Back to the Future at Walmart: Walmart Express Today and Walton's Five and Dime in the 1950's

The Gentry Walmart Express above opens Wednesday. [Photo: Justin Wedgworth.]

Walmart Stores, Inc. and Smaller-Format Retailing USA

Walmart Stores' new Walmart Express format can be fairly described as one part modern small-format fresh food and grocery store, one part dollar format store, and one-part post-modern drug - and food - store, as in what Walgreens' and CVS Pharmacy have been doing for the last couple years in terms of adding additional grocery SKUs and fresh foods to their respective stores, for example.

The Walmart Express prototype stores in Gentry and Prairie Grove, Arkansas opening on Wednesday offer a selection of 11,000 -to- 13,000 SKUs of fresh and fresh-prepared foods, perishables, frozen foods and packaged groceries, along with paper goods, health and personal care items, toys, clothing items, office supplies, household goods, DVD's, pre-paid phones and other sundries in their 15,000 square-foot small boxes.

The Gentry and Prairie Grove stores also feature pharmacies in-store and gasoline pumps out front. Most of but not all the Walmart Express stores will have in-store pharmacies. The gasoline pumps are optional, depending on the location of the particular store.

The Gentry (population 3,100) and Prairie Grove (population 3,113) Walmart Express units open June 8. They are two of three stores Walmart has planned so far in three small towns in Arkansas. The third unit will be in Gravette (population 2,300). All three towns are near the retailer's global headquarters in Bentonville.

Next week Walmart will open its third Walmart Express store, in Ridgefield, North Carolina.

Later this summer the first Walmart Express store will open in an urban region - in Chicago, Illinois.

The retailer plans to open 15-20 of the Express format stores this year, including in rural Arkansas, North Carolina and metropolitan Chicago, Anthony Hucker, vice president of strategy and business development for Walmart U.S. said during a tour of the Gentry Walmart Express unit on Thursday, during Walmart's annual meeting week. The retailer's annual meeting was on Friday.

The Walmart Express stores also feature Walmart USA's "Site-to-Store" program, which we reported they would in this March 9, 2011 story -March 9, 2011 - Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas. Also note in the March 9 story we reported the format would offer a significant selection of fresh-prepared foods. It does, as noted earlier about the Gentry unit.. Walmart had not announced either offering prior to the store tour on Thursday.

The "Express" units will also except and cash customers checks like Walmart does at its other format stores, along with excepting food stamps and W.I.C. Vouchers.

Tesco's 175-store (California, Nevada and Arizona) Fresh & Easy Neighborhood Market, for example, doesn't except paper checks of any kind, nor does it except the Women's & Children's Program vouchers in its small-format stores, accept for excepting W.I.C. in one unit, its store at Central and Adams in south Los Angeles. [Read what we've written about the paper check and W.I.C. Voucher issue at Tesco's Fresh & Easy at this link WIC Vouchers.]

The Walmart Express stores are in a basic small-box, just like dollar stores and CVS' and Walgreens' stores are.

The interior of the Walmart Express store in Gentry, Arkansas, which is located less than half-a-mile from a Dollar General store and about 15 miles from the nearest Walmart supercenter, is utilitarian, including having exposed ducts and pipes and simple yellow-painted walls.

But it's also colorful and has plenty of signage throughout the store, including a number of signs that say: "If you want it, we'll get it," which are in reference to Walmart's "Site-to-Store" program, in which shoppers can order items from Walmart.com and have the goods delivered to the Walmart Express store for easy pickup. The feature could be a a significant source for pulling shoppers into the stores, in our analysis.

Walmart is also using the prototype or test aspect of the first Walmart Express stores in rural Arkansas in its favor: There's a suggestion box and forms at the stores' front-end, where customers can offer their opinions on items that should be carried.

There's also a "local" positioning aspect in the Gentry store's produce department, which features signs touting various produce items as coming from local growers.

Walmart has also attempted some cross-merchandising of food and non-food items in the Gentry store. For example, toasters were merchandised in the bread aisle and tea kettles and some coffee-related items were located in the packaged coffee and tea aisle.

Walton's small-format 5-10 variety store in the 1950's.

Walmart Express: Sam's' five and dime' with a modern twist

In looking closely at Walmart Express, we have some breaking news: It's not so much a new format for Walmart as it is a return of sorts to founder Sam Walton's beginnings, because the small-box fresh-food-and-grocery-dollar-store-modern-era-drug-store hybrid format isn't all that different from what Sam started out with as a retailer over six decades ago - which was the old "five and dime" or variety store format.

Before the late Sam Walton opened his first Walmart store in Rogers, Arkansas in 1962 at age 44, he was a variety store retailer. Some might suggest that's what Walmart still is in the U.S. - just on a super-sized scale with its supercenters, which average abut 180,000 square-feet.

After getting out of the U.S. Military, Walton worked briefly for J.C. Penney (then a variety store chain) in Iowa, then bought and operated a Ben Franklin franchise variety store, and later a few more in other cities, in Newport, Arkansas.

Then in 1951 Sam opened the landmark Walton's Five and Dime store in Bentonville, Arkansas, where Walmart Stores, Inc. has been headquartered ever since.

