August 20, 2007
Wal-Mart Looking to Fill New Niches
According to a Wall Street Journal report, Wal-Mart is in the process
of developing new concept stores it plans to roll out next year.
The new formats include a smaller convenience store (20,000 square-feet or
less) in urban locations that focus on more affluent consumers. The other format
being readied for test is a standalone larger format that is focused on health-related
services and products.
David Wild, senior vice president of new business development at Wal-Mart,
is said to be behind the new formats. When Mr. Wild, a former international
managing director of Tesco, was hired by Wal-Mart, many believed it signaled
the company’s intention of rolling out its own convenience store business.
An upscale convenience format being introduced would serve a few purposes
for Wal-Mart. It would enable the chain to build stores in areas where space
is limited and opposition to large supercenters is high.
The healthcare store format would reportedly offer services such as pharmacy,
eye care, and home-health equipment. A person said to be familiar with the
retailer’s plans said, “In five years, Wal-Mart wants to be on its way
to becoming the No. 1 health-care company in America.”
Mr. Wild did not comment for The Journal piece, but an unidentified spokesperson
said, “Our business is constantly evolving, and we’re always looking for
new and innovative ways to serve our customers.”
Wal-Mart is also looking to attract new shoppers and the new formats, particularly
the upscale convenience concept, are an attempt by the company to crack the
affluent consumer code.
Greg Melich, a retail analyst at Morgan Stanley, told The Journal, “In
the Northeast Corridor, California and Chicago you have 33 percent of U.S.
income and retail sales. Yet these areas account for 10 percent of [Wal-Mart]
stores and less than two percent of their supercenters.”
Discussion Questions: What is your reaction to the potential for new Wal-Mart
formats: an upscale convenience concept and a standalone healthcare products
and services store?
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The new concepts are ideas that are definitely worth trying. Keeping in mind that Wal-Mart’s same store sales have been somewhat anemic, they need to try new concepts to keep the upwards growth. If Wal-Mart uses their logistics expertise, and buying power, the stores have a great opportunity to be successful. If the name Wal-Mart is used (especially in the urban affluent markets), they will face a serious challenge. No matter how hard they try, Wal-Mart and affluent will never go together. And it shouldn’t. It isn’t what the brand stands for.
Personally, I like when retailers create formats for specific consumers, e.g., Publix, Sabor and Greenwise. The key is to establish an identity consistent with the shopper profile. I would be careful in incorporating these two new entities under the Wal-Mart umbrella. You can make it with class or make it for the mass, but you can’t do both. There is only so much equity in any brand, use it wisely. You may get permission to build these stores from the Bentonville execs. However, you get permission to successfully operate these stores only from customers.
As the number 1 retailer, Wal-Mart needs to constantly reinvent itself to stay ahead of the pack. Coming out with new formats will shake things up for the industry and as long as they can continue to provide value and service among these new formats, they should be successful. I think a smaller store that can offer better service is a great idea. Customers that require more ‘handling’ will probably frequent the MiniWals more than the bigger store as long as the customer service is a priority in this new format.
Wal-Mart is eying two markets that have huge opportunity. The smaller convenience store market has a ton of opportunity and the market is ripe for a cost efficient health wise store. My take: Wal-Mart will start divisions for both (so the focus is not taken from the main business) with seasoned staff that will execute well. On one end, they’ll give the 7-Eleven type stores a run for their money and the Whole Foods health conscious stores a tantalizing race. Both projects are incredibly exciting and should give Wal-Mart a boost.
The Wal-Mart specialty stand-alone concepts including smaller “convenience” and “health related” stores for selective purchasing, are likely to be successful propositions if planned, tested, and executed the Wal-Mart way. These are well tested markets where growth and new activity has plenty of expansion room, and Wal-Mart is an able participant. I’m bullish on this possibility.
It’s generally a good idea when a chain retailer tests new formats. The problem for Wal-Mart: will the alternative format tests distract management from fixing the core Wal-Mart domestic business? Will the Wal-Mart test formats get the support they need, at an urgent speed, without unnecessary restrictions? This is very tricky. Some companies are capable of working on alternative strategies simultaneously. Some companies can’t. One multinational I’m familiar with (it’s in 7 countries on multiple continents) has the highest return on investment from the divisions furthest away from its world headquarters. You can actually plot a graph showing the inverse relationship between ROI and miles from the hq.
