Wal-Mart Sees Big Growth Through Small Stores

Discussion
Sep 21, 2010
George Anderson

By George Anderson

It is certainly not the first time that the topic of Wal-Mart
opening small stores has come up, but a Financial Times report that
the retailer is scouting locations between 20,000 and 50,000 square-feet in
markets across the country has many people thinking this could be a game changer.

Speculation
has Wal-Mart opening more of its Neighborhood Market grocery formats along
with its smaller Marketside by Walmart concept. The company is said to be looking
at locations in Chicago, Detroit, Los Angeles, Reno, Sacramento and the San
Francisco Bay area.

Bill Simon, CEO of Wal-Mart Stores’ business in the U.S.,
has also indicated that the company may open a convenience concept based on
those it operates in Latin America.

"We are going to beg, borrow, steal and learn from them as quickly as
we can," said Mr. Simon.

Brian Sozzi, an analyst with Wall Street Strategies,
wrote in a research note that any move by Wal-Mart to smaller stores was both "wise
and long overdue."

Mr. Sozzi said opening stores in urban markets would
give the discounter access to higher income consumers who "could be tapped
for sales of gross margin enhancing categories." A smaller store could
also be used to bring in "customers
more than once every two weeks when paychecks are distributed" to drive
same-store sales.

Mr. Sozzi said Wal-Mart was likely to go about building its
small store base from the ground up and discounted it acquiring a chain such
as Rite Aid, which is reportedly on the block.

"Rite Aid’s store size is on average an 11k square-foot box, well shy
of what will be optimal for Wal-Mart to achieve its ambitions with a new concept," he
wrote.

The Financial Times piece reported that Target is also looking
at a smaller footprint model. The publication cited commercial real estate
executives, including John Bemis at Jones Lang LaSalle, as saying Target was
scouting 20,000 square-foot stores.

Discussion Question: What will a small store concept
developed by Wal-Mart mean for the company and its competitors?

Please practice The RetailWire Golden Rule when submitting your comments.

Join the Discussion!

31 Comments on "Wal-Mart Sees Big Growth Through Small Stores"


Sort by:   newest | oldest | most voted
Richard J. George, Ph.D.
Guest
10 years 7 months ago

The supercenter model has been very profitable for Wal-Mart as it uses food to drive traffic in the higher margin parts of the store. However, this footprint does not necessarily fit the limited parcel option of urban markets. Nor are supercenters conducive to fill-in shopping. Finally, the aging of the baby boomers make the trek through a supercenter a potentially exhausting experience.

Smaller Wal-Mart stores have the potential to address each of these issues and will put additional pressure on independents and the “big middle” supermarkets who lack any distinctive points of difference.

Steve Montgomery
Guest
10 years 7 months ago

Smaller formats will allow Wal-Mart to penetrate the larger cities when the land required for a supercenter simply doesn’t exist. If they are successful it will likely impact the retailers in those areas in the same manner it did the downtown areas of the rural markets Wal-Mart currently operates in.

The issue is not can they build a smaller store, it is will it be successful? Many companies have built smaller footprints but found that they were unsuccessful in adapting their business model to a smaller format. It has been said that “big companies cannot run little boxes.” That being said, Wal-Mart does operate smaller footprints in many markets.

Doug Stephens
Guest
Doug Stephens
10 years 7 months ago

In January of this year I posted an article called 6 Big Ideas for a New Decade in Retail. Number 1 on the list happened to be what I refer to as “Fragmentation” or the idea that due to demographic and economic influences, the Big-Box model of retail was no longer viable and will shatter into smaller retail concepts.

Specifically that “Mass merchants such as Wal-Mart, Home Depot, Costco and others will have to fragment their broad business models into smaller and more specifically targeted retail concepts, each addressing diverse segments.”

This is clearly coming to pass and will continue to do so as the big bullseye in the market–the Baby Boomer consumer–gives way to a myriad of segments and sub-segments with niche needs and localized preferences.

MASS is giving way MEANING and the Big Box as we’ve known it, for the past 30 years is finished.

Carol Spieckerman
Guest
10 years 7 months ago
After years of hinting, hemming and hawing, the rush for small, urban, local is finally on! Walmart won’t be the only one (Target’s heading there as well and I expect Walgreen to move off the mark and start making some Duane Reade format babies in short order); however, they will have the most impact. After returning from Mexico City a couple of months ago, I posited (in my blog) that Mexico City stores (and not just Walmart’s own) would offer the ideal urban template for U.S. retailers, especially Walmart. As for Walmart de Mexico, their stores feature shop-in-shops, perfectly organized checkout areas and, despite the teeming throngs that clogged every aisle in the middle of the day (no exaggeration), everything remained neat and in place. My client and I couldn’t help but speculate about how much business one of those stores does in an average day as it was certain to be exponential when compared to a typical U.S. store. By putting the pedal to the metal on small/urban, Walmart is positioning as an incumbent… Read more »
John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 7 months ago

The concept of opening a smaller format in urban areas where they can tap wealthier families is good, but it won’t be easy. Many communities may shy away from a Walmart entering their market fearing it may scare away other smaller chains or more importantly, locally run and owned stores that the community now depends on.