Sam's "5-10" store, which has been preserved and is part of the Walmart Visitor's Center on North Main Street in Bentonville, offered what variety format (and many drug stores) stores of the era offered, which was a little bit of everything - sundries, health and personal care items, clothing and other soft goods, household items, toys, grocery items, prepared food, most often at a "lunch counter," and a whole lot more.

The closest and best example today of the 1950's-60's-era "five and dime" or variety store format is the dollar or 99-cent format store, which in addition to offering a variety of non-food items across many categories also offers packaged groceries, household package goods, health and personal care items, other traditional grocery store items and, in a growing number of cases, fresh foods like produce, meats, deli, perishables and frozen foods, as do a growing number of drug stores like some operated by CVS and Walgreens.

Enter Walmart Express - or "Walton's Five and Dime 2.0," the nickname were giving it in this piece today.

The 'dollar' and 'drug store' challenge

Dollar format stores have been the biggest competitor to Walmart in the U.S. over the last few years, as shoppers have searched for variety at low prices during the down economy. The small but packed-with-variety-at-a-cheap-price dollar format stores operated by chain's like Dollar General, Dollar Tree and numerous others have and continue to grow exponentially throughout the U.S., along with becoming places where American consumers love to shop.

Walmart hundred hopes Walmart Express will help it counter the dollar and 99-cent store challenge, along with allowing it to sell food and groceries in more places in the U.S., such as in small towns like Gentry, Arkansas (population 3,000) and more significantly in urban America, in places like metro Chicago, New York City, Los Angeles, San Francisco and elsewhere where it has little or no food and grocery retailing presence.

So like Sam hoped in 1951 when he opened Walton's Five and Dime, Walmart in 2011 is hoping to cash in on America's love of variety, with a focus on food and groceries, at a cheap price, by opening convenient-to-shop, smaller-format stores - Walmart Express.

Back to the future with Walmart Express

It's not 1951 and Walmart is no longer Sam Walton, his wife and a few hundred associates. Instead, Walmart is now the largest retailer in the United States and the world, along with being the number one-seller of food and groceries in America.

But as the old saying goes - the more things change the more they stay the same.

Among the many things Sam Walton built into the Walmart culture that remain today is the "Big C" - competitiveness.

Therefore, despite its status as America's leading retailer of everything, Mike Duke's (CEO) Walmart wants essentially the same thing Sam Walton wanted (and got) from those variety store beginnings so many decades ago - to dominate.

And were he here today, we suggest Sam Walton would be leading the merchandising charge on the Walmart Express format, reminding all those around him that, after all, he does have a little experience in variety store merchandising.

The big question is: Can Walmart do its variety store origins proud with Walmart Express?

Its small-format efforts over the last three decades - Neighborhood Market, marketside by Walmart and a couple other earlier attempts - suggest the answer is ... "maybe?"

However, Walmart's historical legacy, based on Sam's variety store origins and success, suggests the answer is ... it had better this time around. After all, Sam is probably watching.

Related Stories

June 1, 2011: Walmart Week 2011 - All Aboard the 'Walmart Express:' First Two Stores Open June 8

February 22, 2011: Walmart Stores, Inc. Announces the Name For its New Smaller-Format Food & Grocery Stores: 'Walmart Express'

March 9, 2011: Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas

January 10, 2011: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

January 11, 2011: A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

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?

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

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

Also see these links - Walmart Stores,  20K Neighborhood Market by Walmart prototye, marketside by Walmart, Tesco Fresh and Easy California March, Wal-Mart, Walmart, Walmart Express, Walmart Market, walmart small store strategy, Walmart Stores - for related stories.

Walmart Week 2011 - All Aboard the 'Walmart Express:' First Two Stores Open June 8

The Walmart Express in Gentry, Arkansas [Photo: Justin Wedgworth.]

[Editor's Note: Walmart Stores, Inc. holds its annual meeting, the Superbowl for retail geeks, on Friday. Starting today Fresh & Easy Buzz will be reporting on the mega-event, as well as offering analysis and commentary on the world's largest retailer, which also happens to be the number one seller of food and groceries in America. Below is our first story in the series.]

News/Analysis

All aboard the Walmart Express.

The title of this piece and the phrase above have a double meaning this week.

Walmart Express is the name of Walmart Stores, Inc.'s newest U.S. smaller-format (average 15,000 square-foot) convenience-oriented grocery store venture, the first two stores of which are set to open June 8 in the small towns of Gentry (see above) and Prairie Grove, Arkansas, near its corporate headquarters in Bentonville.

It's also "Walmart Week" this week - the annual week long series of events for investors and the media the retailer puts on Sam-Walton-style leading up to its annual meeting, which is on Friday (June 3).

And it's no accident the first two Walmart Express food and grocery markets are set to open a mere five days after the annual meeting on Friday.

Nor for that matter is it a coincidence the first three Walmart Express stores - there's a third unit opening soon in nearby Gravette - happen to be in Arkansas and close to Walmart's Bentonville corporate headquarters.

It's all a part of Walmart's grand plan this time around, which is to hang a big bright lantern on its smaller-format store plans.

