Wal-Mart Aims to Grow by Opening Smaller Stores (video) – The Wall Street Journal (sub. required)
- Walmart opens first ‘To Go’ convenience store concept – RetailWire
- Walmart to play small ball – RetailWire
Discussion Questions
Is Walmart smart to shift its focus to smaller stores to help boost sales in the U.S.? Which of Walmart’s three smaller store concepts — Walmart Neighborhood Market, Walmart Express and Walmart To Go — do you think has the greatest potential to boost the company’s sales?
I have a very interesting finding to report. In our most recent State of the Store benchmark, we found that retailers who under-perform in year-over-year comps generally decide their salvation will be in opening smaller stores, while those who are over-performing are opening bigger ones. In other words, this is not a revolutionary concept.
Walmart has a saturated market. It’s really no more complicated than that. I don’t think opening smaller stores will make much of a difference really. The company is just going to have to hunker down, make incremental improvements in stores, put some payroll back in it and accept that growth will come from existing stores, rather than new ones.
A recent profile of Walmart’s new CEO, Doug McMillon, drew the same conclusion about Walmart’s push toward smaller concepts. Rather than choosing one format, it’s easy to see where all three have “legs” depending on the neighborhood, site availability, competitive landscape and so forth.
As retailers struggle generally with big box productivity and location saturation, it’s smart for Walmart to move in a completely different direction, especially in densely populated cities. At the same time, Walmart’s e-commerce business has plenty of room to grow. Both approaches should finally start to move the needle of U.S. sales over the next few years.
Walmart’s fate is no different than any other retailer who is truly focused on becoming omni-channel. As customers expand their shopping to online, it impacts traffic patterns and purchases in-store.
Perhaps it is time, even past time, to re-evaluate classic store metrics in an omni-channel marketplace. Historically, footfalls and same-store sales have been the benchmarks for retailers and Wall Street.
The question now is how much total business is conducted with Walmart’s core customers across all channels? And if a customer buys online at Walmart.com and picks up a Walmart Express store, who gets credit for the sale?
One thing is a virtual certainty: store sizes will be shrinking for Walmart and everyone else. Today’s consumers are trending toward shopping local, and are quite comfortable in shopping the “endless aisle” online for special items to be shipped to stores or home.
In omni-channel it becomes a question of which shopping cart gets measured; the one online or the one in-store—or both?
It makes sense for Walmart to think small. Many urban areas have been hostile towards Walmart Supercenters or don’t have the footprint needed for a large store. Using its buying power, Walmart can bring lower prices to more people in smaller-format stores. It would seem to be a win for consumers and for shareholders.
Adding smaller formats will not address Walmart OOS issues, which is the fastest way for the company to increase sales here in the U.S. Regardless of which of the smaller formats Walmart elects to open, it will take a fairly large number of units to impact the company’s overall sales.
Each of the formats will likely have a role to play. An example would be the placement of a Walmart To Go on the out lots of new and/or existing Supercenter sites. This will allow them to capture additional shopping occasions (fuel as an example), but unless they change from the current practice of selling goods at the same price as in the Walmart store, the cost of sales for these locations will be high for the volume generated.
It has more to do with limited expansion runway for the core Supercenter concept. Smaller stores give Walmart the opportunity to go into locations where it couldn’t with its big boxes and to reach busy shoppers who prefer the easy in-and-out of smaller formats. By catering to different shopping missions (fill-in vs. stock-up), Walmart likely is hoping to avoid the newer formats cannibalizing existing sales. And while I like Walmart’s ecosystem supply strategy to support these smaller stores, I can’t help but think the company is still having trouble with stock issues in its Supercenters—so can they really serve as distribution hubs for these new small formats?
For all large retailers the past six months have been tough. There are exceptions, but as operations like The Container Store and others reported these have been a tough six months. Kip Tindell, CEO at The Container Store, has also seen lower store traffic. He states that The Container Store and other retailers are in the midst of a “retail funk.”
So for Walmart, the timing of the smaller store approach could not be better. Walmart To Go will do extremely well within this “retail funk” because people stop to pick up just a few items and get gas.
So for you anti-Walmarters, this is not a Walmart issue—it is a retail issue. Most of the trendy people who would never shop at a good retail outlet like Walmart just lost their hyper-trendy Crumbs Bake Shops. The cupcake operation folded yesterday and closed 48 stores.
“Retail funk” driven by trendy, fickle, mobile, social shoppers and an unstable economy. “Da Funk” is on us.
