Walmart Goes Slow on Small Formats

Discussion
May 18, 2012

Does being first or fast count when you’re Walmart? A Wall Street Journal article earlier this week questioned whether the retailer would achieve the results analysts are looking for with its new Walmart Express small store initiative, based on the relatively slow pace it was opening units.

Fortunately for Walmart, its most recent financial results, announced yesterday, show the company exceeding expectations as U.S. same-store sales increased 2.6 percent and store traffic rose for the second straight quarter.

But, let’s go back to small stores. The concept, as popularly understood, was developed to give Walmart the ability to reach consumers in large areas where it previously didn’t have a presence. It would also allow Walmart to offer a shopping alternative to dollar stores and limited assortment grocers such as Aldi.

As it turns out, while many thought of small stores as a done deal for Walmart with them opening up Walgreen-style in every available street corner location possible, the retailer, as CFO Charles Holley said last month, sees what it is currently doing as "a pilot."

So, can Walmart keep up with the likes of Dollar General and Aldi who are in rapid expansion mode by opening up a few units here and there? Aldi, as an example, is opening up 30 units in the Houston, TX market alone over the next three years.

Discussion Questions: Do you think Walmart needs to be more aggressive opening small stores? Is it falling behind, as suggested, to dollar stores and limited assortment grocers by not opening many more Express and Neighborhood Markets across the U.S.?

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16 Comments on "Walmart Goes Slow on Small Formats"


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Dick Seesel
Guest
10 years 3 days ago

When Walmart is satisfied that its pilot is ready to roll out nationally, there is no doubt that it can move fast. There is still plenty of real estate out there, including takeover space available at the right price. The key is to make sure that the merchandise message inside Walmart Express is clearly defined: A knee-jerk response to dollar stores or chains like Aldi is probably not what’s called for.

Ed Dunn
Guest
10 years 3 days ago

Wal-Mart is not opening up their small format stores in places where they are needed. The small-format stores I’ve seen (look on Google Maps) were located just a few blocks away from existing neighborhood supermarkets and even a Super Target.

Adrian Weidmann
Guest
10 years 3 days ago

Walmart is approaching this correctly. There is no need to rush. Ask Mr. Johnson at JCP. He has certainly rushed his agenda (in arguably the wrong order)and the recent results are not currently supporting his pace. It is smart for Walmart to run their pilot program to optimize the strategy for deploying smaller format stores. They have a secure business position now. Sam Walton once said, “Go where they’re not.”, meaning your business opportunity lies where there aren’t competitors. It makes sense for Walmart to move with calculated care.

Paula Rosenblum
Guest
10 years 3 days ago

I think Walmart has been smart to hold back. The company’s expertise is in tonnage, not in small LTL deliveries in metro areas.

The company seems to be finding its groove again. I wouldn’t mess with it, if I were them.

Steve Montgomery
Guest
10 years 3 days ago

Walmart has the ability to move quickly when it is ready to move. By labeling the Express concept a pilot it removes/lessens the market’s expectation that it is something they are ready to roll-out. It the pilot is successful they move forward, if not Walmart doesn’t face the headline “Walmart’s Express concept a failure in the marketplace.” Is is simply a test that didn’t work and they get credit for trying new ideas, testing them and then if they don’t work abandoning them.

Ben Ball
Guest
10 years 3 days ago

Is Walmart falling behind dollar stores by not opening Express more aggressively?

In current store count, of course. In developing the most effective small FOOD format — maybe not.

Dollar stores and drug are both adapting a general merchandise format to accommodate food based on the store traffic it generates. Their major strategic advantage is convenience in the form of proximity and, to a lesser extent, small store size. The exceptions to this are DG Markets and Aldi of course.

Walmart needs to perfect a better pure grocery small format, and make sure they can make money at it, before they roll. If they do, converted dollar stores may start looking a lot like Kmarts.