This is unlike the last time it launched a small-format chain in the U.S., marketside by Walmart - opening four stores in four metro Phoenix, Arizona cities in August 2008 with little fanfare.

This time Walmart is doing smaller-format up big with Walmart Express, which is a very different format from marketside by Walmart, which as we've reported for some time is history - the four stores remain open for now - but also incorporates a number of the fresh and fresh-prepared foods aspects of those small-format stores, including a significant offering of Walmart's Marketside fresh foods brand, which was developed out of its three-plus year experiment with the namesake food and grocery markets in Arizona.

"Walmart Week" also includes a sneak peek at the two Walmart Express stores opening June 8 in the two small Arkansas towns near Bentonville.

The two stores are about 15,000 square-feet, as will be the size - give or take a couple thousand square-feet in either direction - of all the 'Express' format stores.

In a nutshell, Walmart Express is one-part small neighborhood grocery store, one-part convenience store and another part fresh food market, with a decent sprinkling of general merchandise tossed in. There are also a couple other surprises we'll talk about in a follow up piece.

The Walmart Express stores offer considerably more food and grocery items and general merchandise than Tesco small-format (10,000-12,000 square-foot) Fresh & Easy markets do. They also go head-to-head in the fresh foods category, albeit probably a little less extensively than Fresh & Easy's category positioning. An in-store pharmacy is also included in many of the Walmart Express stores.

Although small-box grocery store economics are extremely challenging - Walmart learned this with its 15,000-16,000 square-foot marketside by Walmart stores, none of which is even doing close to $100,000 in average weekly sales. Just one of the four marketside stores, the unit in Gilbert, is averaging in the $60,000 week range, while the other three marketside units average between $45,000-$50,000 in weekly sales, according to our sources, who are in a direct position to know the sales figures - the once big-box-only (at least in the U.S.) retailer from not-so- big-Bentonville is bound and determined it get it right this time.

Two-pronged smaller-format strategy

Walmart Express is part of the retailers two-pronged smaller-format food and grocery retailing strategy.

The second format is Walmart Market, which in addition to the new name for its existing Walmart Neighborhood Market stores (average 42,000 square-feet), is the name for a bunch of stores the retailer will soon start opening throughout the country, including in California.

The new Walmart Market stores, which will be similar to the existing Walmart Neighborhood Market units except for a few significant twists (see here), average 30,000-60,000 square-feet.

Walmart says it plans to open 30-40 smaller-format stores this year - which means from June -to December - and could have as many as 300-plus Walmart Express and Walmart Market stores open by the end of 2012, although its our analysis that number is overly ambitious.

Like Walmart Express, the mega-retailer plans to locate its new Walmart Market stores in urban rural and selected suburban areas, although the main focus for both smaller formats will be urban, at least in terms of percentage of overall store-count.

Next stop California

California, where Tesco has 126 of its 175 (28 in metro Phoenix, Arizona and 21 in metro Las Vegas) Fresh & Easy Neighborhood Market stores is, as we've been reporting for sometime now, a major focus for Walmart with its two-pronged smaller-format strategy - Walmart Market and Walmart Express.

And, as we've also been reporting for sometime, many of the locations Walmart is locking up in Califonia for both of the smaller-formats are near existing and future Fresh & Easy stores, in Southern and Northern California primarily.

The locations are both urban - metro Sacramento region and San Francisco Bay Area in Northern California; Los Angeles in Southern California, for example - suburban - Southern California's Orange County and elsewhere in the region - and rural, such as in a few small towns near Sacramento and the far southern portion of Southern California, to offer two examples.

Based on our knowledge of both the Walmart Market and Walmart Express formats and now stores - product selection, pricing and other criteria - a store of either format located near a Fresh & Easy fresh food and grocery market is going to put serious pressure on the sales at that existing Fresh & Easy store. And as noted, in California many stores of both of the Walmart smaller formats will eventually be located close to Fresh & Easy Neighborhood Market units.

Walmart is the number one food and grocery retailer in Arizona, based largely on its numerous supercenters in the state, so it's already a key pressure point for Tesco's Fresh & Easy in metro Phoenix - along with Koger's Fry's, Safeway, Albertsons and about five other chains - where Tesco has a mere 28 units.

And in Metro Las Vegas, Nevada, where Tesco has just 21 Fresh & Easy stores, the competition from Walmart and others - Safeway, Kroger, ect. - is so strong Tesco hasn't opened a new Fresh & Easy market in the region for over a year. In fact it closed five stores (along with five in Arizona and one in Southern California) in November 2010.

Fresh competition makes it less easy for Tesco

This leaves California for Tesco, where as we've written about in a serious of stories starting last year and into 2011, the United Kingdom-based retailer is betting the store when it comes to the success of Fresh & Easy Neighborhood Market. With 126 of its 175 Fresh & Easy stores in California, along with California being the near-exclusive focus of new store openings - the 21 Fresh & Easy stores opened so far this year are all in California, for example - it's the make-it-or-break it market region for the retailer.

The competition in the Golden State is already extensive for Tesco, as it tries to stem its losses - $300 million in the last fiscal year which ended February 26, 2011 - and break-even with Fresh & Easy by the end of its 2012/13 fiscal year, which is just 21 months away.

