August 9, 2012
Walmart Closes Chicago Store, Some Question Urban Future
In July 2011, Walmart opened an Express store to much fanfare in Chicago. This was the start of a push that small food store owners operating in urban neighborhoods dreaded. It was also exactly what Wall Street analysts had ordered.
With that as a backdrop, I found it interesting that some seem ready to declare Walmart’s urban venture a failure because it closed the Chicago Express store a year after it opened.
The chain said it made the decision because the store was located near one of its Supercenters and wasn’t really needed. In essence, it didn’t see the point, in an area where there wasn’t a great deal of competition, to go up against itself. Seemed reasonable here, but maybe there was something I wasn’t considering.
In fact, something that Leon Nicholas, director of insights at Kantar Retail, told Crain’s Chicago Business got me thinking.
"The supercenter was supposed to be the place for once-a-month big trips, and the Express would be for convenient fill-in trips during the week," Mr. Nicholas told Crain’s. "They weren’t supposed to cannibalize each other, so the fact that it didn’t work indicates the strategy was wrong."
Anyway, it could very well turn out that Walmart’s various smaller store efforts fail in the long run, but then I remembered that just this past May, U.S. CEO Bill Simon told attendees at a Morgan Stanley conference that the Express stores were turning a profit inside of 12 months.
Of course, it’s entirely possible that the strategy was wrong for the Chicago location, but may work perfectly well elsewhere. Walmart is testing Express stores in both urban and rural locations, the latter closer to the company’s heritage, so what if it turns out that the concept is made more for the boondocks than Broadway?
Another sign of potential trouble is that Walmart is not opening Express stores all over the place.
Yes, with profitable stores it isn’t hard to make the leap that Walmart might open an Express on every corner not currently covered by Walgreens, CVS or 7-Eleven, but no one associated with the company actually said that is the plan, to my knowledge.
What Mr. Simon said in May was that Walmart had more tinkering to do first.
"We’re going to work on the construction costs and distribution costs — already profitable, but we want to get those up to the ‘fleet’ average or hopefully beyond that," he said. "We’re also going to work on density — how many can you build in a market and to what point do you have to get to for this to matter on our large base?"
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Discussion Questions
Discussion Questions: Did Walmart commit some missteps at the Express store in Chicago? What do you think Walmart’s closing of the store means for the Express concept and the chain’s push to grow its footprint in urban centers?
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I wouldn’t read too much into all of this. Retail companies the size of Walmart are constantly experimenting with formats and it’s the nature of experiments that more fail than succeed.
The Express concept probably will never live up to its hype — but that doesn’t mean that Walmart will never figure out how to do small stores correctly.
Walmart’s real problem is that every time it tries anything the critics and pundits line up to weigh in. Maybe the company ought to “white label” its experiments rather than brand them.
I think Walmart will continue to grow the concept. The Chicago store only had a one year lease. So this was either a Trojan horse project to get into the area or done as a favor for a local alderman in order to get plan approvals for other sites. Obviously Walmart did not have long-term plans for this location. I’m sure there is a lot more to this story that the press will never write about and will never be disclosed. It was a pop up store. If the “Halloween” seasonal store shuts down in November do we say they made missteps? Of course not, it’s planned. In order to play up to the “food desert” extremists, local mayors, etc, it’s just the cost of doing business in order to get into certain markets.
I would not read too much into this closing. Recall the early ’90s when most people questioned the long-term viability of Walmart Supercenters or more recently, the Neighborhood Markets? Walmart’s focus on correction of errors is unmatched in the industry.
From a strategic perspective, retreat is a viable option used by the military and others. The goal is to live to fight another day. Sometimes you have to “shoot the losers” like Walmart did in Germany. Time will tell if this is a retreat or full surrender of this concept.
I think smaller urban stores can make sense for both Walmart and Target, given they reflect the needs of an urban market. I have not shopped in a Walmart Express so I am uncertain if they had the right mix of items, or other issues doomed the Chicago location.
But clearly to me, much of Walmart’s recent performance woes are due to over-saturation of many of the markets they already dominate. In these saturated markets, each new SuperCenter they build, cannibalizes sales from their existing stores, diluting the performance in all stores.
If Walmart Express gets the mix right and is cautious not to locate too close to existing SuperCenters, I would expect some of them to stick. Time will tell.
