Retail giants betting on small-box stores

To grow, Wal-Mart, Target go rural with Express outlets

Posted: July 31, 2014 at 2:52 a.m.

Analysts say small-footprint stores -- pared-down versions of regular Wal-Mart and Target stores -- are the biggest trend in retail, but the Little Rock area hasn't seen many of the megaretailers' new projects.

Wal-Mart is rapidly expanding two of its smaller store models -- Walmart Express and Wal-Mart Neighborhood Market -- but so far Little Rock has a single Wal-Mart Neighborhood Market, on Cantrell Road. Wal-Mart announced in February that it planned to build 270 to 300 small stores in the next fiscal year, up from its initial forecast of 120 to 200 stores.

"The Express store is meant to be in small, rural neighborhoods that are really underserved," Wal-Mart spokesman Anne Hatfield said. "It really is not relevant in the location of our Supercenters. You can use those stores very differently."

Express stores average 12,000 square feet and feature a small grocery along with health and beauty products, housewares and baby supplies. Neighborhood Markets average 47,000 feet and offer a full-service grocery, along with some general merchandise. Wal-Mart's Supercenters average 187,000 square feet. So far, Wal-Mart operates 346 Neighborhood Markets and 20 Express stores around the nation. Hatfield said most new Express stores would be located in rural and suburban areas in Southern states.

Target Corp. recently joined Wal-Mart in developing a smaller-footprint store. The retailer opened a 20,000-square-foot TargetExpress store near its Minneapolis headquarters and has plans to open more ministores in the San Francisco Bay Area. Hatfield said that unlike Target, Wal-Mart has no plans to build Express stores in urban areas.

Bill Stinneford, senior vice president for account management for the Buxton Group, a customer analytics company, said Little Rock, like many Southern cities, lacks the density to attract the smaller-format Target or Wal-Mart stores because the city's sprawl leaves plenty of space to build full-size stores.

"Certainly even the densest parts of Little Rock are not going to be dense enough to have Target go to a smaller box," Stinneford said. "On the outskirts of Little Rock you might see some development where there previously hasn't been any."

Searcy, Maumelle, Conway and Sherwood all have Neighborhood Markets. The three Walmart Express stores in Arkansas are all in the northwest, with two in small towns.

Retail analyst Carol Spieckerman, president of the Bentonville retail strategy firm newmarketbuilders, said retailers want to capitalize on the "fill-in trip," when customers grab a few essential items such as milk or paper towels between larger "stock up" shopping trips. Fill-in shoppers tend to stay close to home and have historically headed to dollar stores, convenience stores and drugstores when they need just a couple of products.

"Everybody's going after that fill-in trip," Spieckerman said. "With aging demographics and also the option to shop online, customers were increasingly saying that they didn't want to navigate a football-field-sized store."

Spieckerman said the Express stores are designed to compete with dollar stores, which have thousands of locations and have long existed in the rural communities that lack the numbers needed to attract the big retailers. But while dollar stores, such as Dollar Tree, far outnumber the small-footprint outlets, the new Express stores do three to 10 times the sales, Spieckerman said.

"Dollar stores right now are finding themselves at a crossroads in terms of how they're going to leverage that giant footprint and make those stores more productive," Spieckerman said. "They're competing against retailers who are saying, 'Let's be more strategic about this.'"

No. 2 deep-discounter Dollar Tree announced Monday that it would buy rival and No. 3 Family Dollar for $8.5 billion. The move would give the combined retailer 13,000 stores. Analysts say the merger signals Dollar Tree's intent to compete with the rapidly expanding Walmart Express line.

Spieckerman said that even with thousands of locations, dollar stores can't compete with Wal-Mart's supply chain efficiency. Stores such as Family Dollar and Dollar General, which don't sell all of their inventory for a dollar or less, are actually price optimized to each market and may be more expensive than mass retailers located farther away. As discount retailers such as Wal-Mart encroach, Stinneford said, prices are likely to drop across the board, which is good news for consumers.

"It's an arms race, if you will, to see who can be at the forefront of this next retail frontier, which is based on convenience," Stinneford said. "I think the people who are going to win are the ones who understand their customers the best."

Business on 07/31/2014