Walmart's Four 'Marketside by Walmart' Stores Set to Be Closed Soon Never Came Close to Weekly Sales of $100,000

Arizona Market Region Report - News & Analysis

In a September 9, 2010 story - Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011 - we broke the news Walmart Stores, Inc. would be dumping its 'marketside by Walmart' small-store fresh food and grocery format, including closing the four existing stores in Arizona.

We followed the September 9 story up with a piece on September 23 - Revisting 'marketside by Walmart': Format As We Know it On the Way Out But Some or All Of the Four Stores Could Be Converted - in which we reported Walmart was discussing potentially converting some or all of the 'marketside by Walmart' stores into a different small-format, most likely the version of its 20,000 square-foot 'Neighborhood Market by Walmart' prototype it plans to roll out to the tune of about 30-40 stores in 2011. [See - October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA]

The reason for the follow-up story in late September was because not only has 'marketside by Walmart' been neglected for over a year by Walmart Stores, Inc. - for example one of the managers of the four stores in Arizona is and has been running two units at the same time since early this year - but a decision as to whether or not to close all the stores or try to salvage one or more by converting to the new small-format the retailer plans to roll out next year has been up in the air.

On Wednesday, October 13, Walmart U.S. president and CEO Bill Simon confirmed half of our early September 2010 report at the retailer's annual investment community conference, saying the Walmart Stores' does not plan to expand 'marketside by Walmart' beyond the current four stores, commenting the retailer has learned a great deal from the stores and has been able to create a multi-million dollar fresh foods brand, 'marketside,' which it's selling in its Walmart supercenters and Neighborhood Market supermarkets, based on operating the stores. Simon didn't announce plans to close any of the stores or convert them to another small store format at the conference however.

It was the first time a Walmart Stores' executive has said publicly that the retailer would cease any further development of 'marketside by Walmart.' Earlier this year Walmart said publicly it wouldn't open any additional 'marketside by Walmart' stores this year - but did not say it wouldn't do so beyond 2010.

Based on the information we have at present, it's remains most probable Walmart will close all four of the Arizona 'marketside by Walmart' stores by the end of December and no later than the end of January 2011 or convert some or all of the four stores into a new small-format.

Average Weekly Sales: 'marketside by Walmart' Stores

None of the four 'marketside by Walmart' stores have or are doing even close to $100,000 in weekly sales, according to our excellent sources. The four metro Phoenix area stores are located in Gilbert, Tempe, Mesa and Chandler, Arizona. All four stores opened in May 2008.

The Gilbert unit has been doing the best of the four, averaging about $68,000 a week in sales, our sources say.

The other three metro Phoenix 'marketside by Walmart' units are all doing below $50,000 a week in sales, our sources say.

They estimate the Chandler, Arizona store is averaging $48,000-$49,000 in weekly sales; the Mesa unit $33,000-$35,000; and the Tempe store about $40,000 weekly.

Two of the stores are in the 15,000 square-foot range. The other two are between 16,000-18,000 square-feet. According to the most current FMI (Food Marketing Institute) statistics, the average U.S. supermarket has sales-per-square-foot of $11.35. All four stores have been and are doing way below the $11.35 per-square-foot industry average.

In our analysis, these average weekly sales numbers make it unlikely that Walmart will put a different small-store format in any of the current four 'marketside by Walmart' stores when it closes them at the end of this year or in early 2011, although the retailer may believe a different format can make a go of it at the locations.

We'll have more for you very soon. Stay tuned.

'Marketside by Walmart' - Follow the Story Below

>December 21, 2009: Wither Walmart's Small-Format 'marketside' Stores and Format?

>January 9, 2010: Walmart's 'marketside': What's 'In-Store' for 2010?

>September 9, 2010: Walmart Plans to Close Arizona 'marketside by Walmart' Stores, Dump Format By Year-End or Early 2011

>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

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

[For a selection of additional past stories on Walmart's 'marketside' and 'marketside by Walmart' click here and here.]

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

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

'The Insider' - Heard on the Street

Walmart Stores, Inc. kicked off its 17th Annual Meeting for the Investment Community this evening at 7:15 p.m., with opening remarks by Tom Schoewe, the global retailer's chief financial officer.

As I write the column, Leslie Dach, Walmart's executive vice president, corporate affairs and government relations, is giving the keynote dinner presentation. He's set to conclude at 8 p.m.

Tonight is a warm-up for tomorrow, when Walmart executives, led by CEO Mike Duke, will make presentations from 8 am-3.35 pm . Duke will kick off the day with opening remarks at 8 a.m. and then bat clean up , closing the conference in the late afternoon.

Much of the focus of Dach's talk right now is on Walmart's sustainability, education and charitable giving practices, including Walmart USA's record-breaking donation to U.S. food banks this year.

Dach has finished his talk and is preparing to answer audience questions. But first a little entertainment. And it's entertainment with a message.

A group of Walmart associates, dressed in trademark blue shirts, has taken the stage and are singing: "New York, New York," as a slide show of various Big Apple sites, like Wall street, is shown on a big screen. New Jersey-born Frank Sinatra, often referred to as "The Chairman of the Board," made the song and New York City synonomous.

The message is this: Tomorrow morning Walmart USA CEO Bill Simon plans to outline the retailer's new urban-focused smaller-store strategy. One of the cities he's expected to discuss is...New York City, where Walmart has zero retail presence but wants to "Be A Part Of...Good Old New York, New York." [Read the story - October 11, 2010: Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?]

