Taking Stock

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Wal-Mart Looking At Northeast For Smaller Format Expansion? 

Bill Simon, president and chief executive of Wal-Mart’s U.S business, said that his company plans to prioritize the opening of its small format units (Neighborhood Markets, Wal-Mart Express) during the next 18 months, which would bring the company’s total to more than 500 smaller format stores nationally. It currently operates 290 Neighborhood Markets and 19 Wal-Mart Express units as compared to 4,713 conventional (“Division 1”) units, SuperCenters, and Sam’s Clubs in the U.S.

“Increasingly, access is becoming more important to customers,” said Simon at the Goldman Sachs Global Retailing Conference in New York City on September 11. “And we believe we have an opportunity today through multiple formats to take our brand closer to the customers and to deliver that Wal-Mart promise about everyday low pricing and access to the products that customers want in multiple formats across the U.S.”

The expansion of stores in the 10,000-40,000 square foot range would allow the Bentonville, AR retailer to expand further in the Northeast where real estate is less available and more expensive, especially for large size formats. While the world’s largest retailer has aggressively sought to convert more than two dozen “Division 1” units into “SuperCenters in the densely populated Northeast corridor over the past three years, opening smaller units could potentially give the company opportunities in more urban locales in the region. The company expects smaller formats to account for 40 percent of its new store growth next year.

According to Simon, as Wal-Mart builds smaller stores, it has learned that efficiencies are not as compatible with larger formats. However, Wal-Mart’s top U.S. executive noted that returns from Neighborhood Market stores are nearing those of SuperCenters. However, Simon added that Wal-Mart still needs further refinement with its smaller models in areas such as smaller assortments, changes to its point-of-sale system, changes to delivery frequency, and additional district supervisors.

As for Wal-Mart Express, Simon said he is pleased with current results and trends. The 20-unit pilot phase of the company’s small format is experiencing “mid-double-digit” comps, he told the audience at The Plaza Hotel in Manhattan. The stores are approximately 10,000-12,000 square feet in size, although the company has several units in the 15,000 square foot range.

He noted that the “Express” format performs well against three competitive channels: “Against a dollar store, they have fresh food, pharmacy and gas 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.”

And on the warehousing and logistics side of the business at Wal-Mart Express, Simon explained that the company is discussing a new method of distribution “that could be game changing for smaller formats.”

Simon added that Wal-Mart’s ability to offer assortment in that same amount of square footage against is “100 fold” better, “because we have an understanding of what everybody in that zip code buys online through Walmart.com, buys in bulk through Sam’s Club, buys at the SuperCenter down the road and can assort the store, so that it feels like a much, much bigger store. So we know exactly which SKUs are bought in that particular geography because of our ability to understand the data. We think that gives us a competitive advantage that others would really struggle to get to.”

As for sales and earnings performance, Simon said that Wal-Mart expects U.S. sales to improve in the second half of the year, particularly as it enters its critical holiday shopping season. The retailer posted disappointing second-quarter comparable U.S. sales, down 0.3 percent for the three month period ended July 31. Wal-Mart has been impacted by the continuing sluggishness of the economy (including higher gas prices) and stiffer competition (especially from dollar stores).