Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

Walmart U.S. president and CEO Bill Simon outlined Walmart Stores, Inc.'s smaller store strategy and plans this morning at the retailer's annual conference for the investment community in Bentonville, Arkansas.

In addition, Walmart said today it plans to start offering packaged food and grocery items on its Walmart.com e-commerce website in the coming year.

Below is what Simon said in his talk this morning about the smaller-format stores and Walmart's "Three format" strategy:

"Over the next few years, we will introduce new formats to help us enter new markets.

"Walmart U.S. will move toward a three-format portfolio, which will drive expansion to urban markets and small towns, as well as fill in gaps in existing markets," Simon explained.

"The large format is our supercenter, which sells a broad assortment of groceries and general merchandise.

"We have integrated efficiencies into our supercenter design that have allowed us to decrease the average square footage for our supercenter format.

"The medium (store) format, between 30,000 and 60,000 square feet, will be based on the needs of an individual market.

"The small format, which is less than 30,000 square feet, will be targeted to urban markets and small towns."

Simon stressed in his talk this morning that although he believes there's room for "hundreds" of the smaller format stores in the U.S., Wal-Mart plans to open just 30 -to- 40 of the smaller stores in its 2012 fiscal year, as it tests the formats.

Walmart's head of U.S. operations also confirmed Walmart's plans to open the smaller format (and likely some medium) stores in Southern California and Northern California, as well as in Chicago and New York. Other major regions and cities are part of the plan as well. He didn't offer a specific laundry list of regions and cities but said "yes" to all of the above. [See - October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store? and July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store] [Also see the column linked in the paragraph below.]

Simon also joked about liking the two musical numbers - "My Kind of Town (Chicago is)" and "New York, New York" - both of which were performed by the "Walmart Choir" during last night's conference kick off and dinner. Read what our 'The Insider' columnist had to say about it yesterday - October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community.

That announcement should surprise many of the equity analysts in the audience, who are among those who've recently been suggesting prior to today, like they did when 'Neighborhood Market' was launched in 1998 and again in 2008 with 'marketside,' that Walmart will build hundreds and even thousands of the smaller format stores. The proof will be in the pudding.

Walmart's track record with smaller stores - it's opened about 181 of the 39,000-42,000 square-foot Neighborhood Market supermarkets since 1998 and just four 'marketside by Walmart' units (about 15,000-18,000 square-feet) since 2008 - is less than stellar. Walmart U.S. is making the right decision to start slow, based on its track record with smaller format stores.

That Walmart plans to take a slow and cautious approach with its smaller store strategy and plans is good news for Tesco's Fresh & Easy Neighborhood Market. Were Walmart to go aggressive with the launch, opening a hundred or more stores over say a two year period of time, particularly in California where Tesco is putting most of its emphasis, the United Kingdom-based retailer would be under even more pressure than it already is under with its small-format Fresh & Easy venture.

Walmart plans to open 185 -to- 205 new stores in the next fiscal year, compared with 153 stores in the current year, but with the same increase in square footage, 11 million, and similar capital expenditure, $7.5 billion to $8 billion, Simon said.

Simon tied Walmart's U.S. supercenter strategy into its new, smaller store plans. And supercenters - new units and discount store conversions - remain Walmart's primary retailing - including food and grocery - format and growth instrument going forward in America, without a doubt.

"We also are allocating capital to continue converting discount stores to supercenters, which add no square footage, but are expected to increase sales," Simon said today.

"Of the 155 to 165 supercenters we will add next year, 45 to 50 will be new units, with the remainder conversions. Simon said U.S. supecenters now average about 180,000 square-feet.

"Neighborhood Markets will make up the bulk of the medium format stores, and there will be some pilots of the small store format included in next year's plan."

By the end of Walmart's current fiscal year, more than 550 U.S. stores will have been remodeled, Simon said today, adding that Walmart U.S. plans to remodel more than 500 stores next fiscal year.