After the song Dach said: "Any relationship between our choice of songs and any actual political strategy is purely fictional," a clear indication, using a little humor, Walmart wants to ink a similar deal with Mayor Bloomberg and legislators for stores in New York City like it did with Mayor Daley and legislators recently in Chicago. (See the linked story above for details.)

Further symbolism: The same "Walmart Choir" sang Dach on to the stage earlier tonight, singing another song - "My Kind of Town," (Chicago is) - made famous by Frank Sinatra. Walmart already has at least three-four stores, of various formats and sizes, approved in Chicago.

I expect Simon to mention three medium and smaller store formats tomorrow - a medium format store, a version of the about 20,000 square-foot 'Neighborhood Market by Walmart' prototype, and a small-format grocery store, which we've been calling an "American Bodega, along with discussing smaller supercenters (which already exists in various versions). There could be some surprises as well.

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

The Walmart associates' choir just finished singing the iconic song, "New York, New York." They did a good job, by the way. I see a singing future for the group. Pay attention Mike Duke. They would be great roving ambassodors for the chain.

Dach is back on stage to answer audience questions.

In response to a question from an audience member, Dach says Card Check (the Employee Free Choice Act), the legislation that would eliminate the secret ballot in union elections at companies, is essentially dead, according to his analysis. Walmart has few worries about the legislation at this point in time, he says.

He's not alone in that analysis. Even if the House of Representatives were to take up Card Check before the November election, which they won't, there aren't enough votes in the Senate to pass it. And with nearly every political analyst predicting the Democrats will lose some Senate seats in the November election, along with numerous U.S. House seats, the organized labor-backed legislation seems dead in its tracks.

You can believe Walmart CEO Duke and team are very happy Card Check won't happen in the near future.

Just two audience questions for Dach. He got off easy. The one above was the most significant from a Walmart political-economic perspective.

You can watch a webcast of this evenings activities here.

Below is tomorrow's agenda from Bentonville:

>8:00 a.m. -8:20 a.m.
Company Strategy and Priorities - Mike Duke, president and CEO

>8:20 a.m. -9:15 a.m.
Sam's Club, Brian Cornell, CEO, and team

>9:15 a.m. -10:35 a.m.
Walmart International, Doug McMillon, CEO, and team

>10:50 a.m. -12:05 p.m.
Walmart U.S., Bill Simon, CEO, and team

>1:05 p.m. -2:20 p.m.
Global Sourcing and Global eCommerce, Eduardo Castro-Wright, vice chairman, and teams

>2:20 p.m. -2:55 p.m.
Consolidated Financial Update - Charles Holley, executive vice president finance and treasurer

>2:55 p.m. -3:35 p.m.
Closing Remarks - Mike Duke, president and CEO

Walmart Stores, Inc. executives collectively have much to talk about tomorrow - ranging on the international front from the company's September 27 announcement that it intends to acquire South Africa-based food and general merchandise chain 'Massmart' for 4.1 billion, and the September 24 conditional approval of its $1.2 billion acquisition of about 190 Netto stores in the United Kingdom, which after selling 47 units it plans to fold into its UK Asda chain, to its initiatives, operations and future plans in China, India, Mexico, Canada and elsewhere.

At home in America, in addition to outlining its small store plans, I think Walmart could either announce or offer some additional information about its eventual plans to offer a full selection of packaged food and grocery products on its Walmart.com site, to include home delivery via postal carriers (as it does now with packaged non-food items), along with an expansion of its site-to-store pick up program.

Also look for a discussion from Walmart USA CEO Bill Simon about new merchandising initiatives, including the new key role U.S. food and grocery retailing veteran Duncan McNaughton is assuming in Walmart's U.S. food and grocery operations.

McNaughton, who joined Walmart Canada after leaving Supervalu, Inc. in 2009, where he was corporate executive vice president of merchandising and marketing, started at Walmart HQ in Bentonville a little over a week ago, where he joins Jack Sinclair in heading up Walmart's U.S. food, grocery and packaged goods merchandising and marketing functions and initiatives.

These are just a few highlights of what's to come tomorrow. Stay tuned.

Walmart Stores, Inc. by the numbers: Walmart currently has over 8,600 retail stores operating under 59 different banners in 15 countries. The company had fiscal year 2010 sales of $405 billion. Walmart currently employs more than two million associates worldwide.

Recent columns by 'The Insider':

~October 8, 2010: Incoming Tesco CEO Philip Clarke Needs to 'Imagine' When it Comes to Fresh & Easy Neighborhood Market USA

~September 13, 2010: Reading Philip Clarke's Tea Leaves: Might A Mixed Corporate/Franchise Model Be in Fresh & Easy Neighborhood Market's Future?

~September 3, 2010: How the California Grocers Association and its Members Can Snatch Victory From the Jaws of the Defeat of California's Plastic Bag Ban

~August 22, 2010: Challenges & Opportunities: Tesco's Fresh & Easy Neighborhood Market Will Supply its Northern CA Stores From its Riverside County DC in Southern CA

~July 18, 2010: When it Comes to Northern California - its Competitors are Rome Burning and Tesco's Fresh & Easy Neighborhood Market is Nero Playing the Fiddle

~July 13, 2010: A Few Words on The Life and Death of Veteran Southern California Grocer Roger K. Hughes

~June 27, 2010: The Insider: Will Tesco Acquire Supervalu, Inc. and Change its 'Fresh & Easy' Game in America?

~June 12, 2010: Will Phil Clarke Shake Things up at Fresh & Easy Neighborhood Market USA When He Becomes Tesco CEO in 2011?

~May 20, 2010: Welcome to Discountopia USA

~April 29, 2010: Heard on the Street: There's Something About Albertsons ... In Southern California