Wal-Mart is signaling that its smaller-format stores - Neighborhood Market and Express, primarily - will play a larger role in the company’s future growth.
The company plans to add 115 of the small-format stores in the current fiscal year, or about 40 percent of its new locations.
“You’ll see us, as the chart on the bottom indicates, increasingly moving into smaller formats,” Bill Simon, president and chief executive officer of Wal-Mart U.S., said Tuesday as he addressed an investor conference hosted by Raymond James Financial Inc.
Simon noted that even with the push into small-format stores, 125 supercenters will be added. Supercenters account for 90 percent of the retailer’s business and “are still a great growth vehicle for us from a dollar perspective.”
However, smaller-footprint stores will comprise about 40 percent of planned new U.S. stores.
“What we’re trying to do is to do more with less, so we’re trying to become more efficient in the use of capital,” he said. “The square footage will roughly stay the same, but you’ll see more doors open because we’re going to be opening smaller stores instead of supercenters.”
As of Jan. 31, Wal-Mart had 4,625 retail units: Ofthose, 3,158 were supercenters, 620 were Sam’s Club outlets, 561 were Wal-Mart discount stores, 267 were Neighborhood Market stores - traditional supermarket format - and 19 were small format stores, which include Walmart Express, Walmart on Campus and Super Ahorros.
“It’s a very rapid ramp-up” of the small-footprint stores, Simon said. “We’re excited about it because they compete really well against multiple channels. We might think of Neighborhood Market as a drugstore or a grocery store competitor, or Express, as you’ve thought about it, as a dollar-store competitor.”
Some stores, such as a Neighborhood Market in downtown Chicago, have recorded up to 25 percent of its sales through the company’s site-to-store program, in which customers place orders online to be delivered for pickup at their nearest store, he said.
Simon said the company foresees rapid growth for Neighborhood Market.
“We have a direct line of sight to 500 [stores] by fiscal’16,” he said, adding, “500 is by no means the end. It’s merely just the beginning of what we think the opportunity might be for this format.”
The Express format, Simon said, is undergoing a density test in the Raleigh-Durham, N.C., market as the company seeks to understand “what happens when you put a lot of these in close proximity.”
“We’re actually learning a lot from Express that we’re now applying to Neighborhood Markets, about building costs and discipline with capital. That’s making us better on all of our small formats,” Simon said.
Carol Spieckerman, president and chief executive officer of new marketbuilders, a Bentonville-based retail consulting firm, said Wal-Mart has made it clear that it was going to take a cautious approach in optimizing its formats.
Given its “muscle,” she said, it would have been easy “to start shooting out hundreds” of small-format stores.
A key advantage to small format stores, she said, is to facilitate pickup locations for online merchandise orders.
“It’s critical to Wal-Mart’s omni-channel strategy,” Spieckerman said. “The fact that they’re doing it tells me they’vegot some really good data that is supporting them going forward. It’s definitely going to change the landscape for other retailers.”
Patty Edwards, retail analyst with Trutina Financial in Bellevue, Wash., said Wal-Mart’s move with smaller formats could prove to be huge opportunity if it enables the company to further penetrate urban markets.
“Wal-Mart is adapting. Four or five years from now, it may be significant,” she said. But in the short term, she said, “the problem is, it won’t make much of an impact on the top or bottom line. It takes so much to move the needle at Wal-Mart.”
Camille Schuster, president of consulting firm Global Collaborations Inc. and a marketing professor at California State University in San Marcos, said many retailers are experimenting with alternative formats.
“The success has been mixed, as far as I can tell,” she said.
A small-format store likely would not work if a supercenter was nearby, she said. If not, a small-format Express in a convenient location would make it easier for online shoppers to pick up what they ordered online, she said.
Business, Pages 29 on 03/09/2013