September 12, 2013
Will Small Stores Deliver Big Returns For Walmart?
Walmart has used its large supercenter format to climb to the top of American retailing, but the chain is looking to its small box concepts (Neighborhood Markets and Walmart Express) to help it reach even greater heights in the years to come.
Bill Simon, president and CEO of Walmart U.S., spoke at the Goldman Sachs Global Retailing Conference yesterday and offered insights into the retailer’s recent performance and future plans.
Speaking about Neighborhood Markets, Mr. Simon said the format has produced "consistently strong sales" and that the amount of capital required to roll out the concept has come down as a result of scale and some learning from opening Express stores. He said Walmart plans to go from its current count of "300 plus units" to more than 500 over the next year-and-a-half.
Mr. Simon was very upbeat about the prospects for Walmart Express, the company’s hybrid convenience concept with footprints typically between 10,000 and 12,000 square feet.
"Against a dollar store, they have fresh food, pharmacy and gas and perform really, really well and have a pricing advantage. Against drug they have a significant pricing advantage and they have fresh food and gasoline. And then against small grocery stores we have a competitive price advantage," said Mr. Simon.
BrainTrust
Recent Discussions
Discussion Questions
How much of an effect will the performance of Neighborhood Markets and Walmart Express have on Walmart’s future prospects? What do you see as the greatest challenges and opportunities facing each concept?
Poll
For Walmart, Neighborhood Markets and Walmart Express ARE the future. The biggest opportunity is to leverage these smaller formats to drive site-to-store connectivity. If Walmart gets it right, the productivity and volume driven by each store will transcend each store’s inventory.
Toward that end, I would like to see Walmart introduce and promote more online-unique brands in its marketplace. The smattering of brands currently available still fly too far under shoppers’ radars. Walmart also has an opportunity to create dependencies with new customers through the various service offerings mentioned and to put dollar and drug stores on notice as its entry into new ‘hoods change the competitive landscape. Dollar and drug stores’ localized pricing chops will surely be tested.
Walmart would also be wise to double down on prepared meals and grocery items before Burkle’s Yucaipa gets its sea legs with Fresh & Easy.
As Bill stated, they have a good strategy against dollar with fresh food, pharmacy, etc., but will this hold up against the assortment available in the drug channel? Gas? May be hard to do in many markets.
Two possible outcomes to this. One, Walmart continues to disrupt the industry and now in channels that seemed safe, or the drug channel needs to step up to the plate and offer more better service and attempt to compete on price. I feel sorry for and worry that these initiatives will not allow many of the small grocery stores to survive, which I believe would be a terrible result in many communities.
As the opportunity to open more supercenters diminishes, Walmart will turn to smaller footprints to increase growth. If these smaller stores can offer fresh produce, gas and a pharmacy, they will be well received by consumers, which should drive WM sales and profits. The greatest challenge to this success will be the dollar stores, which are aggressively moving to add fresh food.
There comes a time when a company can over-invade the prevailing turf.
This was true of A&P in the tougher economic years in the past. Back then, people’s appreciations of any savings eventually started to get balanced off – particularly with the new consumers – by the “smells” of their stores, over private labeling and their overall in-store environments.
Walmart, despite their pompous posture of pricing, is well aware of the potential effects of smothering. Their marketing focuses primarily on price. Walmart’s pricing is benefited greatly today by the uncertain economy and tight budgets … but their greatest challenge will come from fresh new retail programs that will arise tomorrow.
Consumers seem to rebel against retail boredom?
Do they have a choice?
As Max notes, they can’t just drop big boxes everywhere forever. They have to feed the beast (analysts) with ever increasing sales, whether or not the Street’s expectations are realistic or not.
So, if you can’t keep opening enough big stores, your only recourse are small ones.
I was never a fan of Neighborhood Markets which had everything going for them except retail execution on the floor. If you want to look and feel like a small store you need to drop the robotic corporate approach to retailing.
This may actually be less of a problem for Walmart Express since most c-store-like retailing is chain dominated and has more of a regimented corporate feel.
In fact, now that I think about it, Walmart Express may be much better received that the Neighborhood Market model.
Smaller stores (and that’s a broad segment) will be key to the future of Walmart’s success in the United States. The challenge is to create a management structure that recognizes that while you love all your children equally, you can’t raise and reward them in an identical manner.
Walmart tends to open these stores where they see the competition is tired and over extended in debt, usually picking on chains that have fallen to 30% to 40% below market average in sales per square foot. This makes these poorly operated chains an easy target to take business from.
I’ve been in a couple of Express stores, but these were really small with sales areas of only 5,000 square feet, three checkouts, a dozen employees and a pharmacy. Neither store had parking, both relied on walk-in trade. Anywhere that you have 10,000 to 20,000 people within a quarter mile radius, these should work well. The challenges are when Walmart goes up against stronger and lower-priced grocers. But most likely, Walmart will avoid building near stores that won’t roll over for them.