"Remodeling costs will be lower next year, due to changes in design and schedules. The time to remodel a store will decrease by 40 percent, and with fewer disruptions, traffic and sales will improve sooner,"he said at today's investor conference.

"We are very excited about the additional growth opportunities that we have in the United States. We will have growth in geography, growth in formats and growth in multi-channels."

A key point noted by Simon this morning is that capital expenditures for Walmart U.S. next year will be flat when compared to the current year, as will square footage growth. But stores and sales are projected to grow, he said.

Simon commented that Walmart believes it can and should be grabbing a bigger share of U.S. consumer dollars, including food and grocery purchases, particularly from lower-income shoppers.

Consumers earning less than $70,000 a year account for 68% of Wal-Mart's U.S. customers, Simon said today, adding that its store remodels of the last couple years and the use of more-simplified product offerings have helped the retailer attract more affluent shoppers.

However, he said Walmart has lost ground with its lower-income customers, which the retailer is working hard to turn around adding-back SKUs and new merchandise and focusing its promotions on overall shopping basket value and savings rather than putting an emphasis on just a few items.

What Simon is referring to is the fact that some of Walmart's middle and lower-income customer base has been shopping other formats like dollar stores and deep-discount grocers, as well as cherry-picking among numerous retailers, over the last couple years, driven in large part by the recession, rather than being as loyal as they've been in the past to Walmart, particularly when it comes to grocery shopping.

"In this environment [poor economy, high unemployment] we should be thriving," Simon said in his talk, adding that while its true the economy is causing pain for Walmart's lower-income consumers, that posed an opportunity to gain market share by making its offering more appealing and getting them back.

America's Next Online Grocer: Walmart of course

Walmart also announced at the conference today it will begin offering packaged food and grocery items on its Walmart.com website in the coming year, which it's referring to as a pilot project.

Fresh & Easy Buzz first reported Walmart would do so in early 2009 on our Twitter.com feed (which you can view at the top/right) and have mentioned it in the blog a number of times since. It's been a long time coming, in fact.

The food and grocery products will be shipped to homes and business addresses by postal carriers like Federal Express, just as clothing, books, furniture and everything else ordered via the website is.

Online ordering with pick-up at selected stores via Walmart's "Pick Up Today" program will also be an option. Walmart is expanding its "Pick Up Today" and related "FedEx Site to Store" program to additional U.S. regions, including the San Francisco Bay Area and metropolitan Chicago, Phoenix and Washington D.C., along with expanding the program in general. See here for details.

Direct home grocery delivery isn't part of Walmart's plans. The retailer already offers a selection of non-food packaged goods like household cleaning products and laundry detergent, along with pet foods, on Walmart.com.

Our 'The Insider' columnist nailed the online grocery offering announcement ahead of today's conference in his column yesterday - October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community.

[Editor's Note: Fresh & Easy Buzz will be offering additional coverage and analysis (including a follow-up column by 'The Insider') on Walmart's smaller store and "three format" strategy and plans, it's online grocery plans, international initiatives, and more. Stay tuned.

Related Stories:

October 12, 2010: 'The Insider': Live-Blogging Walmart Stores' 17th Annual Meeting For the Investment Community

October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?

July 6, 2010 story - Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store

September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010

September 23, 2010: Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted

April 25, 2008: Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA

June 27, 2008: Wal Mart Has Created A New, More Upscale Supercenter Store Design Prototype; Submitting Plans For the Stores Selectively in U.S.

September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

February 11, 2009: Tesco's Fresh & Easy Isn't the Only Food & Grocery Retailer With its Eyes on Bakersfield: Wal-Mart's Bakersfield Push and Central Valley, CA Strategy

May 6, 2010: Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

Going Smaller & Getting 'Hybrid': Walmart's Smaller Supercenter in Vacant Retail Buildings Strategy Began in 2008

Pictured above is the once vacant big box store at 3948 McHenry Avenue in Modesto, California, formerly shared by SavMax Foods and a Rite-Aid drug store. Walmart converted the building into it's first smaller-size, "hybrid" supercenter. The Walmart store opened in fall 2008.