Walmart needs to focus on it’s growth and profitability. It has that responsibility to share holders. Communities need to focus on their long term viability and make sure a small format Walmart does not leave their community with lots of vacant store fronts two years after they let a Walmart open.

It will be interesting to see how Walmart explains to small communities the long term benefits of having a small format Walmart in their community.

Gene Hoffman
Guest
Gene Hoffman
10 years 7 months ago

What will Wal-Mart’s small store concept mean for itself and its competitors in urban areas?

1) More turmoil for all food retailers. 2) Wal-Mart will expose itself more widely to unionization…but if it can successfully withstand that challenge, ordinary supermarkets will get hurt further. 3) More delineation of who will shop where in the future.

Paula Rosenblum
Guest
10 years 7 months ago

I just don’t think Walmart has the expertise to logistically manage small footprint stores. I didn’t think so 5 years ago, and I still don’t. It’s a whole other skill set, from creating the assortment to managing the logistics.

I think it’s a distraction, and Walmart doesn’t need it. The company seems to have bigger issues in its core store formats. No company can be all things to all people.

Anne Bieler
Guest
Anne Bieler
10 years 7 months ago

This will continue to be a high priority for Walmart. They are also considering the hurdles they face in highly competitive urban markets. Facing higher operating costs and much smaller shopper baskets, it will be a real challenge to get it right. There is a huge opportunity, but will require localized assortments in the face of so many other good retail choices in the same market.

Warren Thayer
Guest
10 years 7 months ago

It’s a good move for Walmart, and overdue. It spreads some of the risk if in fact the big box is waning. If they can leverage the synergies and economies of scale, it could be devastating for middle-market and regional chains.

Mel Kleiman
Guest
10 years 7 months ago

Small may not be good for Walmart. I don’t think the problem will be can they build and stock the stores – the real question is where are they going to get the managers to run those stores?

If I have a great manager and I am Walmart I will put them in the big stores that means small stores get the lesser managers and I suggest that in many cases smaller stores need better managers because they don’t have all the support they need at store level.

Dave Wendland
Guest
10 years 7 months ago

For the company? This is great news. The aging population is not as interested in Supercenters. Consumers seek convenience, speed and access. I think Wal-Mart is responding to an absolute certainty and this will bode well.

For the competitors? This is not-so-great news. The new, focused and smaller formats will likely attract shoppers from other options and may, in fact, have a greater impact on specialty retailers in the same geographic area than Wal-Mart initially did on retailers in rural America.

Marge Laney
Guest
10 years 7 months ago

Walmart is pulling out all the stops to finally reel in that elusive high-income customer who fleetingly and disingenuously makes a pledge to ‘Save Money, Live Better’ every time there is a downturn in the economy. Will this be the winning format? Only time will tell, but they better make sure that they differentiate the product and the experience enough to make them stick around.

Dan Berthiaume
Guest
Dan Berthiaume
10 years 7 months ago

Never bet against Wal-Mart. Although Wal-Mart has slipped in the past couple of years, with Target and dollar store chains as the major beneficiaries, it is still the world’s most successful retailer with the best supply chain. Wal-Mart will probably have some bumps in the road to scaling its operation down to this smaller format, but especially considering its ability to ruthlessly slash prices and still make a profit, will probably have success.

Mark Johnson
Guest
Mark Johnson
10 years 7 months ago

Small is going to be a challenge for Wal-Mart. I think the flaws (HR and knowledge based) are going to be exposed. The uneducated store clerk, the haughty attitudes and the people who tend to shop Wal-Mart in a smaller environment is going to be a challenge. You put up with some of this in a larger, more impersonal environment, but it is going to be a HUGE challenge in the smaller footprint store.

Cleo Parker
Guest
Cleo Parker
10 years 7 months ago

I’m speaking as a consumer here; Walmart opened a regular (non Supercenter) store 4 miles directly north of a Supercenter here in metro Detroit. As someone used to the full selection (still limited compared to a grocery-only store) at the Supercenter, I get frustrated shopping in the smaller store. I recently decided I’m not shopping there anymore.

Last time I wanted to purchase diet lemon-lime pop and there was only ONE brand available, IMO that’s too limited. Just 7UP, no diet Sprite, Twist-Up, or Mountain Mist, this seems like a weird prioritization of shelf space to me. It seems like the entire store is an experiment–not only is the selection limited, some prices are quite different from the Supercenter as well.

Gene Detroyer
Guest
10 years 7 months ago
Wal-Mart has the best logistics system of any company in the world. There is no doubt that they can deliver products to any size store, anywhere, anytime. There is no retailer even close. History tells us retail concepts do not last forever. Unfortunately most retailers are insular in their thinking and can not see past their current success. Wal-Mart obviously is exploring the future with these concepts. Consider the little talked about Wal-Mart online business. Wal-Mart has committed to make its on-line business #1. Though the likelihood of Wal-Mart surpassing Amazon sometime in the next 20 or so years is slight, the likelihood of Wal-Mart being #2 behind Amazon is very high. And, there is no #3 in sight. If I am the management of Wal-Mart and I am projecting tremendous growth in online business and even if I am accepting a #2 position, I have to recognize (1) where that business is going to come from and (2) what will consumers need at brick and mortar to supplement their online shopping? Logic tells us… Read more »
David Livingston
Guest
10 years 7 months ago

This could mean several years of rapid store growth. The small town discount stores like Pamida and Alco will be finished. Any place there is a small discount store and a grocery store will be an opportunity for Wal-Mart.

