Walmart To Double Small-Store Count In 2014

By Anna Rose Welch, Editorial & Community Director, Advancing RNA

Despite difficult fourth quarter, company plans to accelerate small format store expansion

After reporting lower-than expected sales for its fourth quarter, Walmart has announced its plans to invest more heavily in its small-store format. While its original plans were to open between 120 and 150 small format stores under the Walmart Neighborhood Market and Walmart Express banners, the company has now set its sights on 270 to 300 new units. (This is in comparison to its forecast of 115 new supercenters in 2014.) The company aims to spend between $6.4 and $6.9 billion on this capital expenditure, as opposed to its original forecasts of $5.8 to $6.3 billion.

The company looks at this move as an important addition to its omni-channel offerings. As president and CEO Bill Simon says, “Customers’ needs and expectations are changing … We are transforming our business to meet their expectations. 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.” In particular, this expansion will provide customers with many more outlets to interact with the company’s omni-channel offerings, including Site to Store and Pay with Cash.

Simon also touches on the benefits this expansion will have on the company’s supply chain. As smaller-format stores are added into the supply chain, supercenters will serve as the supply chain base. The company’s resources will become more closely linked and more efficient, Simon says.

Some analysts remain concerned however, following Walmart’s announcement for more stores. Belus Capital Advisors analyst Brian Sozzi tells CNBC it’s “worrisome” that the retailer is opting for more stores — especially larger format ones — when there are still stock and unproductive space issues to be worked out. There are also issues concerning inventory; Sozzi says that domestic fourth-quarter inventory grew 3.8 percent, which is outpacing same-store sales and threatens margins.

However, other analysts argue that increasing the number of smaller stores is an important step for a big-box retailer in today’s e-commerce driven and frugal society. More consumers are changing their shopping habits in order to save money, which results in their turning less to a destination store like the Walmart Supercenters located in rural areas. Instead, consumers have begun to shop more frequently throughout the week and at more local grocery and dollar stores. Indeed, the same-store sales for Walmart’s smaller Neighborhood Market stores, which sell groceries, household supplies, and pharmaceuticals, grew 5 percent (excluding fuel) during the fourth quarter. This increase is compared to the disappointing same-store sales for the overall U.S. segment, which decreased by 0.4 percent (also excluding fuel). By expanding the small format stores, the company stands to gain more business from those customers just looking to take a mid-week “fill-in trip” as opposed to a full-blown superstore stock-up trip.