As Walmart opens their smaller concept store, Neighborhood Market, and hybrid convenience store, Walmart Express, in urban areas to compete with grocery stores, dollar stores and drug stores, I am most concerned about the long-range impact on small businesses, especially locally owned markets and drug stores. The move to “Shop Local” exists for a good reason, to support the local economy.
I’m also wondering if Walmart is getting tax incentives to build these stores. If so, I do hope they are locating them in areas designated as “food deserts” as they have a keen advantage to bring fresh fruits, vegetables and other grocery items to people who otherwise have to travel a great distance to buy them.
Let’s do the math, shall we? I’m not sure what kind of per square foot sales they’re hoping for, but let’s assume it’s a Walmartesque $500/psf; that would give us about $5M per store. With 500 stores, that would be $2.5B. Now let’s say the idea really works – or perhaps it’s so-so but they’re too stubborn to admit it – and that number grows tenfold; we’re at $25B. Walmart’s current sales are about 20 times that. Game changer? Betting the future on it? I don’t think so.
Adding too many Walmart Express/Neighborhood Market stores may also have a negative effect on Walmart Supercenter store sales. Now customers might skip the trip to Walmart and go to Walmart Express and pick up your prescriptions. In that case, they increased operating expenses but didn’t increase sales. Fewer visits to the Walmart Supercenters may mean fewer items in the cart.
The small store movement is the wave of the future, and derives from growth of the store as the neighborhood pantry. In fact, a good deal of thinking about retail of ANY kind needs serious consideration of whether you are taking the merchandise to the shopper, or are you expecting the shopper to come to the merchandise. The former is what I identify as ACTIVE retailing, while the latter is PASSIVE retailing.
It isn’t just about whether you have lots of little outlets near shoppers homes, or actually deliver to their homes, but equally about the retailers ATTITUDE inside the bricks store. For 100 years retailers have been thoroughly passive inside their bricks stores. Basically, relying on shoppers to “master” their stores and find what they need, with careless effort on the part of the retailer to get it to them.
Secondary placements are obviously one way of taking the merchandise to the shopper. But is there any retailer that doesn’t think secondary placement is a revenue generator for the retailer, from the suppliers, rather than any intelligent thinking about getting merchandise TO the shopper? Think about it: retailers are not trying to reach the shopper, they are thinking about reaching into the pockets of their suppliers.
Walmart is absolutely on the right track for this small store movement. There is still huge potential for super centers in places like China. But in heavily stored markets, smaller stores, nearer the customer, leveraging more trips per shopper but typically smaller baskets, is the way to go.
Neighborhood stores and Walmart Express are great to extend the reach and are also great for buying online and picking up in store. Often Express and Neighborhood markets lead to boredom due to limited assortments and lack of a “fun” factor in-store. With in-store engagement and ability to order for things not found easily, it can help to drive sales.
More Discussions
Is Meta Committing to Retail via Meta Lab Stores, or Are Other Goals More Important?
Is Meta playing in retail, actually committing to retail, or looking for more data?Aerie Recruits Pamela Anderson To Highlight No-AI Models Promise
American Eagle’s Aerie banner has recruited former “Baywatch” star Pamela Anderson to broadcast the lifestyle brand’s…How Timely Is the Planned Lowe’s Website Renovation Focusing on Personalization?
Is Lowe’s being timely with its website reno, and is it right to be placed as…
For Walmart, Neighborhood Markets and Walmart Express ARE the future. The biggest opportunity is to leverage these smaller formats to drive site-to-store connectivity. If Walmart gets it right, the productivity and volume driven by each store will transcend each store’s inventory.
Toward that end, I would like to see Walmart introduce and promote more online-unique brands in its marketplace. The smattering of brands currently available still fly too far under shoppers’ radars. Walmart also has an opportunity to create dependencies with new customers through the various service offerings mentioned and to put dollar and drug stores on notice as its entry into new ‘hoods change the competitive landscape. Dollar and drug stores’ localized pricing chops will surely be tested.
Walmart would also be wise to double down on prepared meals and grocery items before Burkle’s Yucaipa gets its sea legs with Fresh & Easy.
As Bill stated, they have a good strategy against dollar with fresh food, pharmacy, etc., but will this hold up against the assortment available in the drug channel? Gas? May be hard to do in many markets.
Two possible outcomes to this. One, Walmart continues to disrupt the industry and now in channels that seemed safe, or the drug channel needs to step up to the plate and offer more better service and attempt to compete on price. I feel sorry for and worry that these initiatives will not allow many of the small grocery stores to survive, which I believe would be a terrible result in many communities.
As the opportunity to open more supercenters diminishes, Walmart will turn to smaller footprints to increase growth. If these smaller stores can offer fresh produce, gas and a pharmacy, they will be well received by consumers, which should drive WM sales and profits. The greatest challenge to this success will be the dollar stores, which are aggressively moving to add fresh food.