Walmart Express, the first two units of which will be open for business in Arkansas in seven days, and Walmart Market - both California bound, including numerous units in "Fresh & Easy neighborhoods" are going to ratchet up the already heavy competitive pressure on Tesco's Fresh & Easy even further.

And the 15,000 square-foot "Express" stores, with a major fresh and fresh-prepared foods offering combined with a more extensive grocery and general merchandise product selection than the Fresh & Easy format and stores have, will likely in our analysis take a significant number of shoppers from the Fresh & Easy small-format markets in those neighborhoods where the two formats have stores near each other.

If we were Tesco CEO Philip Clarke and his deputy, Fresh & Easy Neighborhood Market CEO Tim Mason, we would have made sure to have bought stock in Walmart Stores' earlier this year.

Then this week - perhaps wearing fake mustaches and using a southern USA accent, along with wearing hats with a "press" card tucked in the brim in order to get into the Walmart Express Arkansas store media tour - they could make their way to Bentonville and attend "Walmart Week," paying special attention (as we are) to every word spoken by Walmart CEO Mike Duke and Walmart U.S. president Bill Simon, as it pertains to the retailer's two-pronged smaller-format store initiative - and particularly as it pertains to California - where Tesco is betting it all with Fresh & Easy, and where Walmart will soon be opening numerous Walmart Express and Walmart Market stores, many eventually coming to a "Fresh & Easy neighborhood.

Related Stories

February 22, 2011: Walmart Stores, Inc. Announces the Name For its New Smaller-Format Food & Grocery Stores: 'Walmart Express'

March 9, 2011: Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas

January 10, 2011: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

January 11, 2011: A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

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?

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

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

Also see these links - Walmart Stores,  20K Neighborhood Market by Walmart prototye, marketside by Walmart, Tesco Fresh and Easy California March, Wal-Mart, Walmart, Walmart Express, Walmart Market, walmart small store strategy, Walmart Stores - for related stories.

Simon Says: Walmart U.S. Chief Unveils 'Walmart Express' Logo; Says Hundreds of Smaller-Format Stores On the Way

Walmart Stores, Inc. today unveiled the new logo (above) for its new "Walmart Express" convenience-oriented, food and grocery-focused smaller-format stores. Express is one of three new smaller-format store banners that Walmart has either launched ("Walmart on Campus") or is preparing to launch. The third format and banner is "Walmart Market."

Read our story from yesterday about "Walmart Express" here - March 9, 2011: Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas

The logo unveiling was part of a presentation made today by Walmart U.S. president and CEO Bill Simon, at the Bank of America Merrill Lynch Consumer Conference.

At the conference Simon also said Walmart will rebrand its "Walmart Neighborhood Market" to "Walmart Market." You can view the "Walmart Market" logo here. You can also view a slideshow of Simon's presentation at today's conference here.
The "Walmart Market" stores will vary in size from on the low-end 25,000 to 30,000 square feet to as high as 60,000 to 70,000 square feet in some markets, Simon said.

The current "Walmart Neighborhood Market" supermarkets (about 200 in the U.S.) average 39,000-45,000 square-feet. Walmart has also had a smaller-format (about 20,000 square-feet) "Neighborhood Market by Walmart" store open for a couple years in Rogers, Arkansas. That store serves as the inspiration for the "smaller-end (in terms of square-feet) "Walmart Market" stores.

The head of Walmart's U.S. division said today the retailer plans to open hundreds of smaller-format stores over the next three years under the "Walmart Market," "Walmart Express," "Walmart on Campus," and perhaps other formats and names.

Walmart Stores opened its first "Walmart on Campus" store early this year on the University of Arkansas, Fayetteville campus. The store is about 3,500 square-feet. It offers a selection of convenience-oriented food, grocery and general merchandise items and has a pharmacy.

Simon said today Walmart's smaller-format push also includes possible acquisitions, which is something we've previously reported the mega-retailer from Bentonville has been considering doing. Among the potential acquisitions we've suggested readers look for is, on a national scale, the Rite-Aid drug chain. As we've said, Rite-Aid is ripe for an acquisition, as it's value has been in penny stock territory for far to long.

Also look for Walmart to make various regional acquisitions as part of its smaller store strategy, particular if it can find suitable deals in places where it plans to significantly focus the smaller stores, such as California, the Pacific Northwest, metro Chicago, New York and other east coast and New England regions.

Look particularly for Walmart to focus any such acquisitions in urban regions, again in U.S. regions where it has little current retailing presence. For example, sources recently told us Walmart has looked at some of the smaller stores A&P supermarkets is selling, and might sell if the offer is decent, in New York City and other metropolitan region on the east coast.

Approval of any acquisitions won't be a piece-of-pie for Walmart however, particularly any bog ones. Walmart's Simon said today, confirming what we reported in our piece yesterday, that the "Walmart Express" stores will be 15,000 square-feet. He said Walmart Stores plans to test different mixes of products in the first batch of "Walmart Express" stores as it fine tunes the new convenience-oriented format. "We are going to be adding hundreds of these in the coming years, and maybe more, depending on how these work out," he said.

