BENTONVILLE, Ark. — After years of modest, incremental expansion, Walmart will accelerate the rollout of its Neighborhood Market format next year as part of an effort to penetrate untapped domestic markets with smaller stores.
After years of modest, incremental expansion, Walmart will accelerate the rollout of its Neighborhood Market format next year as part of an effort to penetrate untapped domestic markets with smaller stores.
At the same time, its flagship Walmart U.S. division will continue to reverse certain layout and merchandising changes that were part of Project Impact and have backfired on the retailer.
Walmart had previously signaled that it was preparing to develop multiple small formats for deployment in the United States, most recently during a presentation by Bill Simon, president and chief executive officer of Walmart U.S., at the Goldman Sachs Global Retailing Conference in New York last month. But during Walmart’s annual analysts conference recently, management unveiled more details on the company’s growth plans and also broke from recent practice by providing guidance on sales and other metrics.
Executive vice president of finance and treasurer Charles Holley forecast that total sales will increase between 4% and 6% for fiscal 2012. The international division, which has fueled most of the company’s recent growth, will see the biggest increase in capital spending, while capital outlays for Walmart U.S. and Sam’s Club will be flat.
“We expect to grow total company square footage between 3% and 4% next fiscal year, which means that square footage and capital spending will grow at approximately the same rate,” Holley explained. “In the United States, we will shift more capital toward new stores, including supercenters and smaller formats. We are lowering remodeling costs through greater efficiencies, so the total capital commitment for Walmart U.S. next year will be flat with the current fiscal year.”
Overall, Walmart expects to add between 192 and 217 stores in the United States, with the majority — 155 to 165 — slated to be large formats, or stores in excess of 60,000 square feet. The big news, however, is that 30 to 40 medium- and small-format outlets will debut as Walmart shifts its strategic focus to penetrating urban and small-town markets where its big supercenters are problematic.
The centerpiece of this effort will be the long-delayed acceleration of the rollout of the Neighborhood Market, launched a decade ago. Walmart currently operates about 180 of the stores, which range between 40,000 and 60,000 square feet.
“After years of development, we are now prepared to accelerate the growth of this size store,” Simon told analysts.
Ironically, when Walmart unveiled the Neighborhood Market, many observers predicted a devastating blow to traditional supermarkets if the format was rolled out aggressively.
That rollout never occurred, though, for two reasons: The Neighborhood Market could not match the return on investment of a supercenter, and as a result Walmart preferred to allocate its limited food retail management resources to the big stores.
In addition to the Neighborhood Market rollout, Walmart will continue to develop additional smaller formats, such as the Marketside prototype inspired by Tesco PLC’s Fresh & Easy format. Simon repeated that Walmart U.S. will leverage the experience of the international division with small formats.
“Over the next few years, we will introduce new formats to help us enter new markets,” said Simon. “Walmart U.S. will move toward a three-format portfolio, which will drive expansion to urban markets and small towns, as well as fill in gaps in existing markets.
“The large format is our supercenter, which sells a broad assortment of groceries and general merchandise. We have integrated efficiencies into our supercenter design that have allowed us to decrease its average square footage,” he explained. “The medium format, between 30,000 and 60,000 square feet, will be based on the needs of an individual market. The small format, less than 30,000 square feet, will be targeted to urban markets and small towns.”
It is commonly believed that the smaller formats will be designed to compete with dollar stores, which have experienced dramatic growth even through the recession and appear to have taken share from Walmart and other discounters by combining extreme value pricing and the convenience of a small box, enhanced by much improved merchandising at the two largest operators, Dollar General Corp. and Family Dollar Stores Inc.
When asked whether the shift was inspired by dollar store competition, however, Simon replied that he was not focused on any one competitor, adding, “Do they have a head start? Yeah, they do, they have 20,000 [stores].”
While the format news provided excitement, Simon clearly has Walmart U.S. focused on jump-starting same-store sales — which have declined for the past five quarters — by correcting missteps in Project Impact.
The first phase of that effort consists of identifying and replacing deleted items that resulted in lost sales and traffic, followed by changing layouts to conform to consumers’ “decision tree” within a category. The third phase will involve revising departmental space allocations and shelf availability.
Walmart president and CEO Mike Duke gave a vote of confidence to the changes effected thus far, predicting that same-store sales will increase in the fourth quarter and emphasizing that they are a critical priority.