There comes a time when a company can over-invade the prevailing turf.
This was true of A&P in the tougher economic years in the past. Back then, people’s appreciations of any savings eventually started to get balanced off – particularly with the new consumers – by the “smells” of their stores, over private labeling and their overall in-store environments.
Walmart, despite their pompous posture of pricing, is well aware of the potential effects of smothering. Their marketing focuses primarily on price. Walmart’s pricing is benefited greatly today by the uncertain economy and tight budgets … but their greatest challenge will come from fresh new retail programs that will arise tomorrow.
Consumers seem to rebel against retail boredom?
Do they have a choice?
As Max notes, they can’t just drop big boxes everywhere forever. They have to feed the beast (analysts) with ever increasing sales, whether or not the Street’s expectations are realistic or not.
So, if you can’t keep opening enough big stores, your only recourse are small ones.
I was never a fan of Neighborhood Markets which had everything going for them except retail execution on the floor. If you want to look and feel like a small store you need to drop the robotic corporate approach to retailing.
This may actually be less of a problem for Walmart Express since most c-store-like retailing is chain dominated and has more of a regimented corporate feel.
In fact, now that I think about it, Walmart Express may be much better received that the Neighborhood Market model.
Smaller stores (and that’s a broad segment) will be key to the future of Walmart’s success in the United States. The challenge is to create a management structure that recognizes that while you love all your children equally, you can’t raise and reward them in an identical manner.
Walmart tends to open these stores where they see the competition is tired and over extended in debt, usually picking on chains that have fallen to 30% to 40% below market average in sales per square foot. This makes these poorly operated chains an easy target to take business from.
I’ve been in a couple of Express stores, but these were really small with sales areas of only 5,000 square feet, three checkouts, a dozen employees and a pharmacy. Neither store had parking, both relied on walk-in trade. Anywhere that you have 10,000 to 20,000 people within a quarter mile radius, these should work well. The challenges are when Walmart goes up against stronger and lower-priced grocers. But most likely, Walmart will avoid building near stores that won’t roll over for them.
As Walmart opens their smaller concept store, Neighborhood Market, and hybrid convenience store, Walmart Express, in urban areas to compete with grocery stores, dollar stores and drug stores, I am most concerned about the long-range impact on small businesses, especially locally owned markets and drug stores. The move to “Shop Local” exists for a good reason, to support the local economy.
I’m also wondering if Walmart is getting tax incentives to build these stores. If so, I do hope they are locating them in areas designated as “food deserts” as they have a keen advantage to bring fresh fruits, vegetables and other grocery items to people who otherwise have to travel a great distance to buy them.
Let’s do the math, shall we? I’m not sure what kind of per square foot sales they’re hoping for, but let’s assume it’s a Walmartesque $500/psf; that would give us about $5M per store. With 500 stores, that would be $2.5B. Now let’s say the idea really works – or perhaps it’s so-so but they’re too stubborn to admit it – and that number grows tenfold; we’re at $25B. Walmart’s current sales are about 20 times that. Game changer? Betting the future on it? I don’t think so.
Adding too many Walmart Express/Neighborhood Market stores may also have a negative effect on Walmart Supercenter store sales. Now customers might skip the trip to Walmart and go to Walmart Express and pick up your prescriptions. In that case, they increased operating expenses but didn’t increase sales. Fewer visits to the Walmart Supercenters may mean fewer items in the cart.
The small store movement is the wave of the future, and derives from growth of the store as the neighborhood pantry. In fact, a good deal of thinking about retail of ANY kind needs serious consideration of whether you are taking the merchandise to the shopper, or are you expecting the shopper to come to the merchandise. The former is what I identify as ACTIVE retailing, while the latter is PASSIVE retailing.
It isn’t just about whether you have lots of little outlets near shoppers homes, or actually deliver to their homes, but equally about the retailers ATTITUDE inside the bricks store. For 100 years retailers have been thoroughly passive inside their bricks stores. Basically, relying on shoppers to “master” their stores and find what they need, with careless effort on the part of the retailer to get it to them.
Secondary placements are obviously one way of taking the merchandise to the shopper. But is there any retailer that doesn’t think secondary placement is a revenue generator for the retailer, from the suppliers, rather than any intelligent thinking about getting merchandise TO the shopper? Think about it: retailers are not trying to reach the shopper, they are thinking about reaching into the pockets of their suppliers.
Walmart is absolutely on the right track for this small store movement. There is still huge potential for super centers in places like China. But in heavily stored markets, smaller stores, nearer the customer, leveraging more trips per shopper but typically smaller baskets, is the way to go.
Neighborhood stores and Walmart Express are great to extend the reach and are also great for buying online and picking up in store. Often Express and Neighborhood markets lead to boredom due to limited assortments and lack of a “fun” factor in-store. With in-store engagement and ability to order for things not found easily, it can help to drive sales.