Walmart: Small stores and convenience key to Walmart's future

The company that popularized the 200,000 square foot supercenter is now squarely focused on serving a convenience-crazed customer through a growing network of small formats, namely the Neighborhood Market.

Walmart (NYSE:WMT) opened the first Neighborhood Market in October 1998. Ten years later, there are just 359 stores compared to the 3,313 supercenters currently in operation.

But all that is about to change as Walmart ramps up expansion of Neighborhood Market.

"We see the opportunity with Neighborhood Market to go much faster than we have been going said Bill Simon, president and CEO, Walmart U.S. "We are moving forward aggressively with Neighborhood Market, we understand what they're doing in the marketplace and like what they're doing, they perform materially."

Simon and a host of Walmart executives emphasized small formats in the two days of media events leading up to today's annual shareholder meeting. Neighborhood Market, Walmart Express and the company's newest, Walmart to Go, were touted even as the company's stalwart supercenter was relegated to a supporting role.

There are just 20 Walmart Express stores and close to 100 more planned for this year. It's a hybrid store — some general merchandise, some grocery — that Walmart has been testing in denser markets, including Chicago.

Walmart to Go is the retailer's newest prototype, a convenience store that on the surface looks a lot like a gas station and caters to a shopper looking for the ultimate in a quick trip. Merchandise is both branded and Walmart store brands, and priced the same as at the nearby supercenter. Shoppers don't have to pay the markup usually found at convenience stores and Walmart can replenish stock from the local stores.

Convenience is a new buzzword at Walmart these days as more shoppers are looking to save time in a variety of ways. Convenience now ranks in the top three shopper needs after quality and value, and executives from every Walmart division emphasized the need to deliver on convenience on several fronts.

The small formats help to do just that, for fill in trips and as pick-up locations for bigger ticket purchases from other Walmart formats.

When Neighborhood Market debuted more than 15 years ago, there was much speculation as to how quickly Walmart would roll out the format. The consensus was it would proliferate fast with Walmart ringing its supercenters with these smaller grocery formats. Shoppers would visit the large stores for weekly stock up trips and bigger general merchandise items, then frequent Neighborhood Markets for fill in visits.

That consumer behavior is true today, shoppers still rely on the supercenter for bigger baskets and visit Neighborhood Markets several times a week for fill in trips. And as convenience becomes a bigger priority for shoppers, small formats are more important. Neighborhood market and Walmart Express help insulate the company from grocers and deep-discount dollar store competitors alike, said Walmart.

Walmart plans to open 270-300 small format stores this year. Some will be the still experimental Walmart Express, but the majority (180-200) will be Neighborhood Markets, according to the company.

Not only does Neighborhood Market help Walmart to capture business that might otherwise go to traditional grocery chains, it is also helping to cement the retailer's omnichannel dominance. The "site to store" program lets shoppers order items from supercenters to be picked up at the market, making it easier to pick up milk and a canoe for next weekend's camping trip.

Small, convenient and omnichannel equals omnipresent for Walmart.

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