The development of new retail formats can be a growth engine for Wal-Mart as long as it doesn’t distract from problems in existing stores. There is plenty of work to do on merchandise content, presentation and the overall store experience. Smaller-format stores do allow Wal-Mart to penetrate parts of the country where the costs of availability of real estate for Supercenters are prohibitive.
However, the word “upscale” in the description of the convenience store format is a concern. Unless Wal-Mart intends to develop a new brand for this concept, it needs to be true to the mission of its full-sized stores (the price leader) and to execute at a high level. Wal-Mart has made too many mistakes in the last few years trying to be too fashion-forward for its core and targeted customer, while failing to address execution problems. They don’t need to repeat the same errors in a smaller box.
I cannot see this as successful for Wal-Mart. Upscale and Wal-Mart are not synonymous. They will end up alienating the core Wal-Mart shopper and not capturing the audience they need to be successful. As for health care, unless it’s part of the Supercenter, I see little chance for success.
Wal-Mart needs to grow. It has already established itself firmly as a low cost retailer–but only that. Attempting to go upscale with a convenience store concept seems out of character with its successful paradigm. This corner doesn’t expect great success in that concept.
On the other hand its great constituency of budget-based customers are sorely in need of lower cost healthcare products and services. That concept seems like a safe heaven niche for an expanding Wal-Mart.
Location, location, location. No one can reasonably consider themselves customer CENTRIC if they do not focus on where the customer is. C-stores go a long way to get closer to the customer by getting closer to wherever they are. This is a no brainer for Wal-Mart, long overdue. Next step, get the merchandise in those big boxes closer to the exact shoppers inside the store who need it, rather than relying on shoppers to find the stuff. Location, location, location: reach the shopper, reach the shopper, reach the shopper. It’s the active retailer’s mantra–and a winning formula. Find the right shopper and make an offer, find the right shopper and make an offer, find the right shopper and make an offer. Never stop selling.
Some of my favorite oxymorons are… “honest politician,” “easy payments,” “jumbo shrimp,” “Kosher ham,” “low fat,” “pretty ugly,” and now “upscale Wal-Mart.” I think Wal-Mart and convenience stores could be very successful, but unless they plan to change the name of those stores or their target, I think they could be in trouble.
Both of these concepts to me seem like a colossal waste of time. Where real opportunity is located, is in the “food deserts” of parts of urban areas, etc. where there are no grocery stores — not even an Aldi or Sav-A-Lot. Smaller format, limited assortment grocery / convenience stores in these areas a) would fit right in with the Wal-Mart brand image, b) would bring new customers to Wal-Mart and perhaps most importantly, c) may overcome objections of places like Chicago to the big box format. Wal-Mart is better off sticking close to what it knows and upscale that certainly isn’t.
Wal-Mart has goals to be a major retailer in both goods and services. Its goals are not locked into specific store sizes or concepts and are not confined to certain areas. If the public is willing to purchase it, Wal-Mart wants to be the retailer to sell it to them. How they do this, and in which format it is done, is inconsequential to Wal-Mart. The key is that Wal-Mart is the corporation which is doing this. Once we recognize (and accept) this, we will better grasp Wal-Mart’s goals of retail domination. This strategy places Wal-Mart directly in the position that they want to be over the next few years. We can see health care, as well as other key services falling into place as the government allows, including banking, investing, dry cleaning, etc. There is not a single retail area which Wal-Mart is formally announcing as a “do not enter” sector.
There is great potential in both of these markets. Can Wal-Mart penetrate these markets successfully? The challenge regarding the small stores in affluent markets is that the products sold there will be different than those in the discount stores so how can Wal-Mart supply smaller amounts of higher-end products at the same level of operational efficiency as their other stores to be profitable? In addition, will consumers transfer the “Always Low Prices Always” slogan to higher end products?