The Walmart USA chief wouldn't say where the first "Walmart Express" stores will open, instead saying "secret handshake" is required to learn that information. But secret handshakes aside, we reported on where, and when, the first three units will be in our story yesterday here: Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas.

Here's some more of what Simon said about the retailer's smaller-format store plans, and how it fits in with Walmart USA's multi-channel strategy:

"We have been hard at work on this roughly 15,000 square-foot format ['Walmart Express.'] We're in the process of developing and we will open in the second quarter in both urban and rural pilots with pharmacy and without pharmacy, varying levels of fresh and other products, product assortment. The aim here, folks, is to get the right model so that we can rapidly roll these things out. At our peak we built about 350 supercenters in a year, so when we get this thing right, these are going to come real fast and we're real excited about this format.

We've been working kind of -- trying to work beneath the radar on this thing, although some of it has been a little bit above the radar I guess as you would say, and in the papers recently.

And there are also a couple of prototypes that have been built in super secret locations that I can't tell anybody about and there's a secret handshake to get in. But they're really, really nice and I think what you will see is a real effective implementation of a strategy that takes a continuum of retail from the -- as close as you can get to -- the small formats as close to the customer as you can get has the high velocity items that the customer wants as you move through the size from Express to market supercenter, you can flex inventory and assortment based on what the customer wants.

And if you overlay all of that with walmart.com and the multichannel experience, you can have whatever you want, whenever you want in a seamless supply chain. That is incredibly powerful and that's what we will be working on when these things open in the second quarter.

We also opened our first Walmart on Campus as a really, really cool format that the first on is on the campus of the University of Arkansas. We like to try things close to home so we can see it and play with it and tweak it a little bit. Frankly it's doing way better than anybody anticipated. It has a pharmacy in it and it serves the college students on campus with the pharmacy. A great, great price, as you know, from our pharmacy offering as well as pretty well everything that a college student needs with an almost endless supply of macaroni and cheese and Ramen noodles along with everything else that they go with.

There's been a lot of interest from a lot of other college campuses, the universities on this project, and it's something that we think is going to play out pretty well for us.

Small formats: I want to take just a minute to talk to you about it. It's something that is not new to Walmart, not new at all. We have -- in fact, most of our markets around the world operate small formats from Todo Dia in Brazil to Bodegas in Mexico, ChangoMas is in Argentina, PALi is in Central America, this one is from Costa Rica.

We run small formats all over the world and these small boxes are among the most profitable businesses that these countries run. So as we borrow and learn from them to build the US small format portfolio, we think we can deliver that end-to-end continuum that will give access to customers wherever they might be with the products that are most relevant to them in the markets that they are in.

And that's the last bullet point here and that's the multichannel element of this thing. The whole thing becomes kind of turbocharged or supercharged or multiplier with multichannel. We believe we are in a unique position in that we operate in more than one channel. There are lots of great brick-and-mortar retailers. There is coming on to be many, many great e-commerce players. But nobody who has the e-commerce business that we have at Wal-Mart.com where the business is just terrific and the brick-and-mortar business that we have, if we can enable all of these formats digitally to provide this experience to the customer."

Simon also said at today's investor conference that Walmart is expanding expanding its "Pick Up Today," program, which allows customers to order and purchase items online at Walmart.com and pick them up in stores. The program is currently available in 750 stores but will be expanded to nearly 3,600 locations by June, Simon said. Walmart issued a press release on the expansion of its "click and pick up" program today. you can read it here.

We discussed how the "Pick Up Today" program, which Simon says he want to change to "Pick Up Now," and expansion might fit in with Walmart's new smaller-store strategy in our piece yesterday, which is linked above.

Walmart's Smaller Store Strategy: Summing it up

In summing up Walmart's current smaller-store strategy, at present the retailer is focusing on three formats and three banners:

>"Walmart Express," which are food and grocery-focused but not exclusively, convenience-oriented stores designed to be located in urban and rural areas primarily. The stores can be as small as 5,000 square-feet but likely will average about 15,000 square-feet in size. (See our piece from yesterday for additional details.)

>"Walmart Market," which will include all of the existing "Walmart Neighborhood Market" stores (the rebranding) as well as new units. The stores will vary in size from 25,000 to 30,000 square feet to as high as 60,000 to 70,000 square feet. The geographic focus of the format is suburban, urban and rural.

>"Walmart on Campus," which is similar to the "Walmart Express" format but focused on college and university campus locations. Sizes will range from about 3,000 square-feet to about 5,000 square-feet. Some units could be slightly smaller, others slightly larger. It all depends on the locations and some additinal variables.

It's important to note that Simon made zero mention of Walmart's "marketside by Walmart" format and existing four stores in suburban Arizona today. That's because, as we've been reporting for some time, the format is going away.

Walmart U.S. president and CEO Bill Simon talked about numerous other aspects of the retailer's U.S. business, including plans and strategies, at the Bank of America conference today. You can view a full-transcript of his presentation here. There's also a webcast you can view here.

Fresh & Easy Buzz will be offering additional analysis on Walmart's smaller-store plans and strategies, in the coming days, as we've been doing extensively for over three years. Stay tuned.

