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Drug chains can expect more pressure from Walmart

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NEW YORK — Walmart is seeing strong results from its smaller formats and is accelerating its rollout of Neighborhood Markets. It is the Walmart Express, however, that is emerging as a formidable rival to both drug stores and dollar stores.

Speaking at the Goldman Sachs Global Retailing Conference recently, Walmart U.S president and chief executive officer Bill Simon spoke about the retailer’s plans for its various domestic formats as well as its multi-channel efforts.

“Access is becoming more important to customers,” Simon noted. “And we believe we have an opportunity today through multiple formats to take our brand closer to the ­customers.”

However, he added, the Walmart Supercenter will remain the chain’s primary vehicle and source of continued steady sales growth. It continues, he said, to deliver the one-stop shopping experience better than any other format.

It is the Walmart Neighborhood Market, though, that is now claiming the limelight due to consistently strong results. Last year Walmart revved up its deployment of Neighborhood Markets. It finished fiscal 2012, which ended in January of that year, with 168 Neighborhood Markets in operation, and opened an additional 73 during the ensuing 12 months.

This year, Walmart has already opened 65 Neighborhood Markets since February 1, giving the company a total of 306.

Simon indicated that Walmart plans to have 500 of the stores open in the next 18 months, which is basically consistent with the timing he announced last fall, when he said Walmart would have 500 Neighborhood Markets operating by fiscal 2016, which will begin in February 2015.

The format has consistently delivered comparable-store sales growth in the mid-single digits and is now achieving returns on investment that approach those of the supercenter. Moreover, the capital requirements to open a Neighborhood Market have come down, in part through economies of scale and some, Simon noted, through learnings achieved with the Walmart Express pilot program.

The Walmart Express, which ranges in size from around 10,000 square feet up to 15,000 square feet, debuted in the summer of 2011. The retailer finished fiscal 2013 with 13 units in operation and has since added seven locations.

Like the Neighborhood Market, the Express format was developed specifically to enable Walmart to penetrate communities that cannot support a full-size supercenter, either because of inadequate population or sparse real estate.

The real power of the Walmart Express lies in its ability to serve either small rural communities or densely populated urban markets, particularly those that qualify as food deserts.

The format has proven to be competitive against three different trade classes, according to Simon. “Against a dollar store, they have fresh food, pharmacy and gas and have a pricing advantage,” he explained. “Against drug they have a significant pricing advantage and they have fresh food and gasoline. And then against small grocery stores we have a competitive price advantage. So it is really performing well.”

While Simon did not reveal planned numbers for the Walmart Express, he did promise that more details would be shared when Walmart holds its annual analysts’ conference in October. A year ago Simon acknowledged that, while the pilot stores were then more profitable than expected, further improvement was needed and expected.

Since then, he told attendees at the Goldman Sachs event, the company has learned a great deal about constructing and servicing smaller stores.


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