In addition, what does the slogan “Always Low Prices Always” mean to consumers considering health care choices? Will they assume that the quality and safety necessary for health care choices is consistent with Wal-Mart’s current image? If Wal-Mart needs to establish a new image of trust with consumers concerning health care, then does Wal-Mart need a new name for branding these stores?
In March (Are Convenience Stores in Wal-Mart’s Future?) and again in May (The Battle of the Neighborhood Markets) of this year, George Anderson focused on the Wal-Mart and “Convenience” formats.
In both cases my comments and position were the same. The trend for new “convenience” was growing and that this trend is one that will remake the face of retail and the winners will be those who have figured out and exploited this change in consumer needs and behavior.
An excerpt from my comments in these posts summarizes my opinion then and now:
“Big Boxers like Wal-Mart, if they are to maintain volume, will need to address this growing trend for smaller footprint stores that offer compelling assortments and convenience.
“My bet is that Wal-Mart will roll out a ‘convenience’ concept store prototype within the next 12 months.”
These new test formats, especially the Health Related format are wonderful and considering Wal-Mart’s experience with the $4 prescription and In House Health Clinics, they certainly have the acumen and capital to make these successful. I applaud the approach and expect that they may not be the only ones we see tested in the next 12 months.
It is imperative that WM explore new retail concepts. The segments identified are either under served, or poorly served in the US market. Tesco’s entrance into the large format convenience store arena is almost a guarantee that a poorly served market opportunity exists. Tesco management is well known for in-depth study and appropriate decision-making against perceived opportunity. The convenience store opportunity exists, and most aspects of WM’s existing operations support key success factors in that niche. I am unclear, as are others, of the alignment with the WM brand and the term “upscale.” However, simply because a chain is owned by WM does not mean it will look and feel like WM or Sam’s. Probably, but not necessarily.
The health care business is a must. Every analyst researching this area starts to salivate at the potential. All signs are for a growing and under served market, with much higher levels of income than ever before. Societally, the aging generation differs from it’s predecessors in a diminished “responsibility” for the next generation and an increased desire to sustain or even improve their own quality of life. From a retail perspective, these are very positive trends.
My concern is that new format launch is not an easy thing, and nothing in WM’s existing structure or past behavior indicates that they are excellent in this arena. Many chains have become new format focused, and the results are usually poor. Toys R Us is an obvious example of a company, in the past, which became new format addicted, with extremely inefficient results. Best Buy on the other hand, developed best practice processes and methods for developing, testing, and implementing new formats. Yet despite these well documented capabilities, BBY remains a limited format company.
Why? Because operating multiple retail formats with a single operating structure is seldom successful. Successful multi-format retailers have built these new businesses almost “from scratch,” leveraging only those aspects of the existing operations which were non-intrusive to the new operation. Even so, leveraging accounting, planning, reporting and supply chain functions is not without its risks when the need for a stand alone “culture” is necessary.
While you should never “discount” Wal-Mart, they seem to have hit a snag in their execution. Don’t forget, they recently had a new concept with their Neighborhood Markets that has been less than spectacular. Why would anything else be different?
I would suggest they go back to basics, which is not just a low price concept but low price with great service. I think they used to paint that over the checkouts in their first traditional non-supercenter stores. Even if they have identified some new concept, it will not be easy to take market share from established players like 7-Eleven (10k stores) and Walgreens (5k+ stores). Both these businesses have established locations with established customers. If you want them, you had better bring your best.
Wal-Mart is not an upscale brand and will have trouble trying to position itself in that market.
I believe an upscale, small format concept can be successful for Wal-Mart predicated on a few conditions:
First, they need to brand the retail format with a different banner than Wal-Mart. Keep the Wal-Mart name out of the brand all together. Take a lesson from Tesco which is naming its similar format stores (which open in November) “Fresh & Easy Neighborhood Markets.”
Second, Wal-Mart needs to involve and hire some people to help develop the concept and brand who aren’t Wal-Mart “people.” Get some folks experienced in upscale retail and make sure that it isn’t a 100% Wal-Mart product. A little “out of the Wal-Mart box” thinking is in order–while still retaining the Wal-Mart distributional model.
