Small format looks like a winner for Walmart

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Amid all the attention directed at Walmart’s recent annual meeting, where the hoopla surrounding the discounter’s golden anniversary celebration vied with concerns voiced by many shareholders about the bribery scandal that hit the company in April, one important development has received less attention than it otherwise would have: Walmart Express, the company’s experimental small-format stores, are generating a profit less than a year after their debut.

Bill Simon, chief executive officer of Walmart’s U.S. operations, first talked about that fact publicly last month at a Morgan Stanley conference in Boston. “We’re finding that inside of 12 months the stores are turning profitable,” he said. “We didn’t project that.”

The company launched the concept just under a year ago with two outlets in Arkansas, and it now operates about a dozen of them in that state, North Carolina and the Chicago market. At roughly a tenth of the size of a Walmart Supercenter, the 15,000-square-foot stores are designed to make shopping for fast-turning products more convenient and give the retailer access to locations where until now real estate restrictions or other factors prevented it from doing business.

The merchandise mix at a Walmart Express mirrors that of a Supercenter, but at a much smaller scale. The new format houses 11,000 to 13,000 SKUs, including grocery products, general merchandise, and health and beauty aids. Most of them have a prescription drug counter.

The early success of the format portends a serious new challenge for chain drug store operators and other retailers that compete in those categories. Convenient locations and a quick in-and-out shopping experience have long been two of the primary selling points for drug chains, which in recent years have worked to bolster their assortment of consumables and other front-end merchandise as a way to offset continued pressure on profit margins in their core business of filling prescriptions.

Walmart Express, together with the company’s midsize Neighborhood Market, has the potential to counter those strengths, as well as bring Walmart’s formidable array of health care offerings closer to the areas where consumers live and work.

Already the nation’s third-largest dispenser of prescription medications at retail and the dominant outlet for H&BAs, Walmart stands to gain ground by putting its pharmacists in neighborhood settings that facilitate interaction with patients. In addition, a broad-based rollout of smaller-format stores would expose more consumers to such popular health care offerings as Walmart’s $4 generics program and the Medicare prescription drug plan it cobrands with Humana.

While a large-scale rollout of Walmart Express may still be years away, chain drug store operators would do well to think about how the format could affect the balance of power in the marketplace and what they can do to differentiate their stores in order to meet the competitive challenge when it arrives.


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