In a story in today's The Financial Times, "Walmart plans smaller version of supercenters," the paper reports: "Walmart, the largest US retailer, is planning to open a smaller scale version of its successful supercenter store format in the Los Angeles area, one of the first of a new breed of smaller stores that it hopes can deliver a new round of US growth."

The story says further: "The retailer has leased a 75,000 sq ft location in Torrance formerly occupied [vacant] by Mervyn’s, a regional department store chain that went bankrupt in 2008 as the US economy worsened. The site is less than half the size of most of Walmart’s successful supercenters, which average around 185,000 sq ft, and will sell groceries alongside general goods."

You can read the full story here.

All of this information is true.

However, what Walmart is doing, remodeling a vacant building and creating a smaller supercenter version, isn't anything new.

In the fall of 2008, Walmart opened what we call a "hybrid" supercenter in a 90,000-105,000 square-foot vacant big box building at 3848 McHenry Avenue in Modesto, California, in Northern California's Central Valley. The building was formerly the home of SavMax Foods, a now out of business Modesto-based groceery chain, and a Rite-Aid drug store. The Modesto store has about 75,000 -to- 85,000 square-feet of selling space, about the same as the future Torrance, California "hybrid" supercenter focused on in The Financial Times' story today.

We wrote about the Modesto, California "hybrid" supercenter and Walmart's plans to locate smaller supercenters in similar vacant buildings in other parts of California and elsewhere in the U.S. in detail back in April of 2008, in this piece: April 25, 2008: Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA.

We also wrote about the topic again a bit later here: June 27, 2008: Wal Mart Has Created A New, More Upscale Supercenter Store Design Prototype; Submitting Plans For the Stores Selectively in U.S.

We mentioned the smaller supercenter-vacant retail building strategy again in the three pieces below:

September 15, 2008: Wal-Mart Expanding its Discount Store-to-Supercenter Conversion Program As Part of its Strategy to Grab Even More Food and Grocery Sales Market Share

February 11, 2009: Tesco's Fresh & Easy Isn't the Only Food & Grocery Retailer With its Eyes on Bakersfield: Wal-Mart's Bakersfield Push and Central Valley, CA Strategy

May 16, 2009: Competitor News: Wal-Mart Clears First Major Hurdle For Proposed Mega-Distribution Center in Merced, CA; Chain's Regional Strategy Moving Forward (Also see the links to other posts at this piece.)

Lastly, we discuss Walmart's strategy and decision to build smaller than traditional supercenters in vacant retail buildings, along with related strategies and topics, in a number of the stories here. (Also note the links to additional stores in all of the links here and above.)

Walmart decided to use the smaller supercenter in vacant retail buildings approach as one of its strategies in early 2007. It opened the Modesto store, the first and currently the only "hybrid" supercenter located in a remodeled building unit in the U.S. we're aware of, in the fall of 2008.

We just thought Fresh & Easy Buzz readers would be interested.

Wal Mart Has Created A New, More Upscale Supercenter Store Design Prototype; Submitting Plans For the Stores Selectively in U.S.

Wal-Mart Stores, Inc. has created a new supercenter design prototype (pictured above), which the retailer is currently submitting plans for to a select number of cities and counties in the U.S., where it hopes to build and open the first of these new design stores.

The prototype supercenter has a completely different look and feel compared to the retailer's existing battleship blue and grey supercenters.

For example, it's much sleeker in design than Wal-Mart's existing traditional big box design, and is rather upscale in its look and feel.

It's still a big box store in that it will feature all of Wal-Mart's traditional supercenter departments, but it also has numerous new features and elements including: glass windows or large skylights on the roof to let in natural sunlight; numerous green building design elements, which Wal-Mart has been using in its prototype "green" supercenters for some time; and energy-efficient lighting systems that turn on when they detect a shopper, and off when shoppers leave the particular area of the store.