Related Stories

March 9, 2011: Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas

February 22, 2011: Walmart Stores, Inc. Announces the Name For its New Smaller-Format Food & Grocery Stores: 'Walmart Express'

February 22, 2011: The Name Game: Satire Columnist Earl Grey Smells A 'Neighborhood-Express' Conspiracy Involving Tesco and Walmart

January 10, 2011 story: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

January 11, 2011: 'The Insider' - A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

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

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

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

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

September 29, 2008: Special Report: Wal-Mart, Inc. Studying Second Small-Format Food and Grocery Store Concept; the 'Bodega' or Modern Version of the Corner Grocery Store

Going Rural: First Three Smaller-Format 'Walmart Express' Stores Will Be in Small Town Arkansas

News/Analysis

Walmart Stores, Inc. said today it will open its first three smaller-format "Walmart Express" stores in its home state of Arkansas, in the small towns of Gentry, Prairie Grove and Gravette.

The first of the three stores, the unit in Gentry (population 3,100), is scheduled to open in May at the earliest but likely no later than July.

"Walmart Express" is a new format for Walmart, as we've previously reported, although it will incorporate elements of the chain's "Walmart Neighborhood Market" format and its "Neighborhood Market by Walmart" 20,000 square-foot prototype store, which has been open for a couple years in Rogers, Arkansas, near the retailer's headquarters in Bentonville.

According to Walmart spokesman Steve Restivo, the world's largest retailer plans to start construction on its first small-box Express format store, in Gentry, on March 16. The store will be about 14,500 square-feet.

Construction on the other two Arkansas "Walmart Express" stores, in Prarie Grove and Gravette, both which are near Gentry, is scheduled to begin around the end of March or early April, according to Walmart. The two stores will be about the same square-footage as the Gentry unit.

Prarie Grove has a population of about 3,113. Gravette's estimated population is 2,300. The population figures are based on U.S. Census Bureau numbers for 2010.

The "Walmart Express" format stores are food and grocery focused, as we've previously reported, and will also carry a selection of general merchandise items.

Similar to a typical neighborhood grocery market of about the same size, the center (core-of-the-store) of the "Walmart Express" stores will offer grocery items on shelving, comprising 10-12 aisles. The perimeter and back of the Express format stores will feature fresh produce, meats, frozen foods and perishables.

Although Walmart didn't confirm it, as we've previously reported, the Express format stores will also offer a selection of the retailer's "marketside" private brand ready-to-eat and ready-to-heat fresh-prepared foods, as part of an in-store deli configuration of some sort.

The stores also will have in-store pharmacies, something we've previously reported would be the case.

Additionally, according to our sources, Walmart will likely use the "Walmart Express" stores as pickup points for its Walmart.com online retail operation, as it's currently doing in selected other format stores. Shoppers would be able to order anything available on Walmart.com and then pick it up at a "Walmart Express" store. Think of the process as similar to what Sears has been doing in and with its small-format "catalogue stores, particularly in rural communities, for decades.

Not all of the "Walmart Express" stores will be in the 15,000 square-foot range. Depending on the location, some will be up to 30,000 square-feet, which is something Walmart U.S. president Bill Simon confirmed recently. Some also will be smaller, such as those in highly dense cities. Simon has said some of the stores could be as small as 5,000 square-feet.

Earlier this year Walmart said it plans to open 30-40 of the small-format "Walmart Express" stores in 2011.

As we've previously reported, Walmart Stores, Inc. has acquired numerous locations in California which it has slated for the smaller stores. We've identified a dozen such locations in Southern and Northern California thus far.

Walmart also plans to open the smaller food and grocery-focused stores in metro Chicago, Washington D.C. and New York City, along with other part of the U.S.

Additionally, based on source information we have, one or more of the existing four small-for "marketside by Walmart" format stores in four metro Phoenix, Arizona cities - Gilbert, Chandler, Mesa and Tempe - will likely be converted to the "Walmart Express" format down the road. The four Arizona "marketside by Walmart" stores range from 15,000-17,000 square-feet

"Walmart Express" is positioned as both an urban and rural (and in some cases suburban) format, according to Walmart.

The fact Walmart has chosen to open the first three units in fairly rural small towns demonstrates the retailer is serious about attempting a rural strategy with the smaller stores. The fact it chose three towns in Arkansas, all which are fairly close to its Bentonville headquarters, is no surprise. All three towns are within 35 miles of Bentonville.

Many observers and analysts are rushing to say how Walmart's latest small-format move will be a killer application for the retailer, alongside its supercenters.

However, many of these same analysts said the same thing when Walmart launched its "Walmart Neighborhood Market" format (the stores average about 42,000 square-feet) in the 1990's, and did so again when Walmart launched "marketside by Walmart" (at first called just "marketside") in 2008.

To date the neighborhood market supermarkets have been at best mediocre performers, evidenced not only by various metrics but also by the fact that in two decades Walmart has opened only about 200 of the 42,000 square-foot supermarkets in the U.S.

"Marketside by Walmart," the retailer's first small-format experiment can basically be judged to be a failure. As we've previously reported, none of the four stores have hit targeted average sales of $75,000-to-$100,000 per-week, which Walmart determined was the absolute minimum needed to break even. Just one of the four stores is averaging over $60,000 (but well under $75,000) a week. The other four are in the $45,000-$55,000 range in average weekly sales. All four stores are losing money. We've seen the numbers.

