Walmart Drops the ‘Neighborhood’ While Targeting It

In any given month there is pretty much a guarantee that headlines will appear trumpeting the latest initiatives of Walmart, many of which are very worth noting.  At the same time it is easy to come upon perspectives analyzing the variables behind the company’s latest financials and the tribulations of its current and upcoming court battles.

Recently we have read of the company’s health initiative to commence a five year plan to make thousands of its house brand packaged foods lower in salts, fats and sugars, and to drop prices on fruits and vegetables.  To the company’s credit, Wal-Mart admits this likely will cut into its profits but hopes to make up for it in sales volume.

Another announcement noted that the company is spending half a billion dollars this year to expand its retail operations in Canada.  Wal-Mart's Canadian arm will open 40 supercenter-format stores in the next fiscal year.  This just after Target’s announced plan to enter Canada through its 1.83 billion Canadian dollars investment to take over as many as 220 stores from Canadian discount retailer Zellers. The first Target stores are expected to open in Canada in 2013.  All this capital is being used to muscle into the considerable retail potential seen in our neighbor to the north, to take advantage of Canada's fairly robust economy which was relatively unscathed by the ‘worldwide’ recession.

Then there was Walmart’s announcement detailing plans to test its first fresh grocery delivery service in California as the company looks online for new sources of revenue growth.  The list of announcements goes on and on.  All the while, in the background there are regular rumblings of snail-like progress in varied court cases which Walmart seems almost happy to entertain, seemingly as much to stand on principle as to avoid mandated outlays of capital.

With all the groundbreaking Walmart stories headlining the news, one recent item likely deserves the lead.  The company plans to add “hundreds” of smaller-format stores over the next three years, as it seeks to jump start a sagging sales picture in the U.S. 

Even before the recession, one of the company’s few competitive worries came from dollar stores.  As gas prices rudely rose, the company saw the advantage most dollar store locations enjoyed by being based in the neighborhood, which required little to no gasoline to make regular visits.  Low price reputations and small footprints further enhanced the branding of dollar stores as efficient shopping venues.  As dollar stores invested in refrigeration equipment and expanded food aisles to enhance assortments and feature perishables, the threat as perceived by Walmart seemed more imminent.

Walmart’s decision to rapidly initiate a base of smaller-format stores is at least acknowledgment to the success of its dollar store rivals.  It is also an indication of the company’s acceptance of diminishing options as many believe the company is gradually running out of communities in which it can further profitably populate supercenters or its traditional models.  The recent sudden and drastic increases in the cost of energy, combined with the company’s dull financial picture, only emphasize the need to consider new possibilities.   

That stated, another recent story makes one wonder.  With all the talk of the advantages of neighborhood locations, the company is planning to change the name of its Neighborhood Market Stores.  They will be branded as Market Stores.  This sounds a bit less cumbersome but almost connotes a lesser emphasis on the advantages of a neighborhood identity. 

The new smaller format stores will be named Walmart Express and are expected to average about 15,000 square feet.  Even with the talk of opening hundreds of Express stores, one must remember that the dollar store competition has been far from standing still.  Dollar General, Family Dollar and Dollar Tree combined operate over 20,000 locations.  The three have used the recession era to gobble up real estate bargains, often in economically struggling neighborhoods.  They continue to aggressively expand already large portfolios of locations and have carefully used their positions to cultivate reputations of serving neighborhoods both as a vendor and as an employer.