Eduardo Castro-Wright, the head of Walmart’s US operations, argues that even with more than 3,000 stores, the world’s largest retailer has still not run out of room for expansion in its home market.
Instead, he says Walmart’s opportunity for sales growth at home exceeds the combined potential of China, Russia and India. He argues Walmart could pick up between $80bn and $100bn in additional sales in markets where it is currently under-represented.
With annual sales in the US of $258bn last year, Walmart is already the largest US retailer.
But in urban markets, such as Chicago, New York and Los Angeles, Walmart’s efforts to expand over the past decade has been slowed by both bitter political opposition, led by the UFCW grocery workers union, and by a shortage of suitable large sites.
The retailer is now engaged in an unprecedented drive to develop a range of new, profitable, smaller stores that could address both issues, while delivering what Mr Castro-Wright says will be “high productivity stores and with higher sales per square foot”.
The strategy is aimed at achieving the profitability levels of its more than 2,400 supercenters, which revolutionised US retailing when they were first launched 20 years ago, adding groceries to the company’s original general goods discount stores.
A new store planned at a former Mervyn’s department store in Torrance, California, for instance, will be only around 75,000 sq ft, less than half of the 185,000 sq ft of a typical supercenter site. As a result, it can be built without facing obstruction in a complex public planning process.
The Torrance format is expected to be a development of work done at sites in the suburbs of both Boston and Chicago, where Walmart has added grocery departments to older 100,000 sq ft versions of its original non-grocery discount stores.
The design of those smaller stores has been shaped by its current “Project Impact” remodelling drive, which seeks to increase the sales per square foot of its existing store network through improved store logistics, more selective inventory and new layouts.
But at the same time, the retailer has been experimenting with an entirely new group of small format stores, including a pilot of four 10,000 sq ft Marketside grocery markets in Arizona, and two 39,000 sq ft Hispanic-themed Supermercado de Walmarts – both formats first reported in the Financial Times.
Walmart operates a broad range of store formats internationally. In Mexico, for instance, its stores range from supercenters, to urban supermarkets, to new small Bodega Aurrea Express mini convenience stores.
The challenge for Walmart is to develop a small format store for the US that does not have the problems with lower return on investment experienced by its first venture into small locations, the 39,000 sq ft Neighborhood Market grocery stores. First launched in 1998, and used to fill in areas around its supercenters, the format has never become a growth vehicle, with only about 175 now open.
Walmart is also testing a 20,000 sq ft format, called Neighborhood Market by Walmart, in its home town of Bentonville, Arkansas. Neil Currie, retail analyst at UBS, who has visited the new store, says it is essentially a combination of marketside-style grocery units, and a pharmacy.
In recent research paper, he argues that Walmart could open 390 to 400 of the 20,000 sq ft stores annually, with sales per square foot per week of $12.50 and annual sales per store of $13m. Most US food retailers have sales in the $8 to $9 range.
“It is a new opportunity for growth, that wasn’t there when they were really just focused on supercenters,” says Mr Currie.
So far Walmart has not filled in the details on its smaller store ambitions.
“We’ll continue to expand into new channels so customers can shop and experience Walmart when, where and how they want,” said Steve Restivo, a Walmart spokesman.
By Jonathan Birchall in New York
Financial Times
Published: May 6 2010 23:02