Roger Saunders
Guest
10 years 3 days ago

Patience will mitigate risk, increase learnings, and conserve time in addressing hiccup-issues to the press, stakeholders, and associates down the road.

Better that Walmart take this initiative a step at a time, than to go through several iterations of new management like the Fresh & Easy chain. Just because you’re big, doesn’t mean that you can accomplish all things. Walmart will learn the execution of these newer units first.

Right move.

Matt Schmitt
Guest
10 years 3 days ago

I think they are being very focused and methodical. Finding out what works and optimizing based on lessons learned works better than rolling out a lot of stores and then finding out they missed the mark.

Zel Bianco
Guest
10 years 3 days ago

One of the areas that will be interesting to look at is whether Walmart can be as efficient with smaller format stores in terms of supply chain and logistics as they are with large formats. Can they be as nimble when the truck load is smaller?

David Livingston
Guest
10 years 3 days ago

I think they need to be more aggressive with stores under 100,000 sq ft. It might take 5-10 years but this could be the final nail in coffin for companies like Roundys, Super Valu, Winn Dixie, Safeway, etc. If Walmart wants to bury them I think the small store format is the only way. They need to identify the very best stores of the financially troubled competitors and build anything they can across the street. It is a formula that has always worked for others. Just don’t expect results to show up in the next quarterly report.

Ed Rosenbaum
Guest
10 years 3 days ago

Walmart does best what Walmart does – that is being the industry leader. Somehow I don’t think Walmart’s board is that concerned about Aldi. The dollar stores are another issue altogether. Walmart has their sights set on being the major competitive leader. That said, they then have to focus on either smaller store footprints in more areas or better deals to sway the dollar customer to shop at Walmart. Either way there is no reason for anyone to think they are falling behind anyone.

Lee Peterson
Guest
10 years 3 days ago

I don’t know, doesn’t seem like a fair comparison to me. Walmart’s opening up fairly sophisticated stores compared to the dollar store model. The dollar store idea is to grab an old existing space, keep everything in it, fixtures, flooring, lighting, sometimes even signage (!) . . .slap a register in there and open the doors. Given that Walmart plans to actually be in their new spaces for awhile, I’d give the a little time to make this happen right. As we’ve discussed here before, the simple change in logistics is a daunting enough task. But as they’ve already proven, once their fly-wheel gets going . . .look out.

Roy White
Guest
Roy White
10 years 3 days ago
If any chain is, Walmart is certainly in a position to review its initiatives like Walmart Express and go slow to get it right. The chain’s sales were $444 billion last year and earned $16 billion in net profits. It operates over 10,000 stores across the globe, has well over a billion square feet of selling space, and has inventories of $40-50 billion. And, as the article indicates, same store sales and store traffic are up for the past two quarters. Looks like they can afford to go slow. However, it is true that the dollar stores are on a growth roll and snapping up locations across the US at a very rapid pace and the window of opportunity for Walmart Express Neighborhood Markets may not be as wide in the future as it is now. For example, Dollar General opened 625 stores last year and operates over 10,000 units in the US. Despite the expansion, the chain is doing quite well fiscally, with sales last year up 14% and profits 22%. The 7,200 sq.… Read more »
Craig Sundstrom
Guest
10 years 3 days ago

WM will never please the anylysts — at least not anymore — since analysts expect every team to win the World Series every year; so ignore them.

That having been said, I don’t see the logic in the small format idea; or let me rephrase that: I see the logic well enough — small is the only field left for them to expand into (domestically) — but I don’t see that it’s necessarily something they can pull off. WM is about big and cheap, who says they can do small?

Mike Blackburn
Guest
10 years 2 days ago

Neighborhood market, WMT Express…this format has been in “pilot” mode for a good 10 years now.

Kai Clarke
Guest
10 years 2 days ago

Slow and easy, especially in these recessionary times is the right move for Walmart. Walmart has other opportunities to use its resources on, and many of these may be more proven than its current pilot of small format stores. Yes, slow is the right speed for Walmart.

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