Ed Rosenbaum
Guest
10 years 7 months ago

If Wal-Mart says they are going to do something, the world is going to listen. The success they have makes us believe they will continue to search and find new ways to create revenue streams.

The smaller footprint is not a new conversation. Recall that Best Buy and Radio Shack were rumored to be talking earlier in the year. The proposed merger would have given Best Buy a presence in smaller markets where larger footprints would not be workable from a financial investment (no matter how deep the pockets).

Wal-Mart is looking to do the same thing without a partner. There certainly is enough real estate inventory to allow it to happen with just Linens ‘N Things, Circuit City and Tweeter alone.

Ed Dennis
Guest
Ed Dennis
10 years 7 months ago

I don’t know why everyone is jumping to the conclusion that a small format store is being designed for urban areas. I think the best application is in rural areas where population is not large enough to support supercenters.

There are several retailers out there right now doing well. Dollar General (which is not an ‘everything is $1’ store) now serves thousands of communities as a mini Wal-Mart and has announced plans to add/expand grocery sections. I personally think Wal-Mart is too smart to try to invade urban areas and have to put up with protests, low-income traffic, high crime, etc, when there are thousands of rural communities where they would be welcomed, where land is cheap, where decent labor is in good supply, where land and building costs are low and where profits can be made without all the impediments of activist groups and bloated government. Remember, Wal-Mart is in Arkansas and doesn’t usually play foolish games.

Ted Hurlbut
Guest
Ted Hurlbut
10 years 7 months ago

What I’m reading here is that Walmart wants to explore smaller store formats, but not necessarily downsizing the Walmart prototype to fit into that smaller square footage. As a result, what we’re talking about is not necessarily smaller Walmart stores, and I think that’s the key.

I’ve always questioned how well Walmart would translate in an urban market. It’s more than just a real estate issue. To me, this is about creating a new concept that trades on Walmart’s skills and capabilities, without simply replicating a Walmart store in a smaller footprint.

Mark Barnhouse
Guest
Mark Barnhouse
10 years 7 months ago

All Walmart has to do to get this jump-started is buy Fresh & Easy from Tesco. F&E will likely never figure out the American consumer, and at some point in time after Sir Terry has retired, his replacement will make the decision to pull out of the U.S. Walmart could pick up the chain on the cheap, re-merchandise it, re-brand it (or not) and grow from there.

Ben Ball
Guest
10 years 7 months ago

Walmart has been getting ready for this ever since they bought McClane. They already know the distribution system and what sells where. The biggest question is “what will they add to make the Marketside (or whatever it is) more attractive than a 7-Eleven? Or more to the point, more attractive than a Wawa, Sheets or Duane Reade?

The assumption that this format has urban markets as its principal target is probably a good one. Dollar stores have already covered much of this ground in rural areas–and have missed a huge opportunity by not going urban before Walmart/Walgreen’s/Tesco or whomever gets there first.

But to keep the open mind, it is possible that Walmart may have just gotten tired of ceding those small rural market sales to the Dollar stores when the shopping trip doesn’t justify the five mile drive to the Supercenter. It that’s the case, this could be really interesting. Can you say “Hatfield’s and McCoy’s”?

Joel Rubinson
Guest
10 years 7 months ago

Let me put on my branding hat for a moment. Things like “the parcels of land that are available in urban areas are smaller so small footprint is what makes sense for Walmart” are not considerations for a shopper. In a branding sense, Walmart equals big and low price. Everything you could want to buy is there (assuming you are willing to trade off a bit on brands). If a shopper walks into a Walmart in New York and does NOT have that feeling, the brand could be damaged. Perhaps if Walmart creates a sub-brand and spend a lot in advertising, they would be OK. But just creating a smaller Walmart because there is less land is risky business.

Craig Sundstrom
Guest
10 years 7 months ago

Count me among the nay-sayers (or at least the “I’m not so sure”ers): few things can ruin a company quicker than leaving their area of expertise; for 40+ years Wal-Mart = Big; big stores equaled big profits, bigger and bigger stores equaled bigger and bigger profits…to now move into smaller stores on the claim it will fill out their portfolio seems like an idea fraught with peril.

Phil Rubin
Guest
10 years 7 months ago

Wal-Mart opening smaller stores is clearly one of best and last places to drive growth on top of the $400+ billion they are doing today. While many very smart people are questioning their ability to operate a smaller format, if they employ a different brand, marketing, merchandising and store operating plan, I would not bet against them.

They are super optimal in terms of logistics and pricing efficiencies ($400+ billion in sales clearly redefines the concept of economies of scale!) and while it’s going to take some creativity on their part, they have at least some of the foundational ingredients to be successful.

Of course, if they knew their customers and could directly connect with them outside the store, that would be a trump card!