They’ve pretty much reached the saturation point for Supercenters, and the smaller stores have performed well. Walmart is also experimenting with using Supercenters as DCs for the smaller stores, so shoppers can order from a small store by a certain time and get it delivered to that store from a Supercenter 30 to 40-or-so miles away, all in the same day. They’re tying that into online ordering as well. They’re not asleep at the switch at Walmart.
I agree with the proposed strategy that smaller is better. With the shifting demographics of Baby Boomers and the return to cities, these smaller concepts give Walmart an opportunity to capture consumers not likely to venture to the Supercenters.
Personally, I think the smaller concepts have a significant upside to them. Walmart Express positions Walmart against the extreme value retailers, namely Aldi, Save-a-Lot, and the dollar stores. Walmart To Go could be a nice vehicle to compete with the Walgreens and CVS of the market. Where as the original Walmart To Go in Bentonville features a local butcher, this space could make for an ideal pharmacy offering, depending on the marketplace and location.
I would not bet against Walmart figuring it out.
First of all, given their core target demographics, it comes as little surprise that Walmart isn’t enjoying the stunted fruits of an anemic recovery. Their target customers are lower-income and lower-middle class shoppers, after all, and there hasn’t been any recovery for those economic cohorts.
So yes, if you aren’t getting the sales you need plopping down big boxes in big cities, one logical approach is to test small boxes in small town America where people may be more attracted to you as an alternative to driving 30 miles to get what they need.
I’m not a believer in “silver bullet formatting”—successful format choice follows demand, not the other way around.
I’m not a huge fan of Walmart’s smaller formats in general, but again, that’s not to say there aren’t markets where any (or all) of them might not flourish. It needs to be looked at on a market-by-market basis.
Despite the persistent fantasies of so many companies, retailing isn’t a “field of dreams” business. Just because you build it doesn’t mean they will come.
The “parked capital” problem will now dominate brick-and-mortar retail for some years. A typical shopper only shops about 10 percent of a Walmart Supercenter, leaving 90 percent of that capital “parked” as far as that shopper is concerned. That includes both the real estate and the inventory resting quietly, stoically unmoving on the shelves. See: “If you build it, they will NOT come!”
Three problems those rat-maze stores are terrible at addressing: 1.) Navigation to what the shopper wants to buy. 2.) Lack of focus on the big-head items shoppers mostly want to buy. 3.) Inefficient or non-access to the millions of SKUs that Amazon delivers efficiently. Amazon also solves the other two problems.
One solution is smaller stores, chopping off the long tail of millions, further. This is the Lidl/Aldi approach, and is a significant contributor to Costco’s inexorable rise globally. Costco is now rated number two, after Walmart. See: “Top 25 Global Food Retailers 2014.”
I called attention to Costco in “Selling Like Amazon…in Bricks & Mortar Stores!” None of the brick-and-mortar stores are really ideal yet, and if Amazon begins opening small neighborhood markets aka “pickup and/or delivery stations,” the heat will be on both Walmart and Costco. However, managing local store operations is NOT a forte for Amazon, so there is still time to work on the ideal neighborhood store. The small store movement is NOT going away, globally!
Walmart’s small format push is a multi-dimensional proposition. Alternative formats obviously allow Walmart to penetrate under-served markets that can’t support Supercenters, but they are also a critical link in Walmart’s digital strategy.
As Gisel Ruiz, Walmart’s U.S. EVP and COO pointed out in a recent presentation, rural Walmart Express stores are turning items like bikes and smartphones into best-sellers, even though they aren’t available in those locations. Customers are taking advantage of Walmart’s site-to-store capabilities in greater numbers and Walmart is light years ahead of other large-scale retailers in this capability. Walmart is also intentionally maintaining price integrity between formats and online rather than playing games which should engender shopper trust for the long term.
Based on my comparisons, Walmart’s online prices also regularly beat Amazon’s. Walmart is in ramp-up mode, building scale, flexing format attributes to suit specific markets and relentlessly refining the supporting logistics. This is a marathon, not a sprint and I wouldn’t bet against Walmart’s long-term success.
Before commenting on Walmart’s shift to smaller stores, permit me to mention other shifts that affected Walmart’s recent sales challenge.
In the past, Walmart has captured a majority segment of our cost-minded population with its many years of offering lower prices than smaller U.S. merchants. That decimated the traditional local store.
