Retailing: Facing Superstore Saturation, Wal-Mart Thinks Small
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By Louise Lee
Staff Reporter of The Wall Street Journal
The Wall Street Journal via Dow Jones
Get ready for Small-Marts.
Now that most of the country is covered with its giant discount outlets,
Wal-Mart Stores Inc. is preparing to test the appeal of much-smaller stores that
could compete with convenience stores and traditional supermarkets.
The company plans to open stores of 40,000 square feet by this fall in the
Arkansas towns of Springdale and Sherwood and in Bentonville, where the giant
discounter is based. The units would be less than half the size of Wal-Mart's
current stores, which average roughly 92,000 square feet.
The move underscores Wal-Mart's struggle to find ways to keep growing as it
approaches the saturation point for its existing store concepts. Domestically,
Wal-Mart already operates more than 1,900 regular discount stores, as well as
440 mammoth, deep-discount Sam's warehouse clubs and 440 sprawling supercenters,
which sell both general merchandise and groceries. Total sales last year were
almost $118 billion.
In building smaller stores, Wal-Mart is also acknowledging that giant stores
require a commitment of time and energy that shoppers don't always have. "We
lose a lot of customers because the supercenter is too busy and not convenient,"
says Wal-Mart Senior Vice President Jay Fitzsimmons. "Where we're losing sales
is to the grocery stores" and other small stores.
The smaller Wal-Mart stores are expected to sell a limited selection of
groceries and general merchandise and operate drive-through pharmacies. The
company isn't saying how many smaller stores it could eventually open.
Wal-Mart hopes that the strategy shift will help it move into new areas, from
very small towns to metropolitan areas, that are too small for a supercenter or
couldn't support another large store. "We want to address those markets where we
couldn't get a supercenter in," Mr. Fitzsimmons says.
Wal-Mart has toyed with the idea of building smaller "neighborhood stores" for
several years, trying to design an outlet that would fit somewhere between a
supercenter, which lacks convenience, and an old-fashioned convenience store,
which doesn't stock enough to allow low prices. Wal-Mart's main strategy in
recent years has been to build supercenters and add grocery departments to
existing discount stores.
A Wal-Mart spokesman declined to comment on how prices at the small stores
would compare with supercenter prices. But he said: "Regardless of our retail
concept, our goal is to provide our customers with the best possible value."
Wal-Mart, whose stores have gotten larger on average every year for the past
decade, has always touted size as a major attraction. Besides selling general
merchandise, Wal-Mart's supercenters, for instance, have full-line grocery
departments complete with meat and produce sections. Supercenters, some of which
are more than 200,000 square feet, also offer such amenities as hairstyling
salons and banks. The Sam's units are cavernous stores that sell such items as
furniture, appliances and bulk packages of food and household items.
The new strategy doesn't mean Wal-Mart is abandoning big stores. The company
this year plans to open 50 traditional discount stores, 10 warehouse clubs and
more than 100 supercenters, most of which will be expanded or relocated discount
stores. Given Wal-Mart's size, any new smaller stores aren't likely to have a
major impact on the company's total sales. But sales at stores open at least a
year have been growing about 6% a year, down from 11% in 1993, and the company
could use a new boost.
In addition, the company's domestic growth prospects are severely limited.
"When you're at more than $100 billion in sales, how do you get bigger?" asks
Jeffrey M. Hill of Meridian Consulting Group in Westport, Conn. "You have to go
after niches that at first didn't make sense."
Since 1992, Wal-Mart has also been trying to grow overseas, first entering
Mexico through a partnership with Cifra SA. and then acquiring stores in Canada,
where it now operates 150 locations. But growth outside North America has been
more difficult. Stores in Argentina and Brazil have taken longer than expected
to turn a profit. A venture in Hong Kong failed two years ago, and Wal-Mart
recently pulled out of an arrangement in Indonesia with a unit of Lippo Group.
Fresh store concepts have been slow in coming. Wal-Mart started the Sam's
warehouse-club chain in 1983 and began building supercenters in 1988. But it
hasn't tried any new approaches since 1990, when it opened Bud's Discount City
stores, most of which shut down last year amid poor returns. |
