Walmart’s View from 15,000 Square Feet

Discussion
Mar 14, 2011
Tom Ryan

Walmart has long talked about plans to open smaller stores, but
few saw them looking this small. Its new Walmart Express format is expected
to be only 15,000-square-feet.

The “Express” name was first revealed
during Wal-Mart’s fourth quarter conference call. But last week at the Bank
of America Merrill Consumer Conference, Bill Simon, president and CEO, Walmart,
U.S., elaborated on the opportunity.

“We have been hard at work on this roughly 15,000 square-foot format,” he
said. “We’re in the process of developing and we will open in the second
quarter in both urban and rural pilots with pharmacy and without pharmacy,
varying levels of fresh and other products, product assortment.”

He added, “The
aim here, folks, is to get the right model so that we can rapidly roll these
things out. At our peak we built about 350 supercenters in a year, so when
we get this thing right, these are going to come real fast and we’re real excited
about this format.”

According to Bloomberg News, Walmart Express
will have about 12 aisles, with one side wall and part of the back wall allocated
to produce, refrigerated foods and frozen foods. Three are so far planned for
Arkansas, according to Bloomberg.
One is also planned or the South Side of Chicago, two blocks from where a Walmart
Supercenter is scheduled to open in early 2012, according to the Chicago
Sun-Times
.

Even smaller, Mr. Simon noted that its first Walmart on Campus
opened on the University of Arkansas early this year is “doing way better
than anybody anticipated.” The 3,300 square feet prototype carries 2,800
SKUs, half grocery/half GM/OTC/HBC. Mr. Simon added, “There’s been a lot
of interest from a lot of other college campuses, the universities on this
project, and it’s something that we think is going to play out pretty well
for us.”

The third smaller format, Neighborhood Market, is being rebranded
Walmart Market. Focusing on groceries and pharmacy, it ranges as low as 25,000
to 30,000 square feet to as high as 60,000 to 70,000 square feet.

Overall,
Mr. Simon said of the smaller stores, “We are going to be adding
hundreds of these in the coming years and maybe even more depending on how
they work out.”

Addressing an investor’s question, he also said Walmart
would be open to acquisitions to drive expansion among small formats.

“Once we get them right, these are small locations that you can build
really quickly and you could either acquire somebody or you could acquire sites
relatively easily in a place that might not even be a retailer,” said
Mr. Simon.

Discussion Questions: What do you think of the potential of the Walmart Express format? What will to be key to the format’s success in rural and urban markets? What would you be thinking right now if you were running a regional grocery chain?

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26 Comments on "Walmart’s View from 15,000 Square Feet"


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Max Goldberg
Guest
10 years 1 month ago

When they have saturated the country with big box stores, the next logical step for Walmart is smaller, express stores. If they can build the right mix of grocery and non-grocery items, and deliver value, they should be a success. Asda and Tesco have executed this successfully in the UK. There’s no reason why it could not work here.

David Biernbaum
Guest
10 years 1 month ago

The Wal-Mart Express stores will do well if they stay true to Every Day Low Pricing.

Bill Emerson
Guest
Bill Emerson
10 years 1 month ago

Walmart’s primary challenge today is to figure how to drive domestic comp store increases, no small feat for a company of its size. As someone else pointed out the other day, a 1% comp increase for WM equates to every man, woman, and child in America spending another $10 a year in a WM store.

Given the level of saturation in big box stores, experimenting with different formats is a logical, if not unavoidable, strategy, particularly in areas where they currently have no presence. The question is whether they can add net sales and not just cannibalize their existing stores.

WM didn’t get to be the biggest retailer in the world by doing dumb things. My guess is that they will try a variety of formats and, when they find a mix of assortment and size that works, will roll it out aggressively.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 1 month ago

The Express and Campus Walmart models have huge potential. Both models have potential in not only the US, but globally, especially in places where real estate is at a premium like China, Japan, and some parts of Europe. I am surprised Walmart would not explore convenience stores at fuel stations. Who knows, maybe that is on the drawing board for a future date?

Local communities should truly understand how this will affect their community before embracing such a concept. If you are fond of local stores run by local owners a format like this could put them out of business in months.

