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Walmart fast-tracks rollout of small-format stores
February 20th, 2014
BENTONVILLE, Ark. – Turning up the competitive heat on supermarket and drug chains, Walmart is doubling the number of small-format stores that it plans to open in its current fiscal year.
Currently, there are 20 Walmart Express locations, which may include pharmacies.
The discount retail giant said Thursday that it now aims to add 270 to 300 small stores — including the Walmart Neighborhood Market and Walmart Express formats — during its 2015 fiscal year, compared with its October projection of 120 to 150 small stores.
And as initially forecast, the retailer plans to open about 115 new supercenters this year.
Walmart noted that its small stores have continued to generate comparable-store sales and traffic growth on a quarterly basis. The company said that Neighborhood Market comp-store sales rose 4% in fiscal 2014, driven by the fresh and pharmacy deparments.
"Neighborhood Market is performing comparable or favorable to leading grocers," Bill Simon, president and chief executive officer of Walmart U.S., said in a statement. "Our small-store expansion, in addition to providing customers access to a wide variety of products, including fresh, pharmacy and fuel, will help us usher in the next generation of retail. This will combine thousands of points of physical access with digital retail experiences that include initiatives such as Site to Store and Pay with Cash."
Walmart currently has 346 Neighborhood Market and 20 Walmart Express stores. The company said the Express units have performed well since the initial three-market pilot launched in 2011.
The Neighborhood Market stores, all of which have pharmacies, average nearly 40,000 square feet and offer fresh produce, meat and dairy products, bakery and deli items, household supplies, and health and beauty aids. The Express stores, not all of which currently have pharmacies, run around 15,000 square feet and carry groceries and general merchandise.
"Customers' needs and expectations are changing. They want to shop when they want and how they want, and we are transforming our business to meet their expectations," Simon explained. "Customers appreciate the broad assortment of our supercenters for their stock-up trips as well as our small store formats for fill-in trips. By unlocking this growth opportunity and further combining our supercenters and small store formats with an unlimited selection available through e-commerce, we provide our customers with anytime, anywhere access to our brand."
Walmart's small formats present a major challenge to drug, supermarket and dollar store chains, as well as rival mass merchants. For example, the July 2013 opening of the first Walmart Neighborhood Market in New York state, in the Long Island suburb of Levittown, illustrates the competitive disruption that Walmart's smaller formats can create.
The 49,000-square-foot Levittown store — situated in the space of a former Waldbaum’s supermarket, a chain of regional grocer A&P — features a full pharmacy with its own signage on the front of the building. Surrounding the pharmacy area are aisles of over-the-counter medicines and other health and beauty aids, including a prominent cosmetics section. Within two or three miles east and west along the main thoroughfare where the Levittown Neighborhood Market is located are a spate of retail competitors, including a Target discount store (with a P-Fresh grocery department and a pharmacy), a BJ’s Wholesale Club, a Stop & Shop supermarket (with a pharmacy), a King Kullen supermarket (with a pharmacy), Dollar Tree, Ulta Beauty, two Rite Aid drug stores, a CVS/pharmacy and a Walgreens drug store.
Overall, including supercenter and small formats, Walmart U.S. plans to open 385 to 415 stores in fiscal 2015, adding to the more than 4,200 stores now open.
"We view the acceleration of its small store formats (double its prior guidance) in 2014 favorably, although it is still unclear if this strategy will cannibalize existing supercenters," William Blair & Co. analyst Mark Miller wrote in a research note Thursday on Walmart's fiscal 2014 results. "We continue to see less appeal from larger stores with wide assortment when almost everything is available online with greater convenience."
With the accelerated small-format expansion strategy, Walmart U.S. expects net retail square footage growth of 21 million to 23 million square feet across all formats for fiscal 2015, compared with its earlier projection of 19 million to 21 million square feet.
"In addition to providing best-in-class one-stop shopping at supercenters, we believe that accelerating our small store expansion will allow customers to choose where and when to shop based on their needs," Simon stated. "Our small store expansion will also strengthen our market share and create greater efficiencies in our supply chain through a tethered approach that uses supercenters as a supply chain base, links our resources and provides a unique and connected customer experience."