Third, Location, Location, Location. It’s no accident Wal-Mart has its team developing this concept in the San Francisco Bay Area. Wal-Mart has had failure after failure in terms of getting approval for Supercenter stores in the Bay Area and even California’s Central Valley. A format such as this gives the retailer an opportunity to be in markets–like the Bay Area–where they currently have minimal presence. It also gives them an urban footprint which can be used in metro areas all over the world as well as the U.S.
In terms of the wellness concept, I think it has strong potential. Wal-Mart and other retailers are having great success with health & wellness centers located inside their existing large stores. A retail format that combines a low-cost, limited service health clinic, pharmacy with discount prescriptions, and related health and wellness goods for sale is right on trend. Having these especially in urban areas–where people without medical insurance is highest–could be a complete success. They could also offer senior citizen–the fastest growing demographic–health programs and sell goods designed to better equip these people’s homes.
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The new concepts are ideas that are definitely worth trying. Keeping in mind that Wal-Mart’s same store sales have been somewhat anemic, they need to try new concepts to keep the upwards growth. If Wal-Mart uses their logistics expertise, and buying power, the stores have a great opportunity to be successful. If the name Wal-Mart is used (especially in the urban affluent markets), they will face a serious challenge. No matter how hard they try, Wal-Mart and affluent will never go together. And it shouldn’t. It isn’t what the brand stands for.
Personally, I like when retailers create formats for specific consumers, e.g., Publix, Sabor and Greenwise. The key is to establish an identity consistent with the shopper profile. I would be careful in incorporating these two new entities under the Wal-Mart umbrella. You can make it with class or make it for the mass, but you can’t do both. There is only so much equity in any brand, use it wisely. You may get permission to build these stores from the Bentonville execs. However, you get permission to successfully operate these stores only from customers.
As the number 1 retailer, Wal-Mart needs to constantly reinvent itself to stay ahead of the pack. Coming out with new formats will shake things up for the industry and as long as they can continue to provide value and service among these new formats, they should be successful. I think a smaller store that can offer better service is a great idea. Customers that require more ‘handling’ will probably frequent the MiniWals more than the bigger store as long as the customer service is a priority in this new format.
Wal-Mart is eying two markets that have huge opportunity. The smaller convenience store market has a ton of opportunity and the market is ripe for a cost efficient health wise store. My take: Wal-Mart will start divisions for both (so the focus is not taken from the main business) with seasoned staff that will execute well. On one end, they’ll give the 7-Eleven type stores a run for their money and the Whole Foods health conscious stores a tantalizing race. Both projects are incredibly exciting and should give Wal-Mart a boost.
The Wal-Mart specialty stand-alone concepts including smaller “convenience” and “health related” stores for selective purchasing, are likely to be successful propositions if planned, tested, and executed the Wal-Mart way. These are well tested markets where growth and new activity has plenty of expansion room, and Wal-Mart is an able participant. I’m bullish on this possibility.
It’s generally a good idea when a chain retailer tests new formats. The problem for Wal-Mart: will the alternative format tests distract management from fixing the core Wal-Mart domestic business? Will the Wal-Mart test formats get the support they need, at an urgent speed, without unnecessary restrictions? This is very tricky. Some companies are capable of working on alternative strategies simultaneously. Some companies can’t. One multinational I’m familiar with (it’s in 7 countries on multiple continents) has the highest return on investment from the divisions furthest away from its world headquarters. You can actually plot a graph showing the inverse relationship between ROI and miles from the hq.
The development of new retail formats can be a growth engine for Wal-Mart as long as it doesn’t distract from problems in existing stores. There is plenty of work to do on merchandise content, presentation and the overall store experience. Smaller-format stores do allow Wal-Mart to penetrate parts of the country where the costs of availability of real estate for Supercenters are prohibitive.
However, the word “upscale” in the description of the convenience store format is a concern. Unless Wal-Mart intends to develop a new brand for this concept, it needs to be true to the mission of its full-sized stores (the price leader) and to execute at a high level. Wal-Mart has made too many mistakes in the last few years trying to be too fashion-forward for its core and targeted customer, while failing to address execution problems. They don’t need to repeat the same errors in a smaller box.