Urban express stores, whether it’s Walmart or Target, might be confusing and also underwhelming for the consumer because these stores are not really what is anticipated or expected for being Walmart and Target stores. I’m not too sure that Walmart can be all things to all people. A little Walmart with limited assortment? Well, it’s just not a Walmart.
All big box retailers will be experimenting in urban formats. Some will work better than others and there will be some opening and closings. That is to be expected. Walmart obviously gets more scrutiny than most since they are under a microscope. Express in Chicago closed simply meant that store location/format combo didn’t work, that’s all that means.
Apparently the closed Express location is about 100 yards from a SuperCenter (according to the Crain article) so it was probably doomed from the start. There are other locations in Chicago, including an urban site on the North Side. I wouldn’t draw too many conclusions other than the critical importance of the right real estate strategy to make the Express concept happen.
The Crain’s article mentions the selection of items being a problem. What is it that consumers want to purchase when they run in to pick up a few items. A 40 pound bag of dog food is not it. That is not the kind of item that is found at any other convenience store. Selection needs to be refined. The other issue was the proximity to a new supercenter store. Apparently the two store concepts do not complement one another. Definitely some rethinking needs to be done.
Walmart still shies away from anything beyond their cookie cutter zillion square foot prototype. Fine for competitors like Bottom Dollar Food and Aldi, who thrive in the urban/old suburban landscape with small, efficient footprints raking up great sales per square foot, low labor costs and even lower operating costs, while undercutting them on price every chance they get. Let it be told once and for all, Walmart isn’t a small store footprint operator. They just don’t have it in their corporate philosophy, no matter how many times they say they do.
Walmart Express is not the only diminutive format in Walmart’s arsenal and its current footprint and future plans for the other one, Neighborhood Market, are far more aggressive. There are currently 190-ish Neighborhood Markets including locations in Seattle, Denver, Atlanta, and Oregon. My coverage of Pam Kohn’s recent presentation (Walmart’s EVP of merchandising services) provides more depth on Walmart’s format strategies and supporting organizational structure (including specific call-outs on its Chicago challenges).
I’ve never thought that small stores are part of Walmart’s DNA. I think that’s what the comment on distribution costs is about. When you’re used to delivering tonnage, shifting to LTL is no easy feat. And it’s really presumptuous to assume that the loyalty associated with a super-center will translate into loyalty at a neighborhood market.
I think the dollar stores, local purveyors and others have this market effectively covered. It’s nothing personal — Tesco hasn’t done a lot better with Fresh & Easy. I just don’t believe it’s going to work for Walmart, and not rolling it out en masse is a good decision.
I actually live right by the (now closed) Walmart Express in Lakeview Chicago, and it was poorly executed. The product offerings were not relevant because it was not like a Walgreens (which ironically was right next door) in that it offered convenient products; it offered your daily grocer products, but only basics. Target has a nearby location and they have more grocery items (from basics to unique) at a better price. I don’t think the Walmart Express concept will fail, but they need to be battling Walgreens, not Target or themselves.
Closing a store after only a year in operation is eyebrow raising to outsiders with an interest or investment in the company. The comments from outsiders and media are bringing very thin reasons for the close. I would be interested in seeing the store’s shrink numbers and if there was any union pressure in play here. These are well known reasons for Walmart to slam a door shut in short order.
Test and move on. This is not a big deal, nor does it draw into question the small format/urban strategy. I live in Chicago. The store was nothing special. There are many options in that neighborhood to go for essentials and satisfy the convenience needs of the urban city dweller.
If I were Walgreens or CVS, I would be talking to Amazon.com right now to either get lockers or set up some kind of pickup of Amazon.com ordered products in urban areas — that would complete the urban store format that Walmart is trying to tinker with.
What’s the rule? Two’s a coincidence, three’s a trend…we’re only at one now; not good for anything (except “told-you-so’ers”).
That having been said, the closing does little to change the minds of us who have little faith in WM’s ability to go small.
The closing is good. It simply means that Walmart is not ready for this. The reasons are less important than the simple fact that Walmart recognized this and acted upon it. This action is the most important component of the equation regarding Express stores. We have to recognize that Walmart’s Express stores are simply concept stores…nothing else. As such, they should not be competing for customers with traditional Walmart retail outlets, and should not be impacting Walmart business in a given area…rural or urban.
Walmart’s closing that Express location more likely reflects the tinkering that will eventually give them the better strategy for selecting urban locations. Other Walmart experiments have gone through several revisions, trying to get closer to their customers while maintaining a longer view.