The new design prototype supercenter also features new department titles or names throughout the store, less clutter and in-store signage, curved lines rather than the square edges common in Wal-Mart's traditional supercenters, and multiple earth-tone colors used throughout the store instead of the traditional blue and grey-only standard color scheme.

The new prototype also features a new Wal-Mart logo to be placed on the stores. The new logo has two color schemes we've viewed. The first color scheme (pictured below) has blue lettering with a gold/orange star-burst after "Walmart." The second color scheme has "Walmart" in white letters on an orange background, with a white star-burst after.
Wal-Mart, Inc. plans to officially unveil a new corporate logo next week, something that's being anxiously anticipated by company stakeholders, analysts and others. We believe Wal-Mart's new corporate logo might well be the one above, in one or the other color schemes. You read it (and viewed the logo) here first.

One of the handful of U.S. cities and counties Wal-Mart has submitted plans to for the new supercenter prototype stores is Cordova, in Shelby County, Tennessee, according to a senior Wal-Mart official.

That plan initially called for the new design prototype supercenter to be a whopping 267,000 square-feet, which would have made it Wal-Mart's largest supercenter built to date.

However, the Shelby County Land Use Control Board rejected the Wal-Mart's plan for the mega-supercenter earlier this year because of extensive objections by nearby residents over its size, along with having concerns about potential noise and traffic issues. The store's size also was objected to by the Shelby County Division of Planning and Development, along with it having some serious concerns about increased traffic on existing roads.

Wal-Mart went back to the drawing board, and on July 10 will present a revised plan to the Shelby County Land Use Control Board for a much smaller 151,908 new design prototype supercenter for the same site in Cordova, in Shelby County, according to the senior Wal-Mart official. Cordova is near Memphis. The supercenter site is at Macon and Houston Levee in Cordova. The county has jurisdiction over planning in Cordova.

The design elements of the revised, smaller 151,908 square-foot supercenter are identical to those of the initial 267,000 proposed monster-store, according to the Wal-Mart senior official. The only change is one of scale, he says.

One of the features of the new design prototype supercenter is that it can be used to build stores of various sizes - as big as the 267,000 square-foot model (and bigger if desired) described above, and as small as about 100,000 square feet, or even smaller. This feature allows Wal-Mart to more easily adapt the prototype to specific neighborhoods - urban settings for example - as well as municipal and county political situations and conditions.

The site for the supercenter in Cordova, in Shelby County, Tennessee, is a 26-acre development which includes numerous other commercial buildings besides the proposed supercenter. Wal-Mart has a contract to buy the land on which the proposed unit would sit and will do so if its plans for the 151,908 square foot new design prototype supercenter are approved by the county land use board, according to the senior Wal-Mart official.

If approved at or not to long after the Shelby County Land Use Control Board meeting on July 10, when Wal-Mart officials will present the revised supercenter plan, we're told by the Wal-Mart senior official the Tennessee new design prototype likely will be the first of the new design Superstores to be built and opened in the U.S.

It's far from certain the revised supercenter will gain approval though. There remains much opposition to it among various citizens and groups in the area, although they've yet to see Wal-Mart's plans for the smaller version supercenter.

The supercenter's opponents' primary concerns are traffic and noise. The county also has concerns because it says it will have to spend a considerable amount of money on road and intersection improvements because of the heavy volume of automobile traffic the new supercenter will generate in the area.

What's significant though, at least for this piece, is that Wal-Mart has created this new age design supercenter prototype. You can bet if this particular new supercenter doesn't get built in this particular part of Tennessee, one of the new design supercenters will be built soon elsewhere in the U.S.