In the recent decade-or-so, America and its cultures have been evolving. It is growing older, which affects peoples mobility, and Walmart’s massive stores can be a physical challenge for many people to maneuver; such people need a smaller assortment of goods to satisfy their lifestyles. Such folks would welcome a more convenient store and a easier-to-shop experience. Its current shoppers may believe that they are not getting the historic cost savings that Walmart constantly promotes. Walmart stores have captured most of the people who relate to their atmosphere, and fewer people are now left to be recruited by Walmart’s current prices and its current milieu, which may be losing its formerly broad-base appeal.
Yes, Walmart needs look to smaller stores, particularly Walmart Express, to boost its total sales trend. But if the focus on smaller stores works, will the sales trend in its big box stores continue to decline? If so, it could signal that it is time for reinvention of the great brand. And that is the real question.
Walmart needs to address customers in all the various formats they want to shop and in all the methods they wish to transact.
Clearly, all these formats have some potential. However, they should remember that the “big-box” got them where they are and they need to be careful not to subvert their own business model.
I think the bigger issue is learning to operate in an omni-channel environment. Herb is right when he says these stores are “parked capital.” They are really big warehouses filled with inventory. “E” stores like Amazon don’t have this problem but they do have a “fulfillment” problem called delivery.
The winners in Omni-channel retailing will need to be good at all the stages of retailing including purchasing, inventory/storage, shopping experience, and fulfillment/delivery. This will require numerous formats and customer interfaces.
Could it possibly be that Walmart successfully navigated the downturn in the economy because of its store size, demographics and prices? Did they draw customers from higher economic status during the downturn who now have returned to the former upper scale buying models?
Why am I having this feeling that I do not feel bad for Walmart?
Walmart is not going to be seeing any kind of same-store increases as long as they keep building more sister stores, large or small, near existing stores. The economy has nothing to do with retail. The economy is good all the the time in retail for good retailers.
Walmart’s growth in sales doesn’t have anything to do with their retailing skills, but rather with taking advantage of weaker, debt-strapped competitors getting run out of town. I see Walmart continuing to identify markets where weaker retailers can be eliminated. I see Walmart Neighborhood Market with the biggest potential, taking over the skeletal remains of closed stores and positioning themselves to steal business from nearby drug stores.
The good part is WMT realizes there is a supercenter problem and is willing to experiment and work towards building its future. Is it going to take some time to figure out the right formula. A combination of formats depending on the market; future growth, density and the like, seems the way forward.
As Herb mentioned, globally, the small store revolution is set to continue. So apart from building out new format stores, where is the opportunity for WMT? Every additional visit to AMZN or one of the several internet retailers is a sale lost in the traditional supercenter/store. Yet, every sale online is an opportunity to add a value added service of some kind. Where does the product go to be serviced/worked on? It’s right in your backyard. At your local WMT supercenter.
It’s back to large back rooms in the supercenters and additional floor square footage dedicate to “services.”
The other issue is online competition, isn’t it? One thing we’ve learned in studies we’ve done is that the more you act like a warehouse, the more vulnerable you are to getting clocked by the likes of Amazon. And isn’t that exactly what Walmart is?
I get that they have customers that don’t like to pay shipping, but that’s on it’s way out sooner or later anyway. Subsequently, you just have to wonder when that shoe is going to drop on them.
Smaller stores and online are the only two areas Walmart has to grow given it has saturated most of other areas. Going forward, Walmart will need to experiment with different store formats, augment with online, and more importantly, figure out how to change the supply chain work (currently optimized for big box and large distribution centers) to be competitive in the retail formats.
It is going to be an interesting battle to see who has the better supply chain—Walmart or Amazon—optimized for their retailing models.
Walmart can move to neighborhood stores; they can move to Mars! It won’t make any difference if they can’t get product to the shelves. I was in WalMart last week with a shopping list of 15 items, EIGHT (8) were OUT OF STOCK. I can’t buy it if you ain’t got it!
Frankly I think someone is making excuses for lousy execution. Walmart has gotten so big that they have forgotten how to block and tackle. They spend all their time throwing passes into the flat when they should be running down the middle of the field. The only person they are trying to outsmart is their customers.
Where is the threat? Target, K-mart, Sears, I don’t think so! Amazon presents a challenge on high ticket items but lets face facts, a high percentage of Walmart’s customers aren’t credit worthy and can’t shop on the internet.
None of Walmart’s small store concepts will solve the problem unless the basic inventory problems are addressed. And if the inventory problems are properly addressed then you won’t have to waste money on the smaller stores because the big stores will work again. How many times will you visit a gas station if you can’t count on them having gas?