Small urban formats make sense — execution is difficult. New shopper base with new expectations; time will tell who gets it right in the short term.
Here’s some simple math to ponder about all this: how many urban (small) format stores does it take to equal the volume/ROI of one Super Store? 5? 10? 20? More?
Here’s a company, Walmart, like many others only bigger, that is used to opening a single store and getting ____ return. Now, I have to open 10 stores (maybe many more) to equal that. How tolerant will they be? How long till there’s a management change and the strategy/patience comes apart?
Forget about the different logistics like loading dock design, truck size, skid size, store design, plan-o-grams and even merchandising. The simple equation above is the bend point and most likely what happened in Chicago.
Apparently, the store was fairly close to a supercenter, I have heard and been told this fact that does seem to have doomed it from the start, and may be this is the simple explanation for the closure. Perhaps this store truly was simply an experiment to evaluate merchandise needs, store size, get ideas on logistics — maybe it was really just an experiment to see what would happen and gain insight on that size location.
Maybe they can take a look at another inner city/urban location not near a supercenter that would be beneficial to them AND also to the south side of the city — (I doubt it, but it is nice to think of that possibility).
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I wouldn’t read too much into all of this. Retail companies the size of Walmart are constantly experimenting with formats and it’s the nature of experiments that more fail than succeed.
The Express concept probably will never live up to its hype — but that doesn’t mean that Walmart will never figure out how to do small stores correctly.
Walmart’s real problem is that every time it tries anything the critics and pundits line up to weigh in. Maybe the company ought to “white label” its experiments rather than brand them.
I think Walmart will continue to grow the concept. The Chicago store only had a one year lease. So this was either a Trojan horse project to get into the area or done as a favor for a local alderman in order to get plan approvals for other sites. Obviously Walmart did not have long-term plans for this location. I’m sure there is a lot more to this story that the press will never write about and will never be disclosed. It was a pop up store. If the “Halloween” seasonal store shuts down in November do we say they made missteps? Of course not, it’s planned. In order to play up to the “food desert” extremists, local mayors, etc, it’s just the cost of doing business in order to get into certain markets.
I would not read too much into this closing. Recall the early ’90s when most people questioned the long-term viability of Walmart Supercenters or more recently, the Neighborhood Markets? Walmart’s focus on correction of errors is unmatched in the industry.
From a strategic perspective, retreat is a viable option used by the military and others. The goal is to live to fight another day. Sometimes you have to “shoot the losers” like Walmart did in Germany. Time will tell if this is a retreat or full surrender of this concept.
I think smaller urban stores can make sense for both Walmart and Target, given they reflect the needs of an urban market. I have not shopped in a Walmart Express so I am uncertain if they had the right mix of items, or other issues doomed the Chicago location.
But clearly to me, much of Walmart’s recent performance woes are due to over-saturation of many of the markets they already dominate. In these saturated markets, each new SuperCenter they build, cannibalizes sales from their existing stores, diluting the performance in all stores.
If Walmart Express gets the mix right and is cautious not to locate too close to existing SuperCenters, I would expect some of them to stick. Time will tell.
Urban express stores, whether it’s Walmart or Target, might be confusing and also underwhelming for the consumer because these stores are not really what is anticipated or expected for being Walmart and Target stores. I’m not too sure that Walmart can be all things to all people. A little Walmart with limited assortment? Well, it’s just not a Walmart.
All big box retailers will be experimenting in urban formats. Some will work better than others and there will be some opening and closings. That is to be expected. Walmart obviously gets more scrutiny than most since they are under a microscope. Express in Chicago closed simply meant that store location/format combo didn’t work, that’s all that means.
Apparently the closed Express location is about 100 yards from a SuperCenter (according to the Crain article) so it was probably doomed from the start. There are other locations in Chicago, including an urban site on the North Side. I wouldn’t draw too many conclusions other than the critical importance of the right real estate strategy to make the Express concept happen.
The Crain’s article mentions the selection of items being a problem. What is it that consumers want to purchase when they run in to pick up a few items. A 40 pound bag of dog food is not it. That is not the kind of item that is found at any other convenience store. Selection needs to be refined. The other issue was the proximity to a new supercenter store. Apparently the two store concepts do not complement one another. Definitely some rethinking needs to be done.
