GENTRY, Ark. -- In rural Arkansas, Wal-Mart Stores Inc.'s first convenience store-sized Walmart Express offers a peek at how the world's largest retailer plans to expand in big cities and small towns, said the Associated Press. Late last week, Wal-Mart unveiled to the press the first of the stores, located in Gentry.
The store looks like a tinier version of Wal-Mart's usual sprawling self, said the report. At 15,000 square feet, the long, narrow concrete box, which features a powder-blue Walmart Express sign, is less than one-tenth of the size of a typical Walmart supercenter, which averages about 184,000 square feet, according to MarketWatch report. The store, which has exposed pipes and yellow walls, carries most of the basics that its bigger cousin carries, from bacon and milk to socks and DVDs. But the selection is less--1,000 to 13,000 items--a tenth of what a superstore carries.
Most Walmart Express locations will have a pharmacy. Some, like the store in Prairie Grove, will sell gasoline.
Walmart Express' backroom carries little inventory, said MarketWatch; trucks will come in to fill the shelves directly.
The Gentry store, nestled among cow pastures and rolling hills, will officially open June 8, along with another Walmart Express test store about 30 miles away in Prairie Grove, Ark. Another is planned to open in Ridgefield, N.C., a week later, said AP.
Walmart Express is intended to be a two-pronged strategy: stores in small towns that are not big enough to support a full-sized Walmart, and stores in big cities where building a whole supercenter is impractical.
Wal-Mart is experimenting with a Walmart Express prototype for urban markets in Chicago, to open later this summer. It plans to build 15 to 20 Walmart Express stores, focusing on Arkansas, North Carolina and Chicago, by the end of its fiscal year in January 2012.
"This is about access to breadth of assortment" and everyday low prices, said Anthony Hucker, vice president of strategy and business development, which is spearheading the new format.
If the retailer gets the prototypes right for both urban and rural areas, it sees the potential to build about 350 per year.
Walmart Express is looking to customers to tell it what the small stores should carry. Signs throughout the store feature "If you want it, we'll get it." So customers can order an item on Walmart's website and have it delivered to the store through its "Site to Store" service.
"We have to look through the consumers' eyes," Hucker said.
Walmart takes suggestions from local customers on what they want and experiments with the right local assortment, MarketWatch said. Signs also point out locally grown produce
"It's about community feel," Hucker said, adding the store manager and pharmacy manager are both Gentry natives.
Analysts and competitors will be carefully monitoring how the fight unfolds in Gentry, with a population of about 3,000 and about 16 miles round trip to the nearest Wal-Mart supercenter in Siloam Springs, Ark.
"You aren't going to know right away whether it's going to move the needle," Sarah Henry of Manulife Asset Management told MarketWatch. "But the early success can be meaningful. They have the infrastructure and buying scale. There's no reason why it can't work. But we are kind of in a wait-and-see mode."
Brian Johnson, vice president of finance for Casey's General Stores Inc., told CSP Daily News, "We'll have to stay on top of it and do what we can to compete against them. The Ankeny, Iowa-based chain's business model focuses on serving rural areas with staples and basic foodservice needs. "We'll treat them like any other competition, but we feel confident in our business model," he said.
Just who will feel the heat from a potential expansion of the Walmart Express concept would depend on eventual product mix and locations. Steve Montgomery, president of B2B Solutions LLC., Lake Forest, Ill., told CSP Daily News that overlap might occur in cigarettes, packaged beverages and beer. No real word on gasoline and foodservice, so he says the overlap hits three of the c-store channels top-five categories.
"The overlap is limited to those three, but it's significant," he said. "Do I see it as a threat to the industry? No, but it's going to be a threat to those who operate in the inner city and fulfill that replenishment, emergency-type role for customers in that market."
With pharmacy being a potential profit center for Walmart Express, he said the threat might be greater for drug chains like Walgreens or CVS.
Wal-Mart is testing Walmart Express at a time when its regular supercenter and discount stores are hurt by the impact of the higher gasoline prices that have led shoppers to consolidate trips or traveled to such shops as Dollar General Corp. to reduce gasoline use, said the report.
"Small stores are going to be a very good growth opportunity for us," said Walmart U.S. chief Bill Simon. "They allow us to get access to places we aren't in. We have a pretty aggressive plan to build those."
While Walmart's large format stores struggle with lower sales and traffic, for instance, its recently renamed Walmart Market format, formerly known as Neighborhood Market and about 40,000 square feet in size, posted a 4% increase in same-store sales and higher traffic last quarter. The company plans to accelerate the opening of Walmart Market with as many as 20 of those planned this year, said Simon.
Walmart also sees an opportunity to expand its Walmart on Campus concept, which the company launched in a 3,000-square-foot format at the University of Arkansas.
Walmart U.S., about 62% of the company's $420 billion in sales, has about 3,600 Walmart discount stores and supercenters, which also carry fresh food, as well as about 190 Walmart Market stores. Walmart Market mostly stocks food and consumables with little general merchandise.
"By having the Neighborhood Market or Express, you can fill the midweek trips," BMO Capital Markets analyst Wayne Hood told MarketWatch, adding the smaller stores also allow Walmart to penetrate markets such as California and Chicago more easily. "When you think of a supercenter, they are kind of like destination stores for the weekend. There are also fewer opportunities to open large supercenters in the U.S. that generate adequate return on capital."
Still, while Walmart Express and other smaller stores may be a good idea, investors and analysts said the key thing is for the company to reverse its sales declines at the larger Walmart stores. The new concept also will take time to bear fruit, and it's too small at the moment to be the magic bullet that Walmart U.S. needs, they said.
"It's part of their growth strategy," Hood said. "But the reality is if the core supercenter isn't working, it's not going to be enough to offset the weakness of the business."
Click hereto view an image of the new Walmart Express in Gentry, Ark.
(Click here for previous CSP Daily News coverage of Wal-Mart's format experimentation.)For more about Walmart Express, see the July issue of CSP magazine.