I cannot see this as successful for Wal-Mart. Upscale and Wal-Mart are not synonymous. They will end up alienating the core Wal-Mart shopper and not capturing the audience they need to be successful. As for health care, unless it’s part of the Supercenter, I see little chance for success.
Wal-Mart needs to grow. It has already established itself firmly as a low cost retailer–but only that. Attempting to go upscale with a convenience store concept seems out of character with its successful paradigm. This corner doesn’t expect great success in that concept.
On the other hand its great constituency of budget-based customers are sorely in need of lower cost healthcare products and services. That concept seems like a safe heaven niche for an expanding Wal-Mart.
Location, location, location. No one can reasonably consider themselves customer CENTRIC if they do not focus on where the customer is. C-stores go a long way to get closer to the customer by getting closer to wherever they are. This is a no brainer for Wal-Mart, long overdue. Next step, get the merchandise in those big boxes closer to the exact shoppers inside the store who need it, rather than relying on shoppers to find the stuff. Location, location, location: reach the shopper, reach the shopper, reach the shopper. It’s the active retailer’s mantra–and a winning formula. Find the right shopper and make an offer, find the right shopper and make an offer, find the right shopper and make an offer. Never stop selling.
Some of my favorite oxymorons are… “honest politician,” “easy payments,” “jumbo shrimp,” “Kosher ham,” “low fat,” “pretty ugly,” and now “upscale Wal-Mart.” I think Wal-Mart and convenience stores could be very successful, but unless they plan to change the name of those stores or their target, I think they could be in trouble.
Both of these concepts to me seem like a colossal waste of time. Where real opportunity is located, is in the “food deserts” of parts of urban areas, etc. where there are no grocery stores — not even an Aldi or Sav-A-Lot. Smaller format, limited assortment grocery / convenience stores in these areas a) would fit right in with the Wal-Mart brand image, b) would bring new customers to Wal-Mart and perhaps most importantly, c) may overcome objections of places like Chicago to the big box format. Wal-Mart is better off sticking close to what it knows and upscale that certainly isn’t.
Wal-Mart has goals to be a major retailer in both goods and services. Its goals are not locked into specific store sizes or concepts and are not confined to certain areas. If the public is willing to purchase it, Wal-Mart wants to be the retailer to sell it to them. How they do this, and in which format it is done, is inconsequential to Wal-Mart. The key is that Wal-Mart is the corporation which is doing this. Once we recognize (and accept) this, we will better grasp Wal-Mart’s goals of retail domination. This strategy places Wal-Mart directly in the position that they want to be over the next few years. We can see health care, as well as other key services falling into place as the government allows, including banking, investing, dry cleaning, etc. There is not a single retail area which Wal-Mart is formally announcing as a “do not enter” sector.
There is great potential in both of these markets. Can Wal-Mart penetrate these markets successfully? The challenge regarding the small stores in affluent markets is that the products sold there will be different than those in the discount stores so how can Wal-Mart supply smaller amounts of higher-end products at the same level of operational efficiency as their other stores to be profitable? In addition, will consumers transfer the “Always Low Prices Always” slogan to higher end products?
In addition, what does the slogan “Always Low Prices Always” mean to consumers considering health care choices? Will they assume that the quality and safety necessary for health care choices is consistent with Wal-Mart’s current image? If Wal-Mart needs to establish a new image of trust with consumers concerning health care, then does Wal-Mart need a new name for branding these stores?
In March (Are Convenience Stores in Wal-Mart’s Future?) and again in May (The Battle of the Neighborhood Markets) of this year, George Anderson focused on the Wal-Mart and “Convenience” formats.
In both cases my comments and position were the same. The trend for new “convenience” was growing and that this trend is one that will remake the face of retail and the winners will be those who have figured out and exploited this change in consumer needs and behavior.
An excerpt from my comments in these posts summarizes my opinion then and now:
“Big Boxers like Wal-Mart, if they are to maintain volume, will need to address this growing trend for smaller footprint stores that offer compelling assortments and convenience.