Walmart still shies away from anything beyond their cookie cutter zillion square foot prototype. Fine for competitors like Bottom Dollar Food and Aldi, who thrive in the urban/old suburban landscape with small, efficient footprints raking up great sales per square foot, low labor costs and even lower operating costs, while undercutting them on price every chance they get. Let it be told once and for all, Walmart isn’t a small store footprint operator. They just don’t have it in their corporate philosophy, no matter how many times they say they do.
Walmart Express is not the only diminutive format in Walmart’s arsenal and its current footprint and future plans for the other one, Neighborhood Market, are far more aggressive. There are currently 190-ish Neighborhood Markets including locations in Seattle, Denver, Atlanta, and Oregon. My coverage of Pam Kohn’s recent presentation (Walmart’s EVP of merchandising services) provides more depth on Walmart’s format strategies and supporting organizational structure (including specific call-outs on its Chicago challenges).
I’ve never thought that small stores are part of Walmart’s DNA. I think that’s what the comment on distribution costs is about. When you’re used to delivering tonnage, shifting to LTL is no easy feat. And it’s really presumptuous to assume that the loyalty associated with a super-center will translate into loyalty at a neighborhood market.
I think the dollar stores, local purveyors and others have this market effectively covered. It’s nothing personal — Tesco hasn’t done a lot better with Fresh & Easy. I just don’t believe it’s going to work for Walmart, and not rolling it out en masse is a good decision.
I actually live right by the (now closed) Walmart Express in Lakeview Chicago, and it was poorly executed. The product offerings were not relevant because it was not like a Walgreens (which ironically was right next door) in that it offered convenient products; it offered your daily grocer products, but only basics. Target has a nearby location and they have more grocery items (from basics to unique) at a better price. I don’t think the Walmart Express concept will fail, but they need to be battling Walgreens, not Target or themselves.
Closing a store after only a year in operation is eyebrow raising to outsiders with an interest or investment in the company. The comments from outsiders and media are bringing very thin reasons for the close. I would be interested in seeing the store’s shrink numbers and if there was any union pressure in play here. These are well known reasons for Walmart to slam a door shut in short order.
Test and move on. This is not a big deal, nor does it draw into question the small format/urban strategy. I live in Chicago. The store was nothing special. There are many options in that neighborhood to go for essentials and satisfy the convenience needs of the urban city dweller.
If I were Walgreens or CVS, I would be talking to Amazon.com right now to either get lockers or set up some kind of pickup of Amazon.com ordered products in urban areas — that would complete the urban store format that Walmart is trying to tinker with.
What’s the rule? Two’s a coincidence, three’s a trend…we’re only at one now; not good for anything (except “told-you-so’ers”).
That having been said, the closing does little to change the minds of us who have little faith in WM’s ability to go small.
The closing is good. It simply means that Walmart is not ready for this. The reasons are less important than the simple fact that Walmart recognized this and acted upon it. This action is the most important component of the equation regarding Express stores. We have to recognize that Walmart’s Express stores are simply concept stores…nothing else. As such, they should not be competing for customers with traditional Walmart retail outlets, and should not be impacting Walmart business in a given area…rural or urban.
Walmart’s closing that Express location more likely reflects the tinkering that will eventually give them the better strategy for selecting urban locations. Other Walmart experiments have gone through several revisions, trying to get closer to their customers while maintaining a longer view.
Small urban formats make sense — execution is difficult. New shopper base with new expectations; time will tell who gets it right in the short term.
Here’s some simple math to ponder about all this: how many urban (small) format stores does it take to equal the volume/ROI of one Super Store? 5? 10? 20? More?
Here’s a company, Walmart, like many others only bigger, that is used to opening a single store and getting ____ return. Now, I have to open 10 stores (maybe many more) to equal that. How tolerant will they be? How long till there’s a management change and the strategy/patience comes apart?
Forget about the different logistics like loading dock design, truck size, skid size, store design, plan-o-grams and even merchandising. The simple equation above is the bend point and most likely what happened in Chicago.
Apparently, the store was fairly close to a supercenter, I have heard and been told this fact that does seem to have doomed it from the start, and may be this is the simple explanation for the closure. Perhaps this store truly was simply an experiment to evaluate merchandise needs, store size, get ideas on logistics — maybe it was really just an experiment to see what would happen and gain insight on that size location.
Maybe they can take a look at another inner city/urban location not near a supercenter that would be beneficial to them AND also to the south side of the city — (I doubt it, but it is nice to think of that possibility).