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Wal-Mart to accelerate rollout of small-store format

story by Kim Souza
ksouza@thecitywire.com

Convenience is what consumers want and officials with Wal-Mart Stores said Thursday (Feb. 20) they committed to giving shoppers what they want by doubling the number of small-format stores the retailer previously announced it would build in the fiscal year.

The retail giant is expanding its original capital forecast provided in October, and now expects to add approximately 270 to 300 small stores during the fiscal year, doubling the initial forecast of 120 to150 stores. Walmart U.S. will continue its plan to open approximately 115 new supercenters this year.

“Customers’ needs and expectations are changing. They want to shop when they want and how they want, and we are transforming our business to meet their expectations,” Bill Simon, Walmart U.S. president and CEO, said in Thursday’s earnings report. “Customers appreciate the broad assortment of our supercenters for their stock-up trips as well as our small store formats for fill-in trips. By unlocking this growth opportunity and further combining our supercenters and small store formats with an unlimited selection available through e-commerce, we provide our customers with anytime, anywhere access to our brand.”

The small store fleet has continued to deliver positive comp sales and traffic increases each quarter. Comp sales for Neighborhood Market stores grew 4% for fiscal year 2014, driven by fresh and pharmacy. This compares to overall U.S. negative same-store sales of 0.4% posted for the past 53-week period.

“Neighborhood Market is performing comparable or favorable to leading grocers,” said Simon. “Our small store expansion, in addition to providing customers access to a wide variety of products, including fresh, pharmacy and fuel, will help us usher in the next generation of retail. This will combine thousands of points of physical access with digital retail experiences that include initiatives such as Site to Store and Pay with Cash.”

Joe Feldman, assistant director of research Telsey Advisory Group, said this is a positive sign for the retailer as it shows the efforts to downsize the format is paying off.

Walmart operates 346 Neighborhood Markets and 20 Walmart Express stores. The Express units have performed well and are being expanded beyond the initial three-market pilot.

Walmart U.S. projects to end fiscal year 2015 with net retail square footage growth of approximately 21 to 23 million square feet across all formats, versus its original projection of approximately 19 to 21 million square feet. The projected capital expenditures and square footage details exclude the impact of future acquisitions.

“We have a healthy pipeline of stores in development, and we systematically work to improve our real estate and construction processes, reduce building costs and shorten the time needed to open our stores,” said Simon. “Our small store expansion will also strengthen our market share and create greater efficiencies in our supply chain through a tethered approach that uses supercenters as a supply chain base, links our resources and provides a unique and connected customer experience.”

To fund this additional growth, the company is revising its capital expenditures forecast for the Walmart U.S. segment to $6.4 billion to $6.9 billion, up from an initial range of $5.8 billion to $6.3 billion. This reflects the increased small store growth and the planned new supercenters, which remain an important part of the company’s strategy. In total, across supercenter and small store formats, Walmart U.S. plans to open 385 to 415 units in fiscal 2015, adding considerably to the more than 4,200 stores now open.

Wal-Mart’s newest test in the small store format will get underway in next two months as the retailer opens it first U.S. convenience store in Bentonville, roughly six blocks from the company’s corporate headquarters and Supercenter No. 100, across the street.

At least two analysts have recently noted that perhaps Wal-Mart should buy its way in to more small format leadership by acquiring Family Dollar or Rite Aid. Other industry experts peg a major U.S. acquisition as unlikely, citing regulatory approval hurdles because of Wal-Mart’s already massive size.

Wal-Mart was asked about the likelihood of an acquisition like Family Dollar on Thursday during the call with the media.

Bill Simon, CEO of Walmart U.S., said the retailer is always looking for the right acquisitions. But he also added Wal-Mart has a very efficient model in place for organic expansion. He said the costs of retrofitting competitor stores for the amount of frozen and fresh product it sells would be very expensive, not to mention the regulatory issues that could arise.

The Walmart Express does about four times the volume of a dollar store and the Neighborhood Market does six times more," Simon said.

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