Cathy Hotka
Guest
10 years 1 month ago

Walmart On Campus would be HUGE. Many college students face long bus trips to get reasonably-priced laundry detergent, beverages and snacks, and clothing basics. Students would flock there, particularly if Walmart can make the stores seem cool, not stodgy.

Marge Laney
Guest
10 years 1 month ago

Walmart is being pummeled by the dollar stores so it makes sense to develop a small format store and go after them on their own turf. Walmart has stated that it wouldn’t rule out an acquisition. Family Dollar is the second largest of the dollar store chains and although they have recently spurned a bid to be acquired, but who knows, the right price may turn their heads. If not there’s always Dollar General or Dollar Tree. If you can’t beat ’em, buy ’em.

Doug Stephens
Guest
Doug Stephens
10 years 1 month ago
Funny…30 years ago the retail community feared Walmart because they were so big. Now the fear is that they’re becoming small again. This is more than just a story about distribution strategy though. It’s a case study in demographics. Walmart grew on the back of Baby Boomer spending, which will continue to decline as they age. (They’ll ALL be 65+ by 2031.) As Boomers age, they progressively move spending from goods to services including health care. With that in mind, I’d expect to see a significant emphasis on pharmacy in these locations. Secondly, Walmart currently has no meaningful connection to teens, tweens or twenty-something shoppers and these are the power consumers of tomorrow. Go into a Supercenter and see how many Generation Y you see shopping on their own–you won’t see many. The campus store concept is the perfect entry point to make a connection to this key segment. If they fail to become relevant to Gen Y, Walmart (in North America anyway) won’t survive. A final important point is that both concepts make it… Read more »
Ben Ball
Guest
10 years 1 month ago

One of the fundamental tenets of Walmart is to serve the under-served consumer. Whether that is with size, selection and price in rural stores or with location/proximity in urban areas, that expertise is in their wheelhouse, so to speak. International experience notwithstanding, how well they will select sites and service consumers for smaller stores out of their large scale U.S. operational format remains to be seen. I wonder if/how McLane plays into this strategy?

Ed Rosenbaum
Guest
10 years 1 month ago

If Walmart says they are going to do it, then it will happen. My thought is the Express model has the best chance for success. Just as important, look at all the vacant retail space they will be eliminating. Realtors have to love them. Not only for the space they will take but the draw effect for the other nearby merchants.

Richard J. George, Ph.D.
Guest
10 years 1 month ago

Campus stores are way overdue. This past summer when students were moving onto campus, several of our food marketing majors, who interned with Walmart worked with a local Walmart and set up a kiosk selling needed move-in items (cleaning products, bottled water, back-to-school supplies, snacks, etc). They were very successful, even selling a number of flat screen TVs.

As for the Walmart Express stores, convenience stores and pharmacies need to realize that they are now firmly in Walmart’s cross-hairs.

John Karolefski
Guest
10 years 1 month ago

Walmart has its eye on the Boomer generation, which is now aging and in need of health-related products and services.

So the Express model and the inclusion of pharmacy makes a lot of sense for obvious reasons.

Art Williams
Guest
Art Williams
10 years 1 month ago

Now would not be a good time to be investing in Aldis or Save-A-Lots. This will be a huge expansion opportunity for Walmart. They will gain access to the large cities that have shut them out and there will be virtually nowhere that this concept won’t work for them. I would think that the Walgreens and CVSs should be reviewing their business models as well.

Solomon Ets-Hokin
Guest
Solomon Ets-Hokin
10 years 1 month ago

When it comes to grabbing market share real estate matters. WM’s grocery format is designed to over take the mid-market players (i.e. Safeway, Kroger), and the express is for the pharm/dollar formats (i.e. Walgreens, CVS, Dollar General)…Tesco’s Fresh & Easy is a bonus (and ironically seems to be the kick in the pants that got WM going).

Given this article and the ensuing comments, the Rite Aid acquisition rumors makes sense.

