Walmart Express Turns a Quick Profit

In a poll taken last week on RetailWire, 65 percent thought Walmart’s decision to go slow with its small store formats would ultimately give the chain an advantage over a wide variety of competitors. After all, the logic goes, retailers are engaged in a marathon and not a sprint.

All that taken into account, it seems curious the chain is not going after the small store opportunity more aggressively after U.S. CEO Bill Simon told attendees at a Morgan Stanley conference that Walmart Express stores are already making money.

"What we’re finding is that inside of 12 months they’re turning profitable. We didn’t actually project that," Mr. Simon was quoted by Reuters.

To date, Walmart has opened 10 Walmart Express stores in rural Arkansas and North Carolina as well as Chicago. The stores top-out at 15,000 square-feet and offer a tightly edited selection of items sold in other Walmart outlets.

"The next phase is, how big could this be," Mr. Simon said, according to CSPnet. "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. 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: How do you think Walmart has achieved profitability so quickly with the Walmart Express concept? Where do you see the greatest growth potential for Walmart Express — rural, suburban or urban locations?

Poll

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Dick Seesel
Dick Seesel
11 years ago

Walmart may be making its own argument for going slowly by ensuring that Walmart Express meets its own profitability standards before rolling it out. One of the secrets of its early success is the ability to edit assortments in a small footprint to ensure that only the most productive and “wanted” merchandise is in the store. I see a lot of potential for Walmart Express in various locations, but especially in high-density sites where the costs of a full-sized store (site selection, zoning, etc.) are prohibitive.

Mark Heckman
Mark Heckman
11 years ago

Perhaps one of the reasons that Walmart is treading carefully with this new format lies in the not-so-successful history of their Neighborhood Markets, which was really their first foray into a smaller version of their larger, successful format. With that said, I am not surprised that they have found profitability quickly, although this success will be reliant upon maintaining or growing current sales volumes, which is not always easy to do.

Another key dilemma for Walmart overall is cannibalization. They have done such a good job of saturating markets that now any new square foot tends to dilute volumes of their existing stores, large and small, more so than attract competitor’s customers. Those of us that have done site location understand that “new business” drives successful expansion, not diluting their existing customer base across more stores.

Consequently, I see their growth opportunities in urban markets where Walmart Supercenters and other large formats are non-existent or inconvenient. Given that urban locations in more densely populated areas tend to be more complicated real estate deals, the Walmart “Express” expansion initiative may be less “express” and more deliberate than they would prefer.

Ed Dunn
Ed Dunn
11 years ago

From CSPNet, this should explain how Walmart intends to handle distribution to small-format stores:

“Imagine if you could get to a density market where you actually do the trailer drops to a supercenter that’s nearby, [with] a small truck to run a route of Express stores. You could almost use a supercenter as a cross-dock opportunity to deliver to a smaller store. That’s the mindset were in as we move to refine [Walmart Express].”

Sounds like the big box format is going to serve as both retailer and distributor warehouse, a new hybrid trend seen with other retailing operations.

Roger Saunders
Roger Saunders
11 years ago

Geography choice of rural, suburban or urban won’t be the challenge here. The smaller box can conceivably work in any one of the three areas.

Focusing on the merchandise selection, balancing proper allocations, offering quality, likely branded items, or bulk generic goods, and defining the convenient in and out location will play well with the Walmart price/value message.

Roy White
Roy White
11 years ago

Walmart’s bread-and-butter stores are the supercenters and regular Walmarts in the US, and the chain is undoubtedly the master of the large-format retail unit. Stores like these have made them the largest retailer in the world and at some point over the next couple of years, stores like these will be instrumental in taking the company’s sales to half a trillion dollars.

Small stores may be a different story for them, and, at 15,000 sq. ft., they are actually smaller than the original Walmart in Rogers, AR in 1962, which was 18,000 sq. ft. But if Walmart wishes to expand, a smaller footprint will be required to enter into urban areas, so it is smart for them to tweak the model until it is completely right.

Randy Friedlander
Randy Friedlander
11 years ago

Walmart’s growth strategy for Express is no different than it has been for supercenters: making a tailored assortment of name brands at EDLP available to more Americans. In this case, the big prizes are those major metro areas where builing a supercenter is difficult or impractical: New York, Chicago, Philly, etc. Considering that many Walmart Express stores are likely to feature pharmacies, it’s not hard to recognize which competitors they are targeting.

Kai Clarke
Kai Clarke
11 years ago

Steady and slow wins the race here. 10 stores don’t determine a national roll-out or success format. Instead, it is better to grow and define these stores for the markets they are competing in. Different mix and a different footprint may all be necessary options for specific markets. Stores in NYC may not align with their test stores in Arkansas and Chicago….

Ed Rosenbaum
Ed Rosenbaum
11 years ago

I am not about to question Walmart’s decision to take this rollout slow and steady. Their history of success shows their decision making is strong. To me the bigger question is not if they are going to go strong with this program, rather where are the locations they will choose?

James Tenser
James Tenser
11 years ago

Achieving operating profit is a good first milestone. Walmart has many reasons to put pressure on the dollar store, chain drug, and specialty food market operators.

The hub-and-spoke concept sounds intriguing, although it would invent an entirely new type of distribution logistics — one with an extra step from Supercenters to Express locations.

As we reason through the potential for this, we should remember that it will take 10 Express locations to add as much floor space as one conventional Walmart store. 20 units to equal one Supercenter. From a sales-flow perspective, that’s the difference between one artery and 10 capillaries.

Bottom line is that Walmart would not take on this much operating complexity if it did not see the handwriting on the wall. Big box growth is unsustainable at historic rates. It’s go local or stay home.

Craig Sundstrom
Craig Sundstrom
11 years ago

Not to (specifcally) question Mr. Simon’s credibilty here, but any subsidiary can be made to look profitable just by juggling the numbers around (yes, probably even F&E if Tesco wished it) So it’s really impossible at this distance to even say “if,” let alone “how,” as to Walmart Express’s performance. (Of course it’s entirely possible it really IS profitable, in which case, good work!) I have doubts about the wisdom of the whole mini concept … but what do I know?