Walmart isn't opening any additional "marketside by Walmart" stores. It has 50-year leases on the four Arizona units. (47 years remaining.) The most-likely scenario, as noted earlier, is that one or more of the stores will be converted at some point to "Walmart Express" stores. Just one of the stores, the unit in Gilbert, Arizona, is suitable from a demographic perspective to convert to Walmart's Supermercado de Walmart Latino grocery store format. However, the store is really too small from a physical and carrying-capacity aspect to do so, in our analysis.

The upshot: The jury is still out on how well Walmart Stores, Inc. can do smaller formats in the U.S. (it does them well in Mexico, for example,), particularly when the focus of the smaller-format stores is fresh food and groceries.

A number of the "Walmart Express" locations in Southern and Northern California we've identified are near Tesco-owned Fresh & Easy Neighborhood Market stores. From what we've been learning, the Express stores will be much less upscale and much more price-impact-oriented (although not a hard-discount format) than the "marketside by Walmart" format and stores are, as well as offering a much broader selection of basic groceries than "marketside" does. (Think an edited version of the "Neighborhood Market by Walmart" supermarkets' SKU assortment when it comes to product selection.)

The upshot: Things are going to get even more interesting in highly competitive California when the first batch of "Walmart Express" stores start opening. Stay tuned.

Related Stories

February 22, 2011: Walmart Stores, Inc. Announces the Name For its New Smaller-Format Food & Grocery Stores: 'Walmart Express'

February 22, 2011: The Name Game: Satire Columnist Earl Grey Smells A 'Neighborhood-Express' Conspiracy Involving Tesco and Walmart

January 10, 2011 story: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

January 11, 2011: 'The Insider' - A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

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

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

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

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

September 29, 2008: Special Report: Wal-Mart, Inc. Studying Second Small-Format Food and Grocery Store Concept; the 'Bodega' or Modern Version of the Corner Grocery Store

Walmart Stores, Inc. Announces the Name For its New Smaller-Format Food & Grocery Stores: 'Walmart Express'

Bill Simon, president and CEO of Walmart U.S., said today during a conference call in which Walmart Stores, Inc. reported its fiscal year 2011 fourth quarter financials, that the Bentonville, Arkansas-based global retailer has decided on a name for its new smaller-format food and grocery-focused stores. The name: "Walmart Express."

The "Walmart Express" name will be used for the smaller-format stores, which will range up to about 30,000 square-feet, which we've reported on and written about extensively in Fresh & Easy Buzz, in both urban and rural markets, Simon said today.

The head of Walmart's largest division, Walmart U.S., also said today that the first "Walmart Express" stores are set to open in the second quarter of this year, just a few months from now.

As we've previously reported, Walmart has secured numerous locations for the smaller-format, food and grocery-focused stores in California, including in both the southern and northern parts of the Golden State.

For example, in this January 10, 2011 story: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap - we reported on specific locations Walmart has obtained in California for its smaller-format stores. We also reported in our piece that Walmart is preparing to open the first batch of its smaller-format stores soon, which Walmart U.S. president and CEO Bill Simon confirmed today, saying: "The development of our small format is progressing ahead of schedule. We expect to open our first 'Walmart Express' stores in the second quarter [of 2011]" [Also see - July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store; and September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010.]

Since publishing our story in early January, we've learned about and additional 10 locations in Southern California that Walmart Stores has acquired for its smaller-format stores. We've agreed with the Southern California commercial real estate source that provided the information to us not to list the locations of the stores just yet.

In addition to California, Walmart has acquired locations, has sites in the pipeline and has further plans to acquire locations for its "Walmart Express" smaller format stores throughout the U.S., including in major urban regions like Chicago, Washington D.C., New York and elsewhere.

Additionally, along with urban area, Walmart plans to open the smaller-format food and grocery stores in suburban and rural regions of the U.S., which is something we've previously reported, and that Bill Simon confirmed today.

Simon also said today that he and Walmart Stores, Inc. is disappointed with the sales performance of Walmart U.S. for the fourth quarter. "Our 1.8 percent comp decline for the fourth quarter didn’t meet anyone’s expectations. They certainly didn’t meet mine. Period," Simon said today.

Walmart Stores, Inc. reported a 1.8% decline in comparable store sales at Walmart U.S. for the 13-week period ended Jan. 28, 2011. On a slightly brighter note, comparable sales for Walmart's Sam's Club wholesale club division increased 2.7 percent, excluding fuel sales, for the same period.