“My bet is that Wal-Mart will roll out a ‘convenience’ concept store prototype within the next 12 months.”
These new test formats, especially the Health Related format are wonderful and considering Wal-Mart’s experience with the $4 prescription and In House Health Clinics, they certainly have the acumen and capital to make these successful. I applaud the approach and expect that they may not be the only ones we see tested in the next 12 months.
It is imperative that WM explore new retail concepts. The segments identified are either under served, or poorly served in the US market. Tesco’s entrance into the large format convenience store arena is almost a guarantee that a poorly served market opportunity exists. Tesco management is well known for in-depth study and appropriate decision-making against perceived opportunity. The convenience store opportunity exists, and most aspects of WM’s existing operations support key success factors in that niche. I am unclear, as are others, of the alignment with the WM brand and the term “upscale.” However, simply because a chain is owned by WM does not mean it will look and feel like WM or Sam’s. Probably, but not necessarily.
The health care business is a must. Every analyst researching this area starts to salivate at the potential. All signs are for a growing and under served market, with much higher levels of income than ever before. Societally, the aging generation differs from it’s predecessors in a diminished “responsibility” for the next generation and an increased desire to sustain or even improve their own quality of life. From a retail perspective, these are very positive trends.
My concern is that new format launch is not an easy thing, and nothing in WM’s existing structure or past behavior indicates that they are excellent in this arena. Many chains have become new format focused, and the results are usually poor. Toys R Us is an obvious example of a company, in the past, which became new format addicted, with extremely inefficient results. Best Buy on the other hand, developed best practice processes and methods for developing, testing, and implementing new formats. Yet despite these well documented capabilities, BBY remains a limited format company.
Why? Because operating multiple retail formats with a single operating structure is seldom successful. Successful multi-format retailers have built these new businesses almost “from scratch,” leveraging only those aspects of the existing operations which were non-intrusive to the new operation. Even so, leveraging accounting, planning, reporting and supply chain functions is not without its risks when the need for a stand alone “culture” is necessary.
While you should never “discount” Wal-Mart, they seem to have hit a snag in their execution. Don’t forget, they recently had a new concept with their Neighborhood Markets that has been less than spectacular. Why would anything else be different?
I would suggest they go back to basics, which is not just a low price concept but low price with great service. I think they used to paint that over the checkouts in their first traditional non-supercenter stores. Even if they have identified some new concept, it will not be easy to take market share from established players like 7-Eleven (10k stores) and Walgreens (5k+ stores). Both these businesses have established locations with established customers. If you want them, you had better bring your best.
Wal-Mart is not an upscale brand and will have trouble trying to position itself in that market.
I believe an upscale, small format concept can be successful for Wal-Mart predicated on a few conditions:
First, they need to brand the retail format with a different banner than Wal-Mart. Keep the Wal-Mart name out of the brand all together. Take a lesson from Tesco which is naming its similar format stores (which open in November) “Fresh & Easy Neighborhood Markets.”
Second, Wal-Mart needs to involve and hire some people to help develop the concept and brand who aren’t Wal-Mart “people.” Get some folks experienced in upscale retail and make sure that it isn’t a 100% Wal-Mart product. A little “out of the Wal-Mart box” thinking is in order–while still retaining the Wal-Mart distributional model.
Third, Location, Location, Location. It’s no accident Wal-Mart has its team developing this concept in the San Francisco Bay Area. Wal-Mart has had failure after failure in terms of getting approval for Supercenter stores in the Bay Area and even California’s Central Valley. A format such as this gives the retailer an opportunity to be in markets–like the Bay Area–where they currently have minimal presence. It also gives them an urban footprint which can be used in metro areas all over the world as well as the U.S.
In terms of the wellness concept, I think it has strong potential. Wal-Mart and other retailers are having great success with health & wellness centers located inside their existing large stores. A retail format that combines a low-cost, limited service health clinic, pharmacy with discount prescriptions, and related health and wellness goods for sale is right on trend. Having these especially in urban areas–where people without medical insurance is highest–could be a complete success. They could also offer senior citizen–the fastest growing demographic–health programs and sell goods designed to better equip these people’s homes.