Chuck Chadwick
Guest
Chuck Chadwick
10 years 1 month ago

It is quite interesting that Walmart is developing smaller square foot formats. In early years of my Kmart retail career in the 1970s/80s, one of the reasons (among others) Kmart lost the discount store war was that the company introduced four basic sizes of stores ranging from 40,000 to 100,000 square feet plus. It was Kmart’s concept that it wished to be a part of the retail community and not to become “the” community, so it developed stores that would fit nicely into each of the many communities. However altruistic that may have been, Walmart often followed Kmart with a 100,000 square foot store, regardless of the size of the community, with which, of course, Kmart was unable to compete. It was a good idea then, but it took 40 years for the concept to take hold. Perhaps the lesson learned is that a leader must be careful not to get too far ahead.

Bill Bittner
Guest
Bill Bittner
10 years 1 month ago

An express format supported by a strong internet presence and pick up in store capability is the way of the future.

Charlie Moro
Guest
Charlie Moro
10 years 1 month ago

One thing about Walmart may be that they may stumble from time to time, but once focused, they have an ability to turn their systems and scale to make things successful. They may have dabbled against dollar stores and Aldi and the kind, but making a 15,000 square foot vehicle work may take all of their efforts. Still, the upside is nothing but up.

Herb Sorensen
Guest
10 years 1 month ago

It is quite interesting to me how pretty much the entire retail industry refuses to acknowledge one of the single most important facts about retail. More people go through the checkout with only one item than any other number of items, two being the second most common. This is true for a Walmart Super Center, too. In fact, for a supermarket, HALF OF ALL TRIPS BUY 5 OR FEWER ITEMS. Most people say, to hell with the facts, we’re here to sell a lot of stuff, so we’re only impressed with big baskets. And so shoppers are saying, to hell with you, and are increasingly heading to smaller stores.

Whether Walmart has bent to the will of shoppers or not, they are now embracing the small store movement with gusto, and nothing but good can come from this–for Walmart. (Did Marketside go away? I didn’t see any mention here.)

Charles P. Walsh
Guest
Charles P. Walsh
10 years 1 month ago
In a March 5th, 2007 RetailWire discussion entitled “Are convenience stores in Walmart’s future?” I commented about my view on the importance of small stores relative to Walmart and others in retail. My views haven’t changed although my prediction of how soon Walmart would dive in was a little premature. “The Neighborhood Market concept was developed, not so much as a small store concept unto itself but rather to tap into the “fill in” shopping needs of the Walmart customer. Additional benefits were that the NM would take pressure off of the already over crowded Supercenters on the weekends and allow the company to tap dollars which were being spent by those who for convenience sake were shopping at other retailers for in-between shopping trip needs. It was a good concept at the time it was developed and launched but in effect, was a sort of “mini-me” for Walmart. Initially, the stores had a much larger selection of GM, largish seasonal offerings and a smallish fresh section. Also the store size at 30-40,000 square feet… Read more »
Eliott Olson
Guest
Eliott Olson
10 years 1 month ago

Walmart will increasingly be pressed on US super center profits as employee costs rise because of tenure and same store sales stagnate with new forms of competition, “little sister” store cannibalization and higher gasoline prices reducing trade area size. Higher inflation is going to drive cash needs. Meanwhile consistent profits will be hard to manage as the company figures out how to deal with currency fluctuations. Mexico and the UK are not China.

Springtime has passed for the American Beauty Rose. As we are in summer, can autumn then winter be far behind? They have another twenty-five years to play Garfield Goose and then the goose goes in the oven.

Craig Sundstrom
Guest
10 years 1 month ago

This is where everyone is supposed to step up and say “if anyone can do it WM can,” but I’m not so sure: for one thing unit labor costs will go up, since instead of $163.58 for 5 people over 100,000 gsf, we’ll have $65.43 for 2 people over 15,000…OK, OK I do have doubts though; hopefully they’ll know when to stop if it doesn’t work out.

Carol Spieckerman
Guest
10 years 1 month ago

Walmart has gone from foray to frenzy on small formats and nothing short of that will do with Dollar General opening over 600 stores this year (hitting a total of up to 10,000 units), Walgreens fine-tuning food (and getting kudos for turning food deserts into oases in key urban markets such as Chicago in the process), Target pushing forward with its City Target urban format, and Family Dollar cleaning up its act and plumping up private label.