As we wrote about in this April 27, 2008 piece [Going Smaller: Wal-Mart Might have Found A Solution or Two to Much of the Opposition to its Mega-Supercenter Stores in the USA] Wal-Mart has become flexible with its supercenter size recently, when historically it's been rigid over tweaking the size of the mega-stores. For example, the retailer is converting a 105,000 square- foot (about 75,00-80,000 square-feet of selling space) vacant big box retail building in Modesto, California into a "hybrid" supercenter, which will be the first such supercenter for the retailer in the U.S.

Additionally, Wal-Mart is converting a number of its Wal-Mart discount format stores in Southern California's Orange County into supercenters, adding about 30,000 -to- 75,000 square feet to them (the amount depends on the store), which will be used for food and grocery (including fresh foods) product merchandising.

These discount format-to-supercenter "hybrids" will be much smaller than the average 185,000 square-foot Wal-Mart supercenter, but will allow for a full selection of fresh foods and grocery products to be sold in them, which is a top priority for the mega-retailer, since food and grocery now comprise 41% of Wal-Mart's overall sales, according to the most recent category sales numbers from the retailer.

Despite being the world's largest corporation and retailer, Wal-Mart isn't letting that prevent it from innovating. In fact, when it comes to retail format innovation, Wal-Mart is currently innovating more so than it's done at any time in its history.

In addition to the multi-format supercenter concepts mentioned above, along with Wal-Mart's "green Wal-Mart supercenter prototype, the mega-retailer is set to open its new Marketside small-format grocery stores, or what we call "Small-Mart's," in four cities in the Phoenix, Arizona Metropolitan region this fall.

The Marketside "Small-Marts," at about 15,000 square feet, are about the size of the meat department in one of the retailer's 200,000 square-foot supercenters.

The stores are being positioned by Wal-Mart as small community grocery stores with a focus on service. The product merchandising focus in the Marketside stores will be on store-made fresh, prepared foods, fresh produce and meats, and basic and specialty grocery products, including some new store brands to be introduced by Wal-Mart just for the Marketside grocery stores.

Additionally, Fresh & Easy Buzz has learned, Wal-Mart plans to convert more former big box stores into smaller supercenters like it's doing in Modesto, California, in other selected cities, including urban markets.

Lastly on the format innovation front, we've learned Wal-Mart is working on some new design changes, tweaks and upgrades to its 45,000 square foot Neighborhood Market supermarkets.

The retailer hasn't done much in terms of expanding its Neighborhood Market supermarket's store count since it created the format and opened the first store in 1998. However, in the last couple years its opened a higher than historic annual average number of the supermarkets, and plans on continuing to do so for the next few years in select regions of the U.S.

For the last few years, Wal-Mart has been customizing the design of its supercenters in a few regions of the U.S., where doing so has helped it to gain approval for the stores. For example, in Colorado, Wal-Mart has built two supercenters that blend in with the respective communities' mountain setting, using earth-tone colors and brick on the store facades rather than the traditional blue and grey-colored materials it normally uses, as well as adding features like bicycle paths around the store, and even a bicycle shop inside one of the Colorado stores.

It appears to us the new design prototype supercenter is an evolution of that customization as well as a "mass customization" of many elements of the handful of "green" Wal-Mart supercenters the retailer has opened over the last few years in the U.S.

The flexibility of the new design prototype supercenter - to go from say 267,000 square-feet -to- 100,000 square-feet for example - also has an element of "mass customization" in it, which should serve Wal-Mart well.

The fact the new design prototype supercenter is much more upscale and attractive than the basic format supercenter (which wouldn't take much) seems to send a signal from the brawny big box retailer from Bentonville it believes its low and value price positioning won't be hurt by housing such merchandising - the key to the retailer's success - in a more sleek, upscale and considerably more attractive retail box - a box with design lines even.

As far as we're aware, Wal-Mart doesn't intend at this point in time to completely do away with its standard Wal-Mart supercenter battleship blue and grey big box. Although, based on information from our sources, we suspect eventually doing so will be the case for the mega-retailer from Arkansas, especially if the new logo "Walmart" logo it unveils is the one we have pictured in this story., which we believe to be the case.