Walmart Thinks Small

Why Walmart Suddenly Thinks Smaller Is Better

At the end of the 2014 fiscal year (January 2014), Walmart had 3285 Supercenters in the United States that vary in size from 180,000 square feet to 230,000 square feet. They also had 508 discount stores that were around 140,000 square feet, smaller than the supercenters because they sell very little food. There were also, according to Walmart’s annual report, 407 even smaller units of which 359 are the Walmart Neighborhood Market concept. These stores average around 43,000 square foot in size and have been around since 1998.  A previous Walmart management team assured me that, while they liked the concept, Walmart customers preferred the larger assortment in the superstores and discount stores.  Despite management’s lukewarm endorsement at that time, every year a few more unites were added.

Well, things have changed. The convenience of quick shopping has become front and center.  Today there is a real focus at Walmart on smaller stores. Two hundred new Neighborhood Market units will open this year. That is a tremendous ramp-up in the expansion plans–and the new Walmart management team is suggesting there could be thousands in five years.  Yikes! Thousands!  What has happened? Why now?

Certainly Doug McMillon, Walmart’s new CEO, wants to show domestic growth. He is stressing that the customer wants the convenience of a quick shopping trip to a Market Place.   I can add that he probably has learned from the omnipresence of small stores and bodegas throughout the US, and the world, as well as the rapid expansion of Nordstrom’s Rack, that the consumer likes small stores and it is easier to find locations for these compact units. I could visualize entry into urban centers like New York City, Chicago, Los Angeles or Dallas, as well as expansion into new suburban areas. The stores will be close to where customers live and want to shop. The stores carry food, full pharmacies, fuel, and some general merchandise.

Right now there are also twenty-one 12,000 square foot Walmart Express stores with fresh produce, meats and dairy as well as a pharmacy. Management has indicated that they will add 100 of these pint-size units this year. This is a fast growing chain, and I suspect that, like rabbits these units will multiply very quickly this decade. They are even easier to find locations for around the United States than the larger (but still small) Neighborhood Markets.

Walmart To Go is the newest test store and that is in Bentonville, Arkansas, Walmart’s HQ town. It is only 5,000 square feet in size and features coffee and cold refreshments as well as snacks. It is a modified convenience store selling fresh food, some prepared meals, some grocery, and a few general merchandise items such as movies and seasonal items for Easter, Mother’s or Father’s Day. The store will carry only 3,500 SKU’s (stock keeping units).

Judith McKenna former COO of ASDA is now in charge of small store rollout. She will lead the introduction of yet another innovative idea for Walmart–a 15,000 square foot Internet grocery pick-up center.  This new concept will also be tested in Bentonville, AR and is modeled after an ASDA concept in the United Kingdom. This drive through concept will assemble grocery orders placed online and deliver them to cars in as many as 30 drive-up lanes.

I think the news of these new initiatives is exciting and at the same time challenging. They will certainly create a greater competitive environment throughout the United States. However, they will only be successful if new supply chains are created. The new concepts have to be watched closely in order to assure profitable growth. Walmart’s customer service in large stores has been uneven and the rapid growth of these new concepts demand a cadre of dedicated associates that are ready to serve customers on less bureaucratic terms. When I saw the first Neighborhood Market stores they were truly entrepreneurial enterprises. That has to come back.

This year, Walmart will add 115 supercenters, 35 to 40 units will be renovations and expansions, while 75 to 80 will be new stores. That is about 17 Million square feet of additional selling space. This is still the engine that will drive total sales for this behemoth.   It will still be the focus of the company.  However, as I analyze the competitive retail scene – the addition of 300 new small Walmart units that will add about 1 million additional square footage of selling space.  However, Walmart is not the only retailer adding capacity to the US market. The strength of Internet sales will be a factor pressuring stores.  With the opening of Alibaba’s 11Main.com and the announced opening of Primark in Boston in late 2015, there is much to worry about. Walmart will continue to be a competitive leader defending its share of market, but the new competitors will create a worrisome war-like environment in the second half of this decade.