This is a wake-up-and-smell-the-format moment for Walmart after many months of distraction and correction-of-errors futzing. The competitive juices seem to be flowing once again. The race is on!

James Tenser
Guest
10 years 1 month ago
A Walmart move to a convenience-store-sized footprint has seemed inevitable for several years now. The Marketside experiment that commenced in 2008 in greater Phoenix is one indicator. Its experience with bodega-type markets in Mexico and Latin America is another. Walmart’s geographic coverage and shopper reach are now so vast in North America that it must pursue a share-of-wallet strategy to grow further. The company dominates large-basket trips and now must find ways to capture huge swaths of the colossal number of small-basket trips. “Walmart Express” may not be the most original brand name ever conceived, but it says what it is–a small store for quick shopping success. I fired up my crystal ball this morning ($46.82 in the Walmart acrylic housewares department) and peered deeply into the company’s small-footprint future. I foresaw expanding multi-market tests of several hundred stores over 18-24 months, followed by a series of c-store chain acquisitions in strategic geographies, especially urban centers. Time to 5,000 units: about four years. Sales per square foot should blow away the Supercenters. If Walmart acts… Read more »
Mark Burr
Guest
10 years 1 month ago
Take note: “At our peak we built about 350 supercenters in a year, so when we get this thing right, these are going to come real fast and we’re real excited about this format.” Look out! This equates to approximately 35-52 million square feet annually in the super store format. That same equivalent equals 2,300 plus to 3,400 plus 15,000 square feet locations. This is not a maybe folks. It’s reality. These locations require an exponentially smaller demographic than the requirements of a superstore. They face little if any push back from communities as does a superstore. This is not even considering the amount of available empty retail space that is suitable. This is domination in the way only Walmart can exercise. No retailer–not one–can hit the market with over potentially 3,400 plus locations in a year. It’s a very real likelihood that this will occur. There are very clear statements in these by Walmart. It’s the closet thing possible to a statement of announcement, if it actually isn’t one. The entire landscape of retailing… Read more »
Steve Montgomery
Guest
10 years 1 month ago
Walmart is a top notch retailer and has a greater likelihood of success at any format it tries than do many companies. That being said, many big companies have found that running small format stores is different. Smaller formats learned a long time ago the smaller format equated to lower sales volume and that in turn required higher margins in order to generate an acceptable level of return. Walmart has built a very large organization based on a high volume/lower margin strategy. Perhaps having been hurt by the dollar stores will force the organization to truly embrace a division of smaller formats but if they stay within the current organizational structure if may prove problematic. Saw some scary numbers regarding what this growth could mean in terms of store numbers based on Walmart’s historic growth. A large store takes one permit–so does a small one. True the large permits may be harder to get, but my point is that it will take a lot of resources and time even for a well oiled machine like… Read more »
Randy Friedlander
Guest
Randy Friedlander
10 years 1 month ago

Walmart’s vaunted supply chain, real estate engine, and huge merchandising staff are geared to developing big box stores. Small formats represent a completely different challenge. For instance, a 15,000 sq. ft. store can’t handle pallet loads of goods that are Walmart’s primary distribution vehicle. Just saying “we’re going to do this” doesn’t make it happen. There are a lot of adjustments necessary as the retail brand evolves. Smaller stores can be adapted to urban and rural sites, but the two require a substantially different customer focus and merchandising strategy. Look at the struggle that Fresh & Easy has experienced in their four years since first appearing in the United States. Some would argue Tesco still hasn’t figured it out.

That said, don’t underestimate Walmart. They have the talent, the money, and the determination. However, it’s going to take several years for this vision to impact the market in any significant way.

Tim Smith
Guest
10 years 1 month ago

No one mentioned man power. You have to staff these stores (IMO) with service oriented people who listen to the shoppers and bring in the local or regional brands/items requested. The store manager(s) has to be accessible. Lots of retail space available and people looking for work don’t automatically mean success.

I believe they will get it right, not just as fast as they think based on watching the Neighborhood Markets roll out.

Given their purchasing power they can make the financials work and still offer lower prices than their competition.

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