Below is a summary of the financial metrics Walmart Stores, Inc. reported today for its fourth quarter:

• Walmart reported diluted earnings per share from continuing operations (reported EPS) of $1.41. This compares to $1.261 per share from continuing operations last year. Fourth quarter underlying diluted EPS from continuing operations was $1.342.
• Reported EPS from continuing operations for the fourth quarter included tax benefits of $243 million, or approximately $0.07 cents per share.
• Consolidated operating income for the fourth quarter was $8.0 billion, up 7.3 percent from last year.
• Net sales for the fourth quarter were $115.6 billion, an increase of 2.5 percent from last year.
• Walmart U.S. comparable store sales declined 1.8 percent in the 13-week period ended Jan. 28, 2011. Sam's Club comparable sales, without fuel, increased 2.7 percent for the same period.
• Full year reported EPS from continuing operations was $4.18, compared with last year's EPS of $3.731.
• Full year underlying diluted EPS from continuing operations was $4.072.
• Consolidated operating income for the full year was up 6.4 percent to $25.5 billion.
• Net sales for the full year were $419 billion,an increase of 3.4 percent.
• The company leveraged operating expenses for the quarter and the full year.
• Return on investment (ROI) for the fiscal year ended Jan. 31, 2011 remained strong and stable at 19.2² percent. Walmart ended the year with strong free cash flow of $10.92 billion.
• For the year, the company returned a record $19.2 billion to shareholders through dividends and share repurchases.

[You can view Walmart Stores, Inc.'s full financial release here. Click here to view the full-transcript of Walmart's Fourth Quarter Fiscal Year 2011 Earnings Call.]

Fresh & Easy Buzz will have additional news and analysis on Walmart's new "Walmart Express" smaller-format food and grocery store initiative upcoming soon. In the meantime...

Follow the story in Fresh & Easy Buzz: Walmart's New Smaller-Store Initiative

July 6, 2010: 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

October 13, 2010: Simon Says: Walmart U.S. CEO Outlines Smaller Store Strategy and Plans; Walmart to Offer Groceries Online in USA

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

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

January 10, 2011: Walmart 'Gets Real' With Smaller-Format Grocery Store Initiative in California; First Stores On Tap

January 11, 2011: A 'New York State of Mind': 'The Insider' On Walmart, Apollo Global Management, Tesco's Fresh & Easy and the NRF in New York City

Readers: You can read additional stories about Walmart, including its smaller-format development at (by clicking on) the following links - 20K Neighborhood Market by Walmart prototye, California, Wal-Mart, Walmart, Walmart in California 2011, walmart small store strategy, Walmart Stores marketside by Walmart, Wal-Mart, Wal-Mart format innovation, Wal-Mart hybrid supercenters, Wal-Mart Marketside, Wal-Mart Modesto CA, Wal-Mart Supercenter, Wal-Mart's new Supercenter prototype, Walmart, marketside store brand, brand marketside, Walmart Stores Inc. Use the 'Older Posts' 'Newer Posts' links at the bottom of the linked pages for more pages/stories.

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

Walmart to Outline its Urban-Focused Smaller-Format Grocery Store Plans Wednesday; What Might Be In-Store?

News & Analysis

Bentonville big box brawler Walmart Stores, Inc. is set on Wednesday (October 13) to present an overview of its food and grocery retailing-focused strategy and plans to open smaller-format stores in various U.S. urban regions, including: Los Angeles (and metro Southern California); San Diego; the San Francisco Bay Area; Chicago; New York City; Boston and possibly a few others.

Additionally, Walmart CEO Bill Simon said on September 15 at the Goldman Sachs Retail Conference that it's possible the smaller-format stores could also be used in suburban (fill-in) and rural areas as part of the retailer's overall USA strategy.

Fresh & Easy Buzz played a key part in kicking off what has been considerable discussion in the industry and media about Walmart's urban smaller-store food and grocery-focused retailing strategy, when we reported in detail in this July 6, 2010 story - Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store - about the retailer's plans. Late last month a number of major publications reported what was essentially our July story. [See - September 20, 2010: About Today's Walmart Stores, Inc. Smaller Stores Media Frenzy: We Scooped it On July 6, 2010.]

In addition to announcing a version of the about 20,000 square-foot (can range from 20,000 -to- as much as 40,000, depending on the site) small-format 'Neighborhood Market by Walmart' prototype store mentioned in our story above, we expect Walmart to describe at least one medium-format and possibly a third smaller-format it plans to use as part of its urban (and as Simon noted at the Goldman conference, potentially suburban fill-in and rural) smaller-store food and grocery retailing strategy and plans.

The second smaller-format could be a flexible-format food and grocery-focused store. That flex-format would range from a low of about 5,000 square-feet to about 20,000 square-feet. The smaller range would be for very dense urban neighborhoods, think Manhattan and San Francisco, for example, where not only is space at a premium but so too is the per-square-foot cost of retail/commercial space.

We've discussed this flexible square-footage smaller-format store in the past in Fresh & Easy Buzz, often referring to it as an American version of a bodega. This is appropriate terminology because Walmart has borrowed, and will continue to borrow, extensively from its Mexico operations, where the company operates store formats ranging from under 5,000 square-feet to over 100,000 square-feet. Walmart is the number one food, grocery and general merchandise retailer in Mexico.

Walmart on Wednesday will also talk about its new flexibility in terms of size as it pertains to its supercenters, which remain the retailer's primary retail weapon of choice in the U.S. As we've been reporting and writing about since 2008, although (store) size still matters at Walmart, when it comes to its supercenters, which average about 180,000 square-feet (the average size has come down by about 10,000-15,000 square-feet in the last couple years), Walmart is no longer as dogmatic about achieving that "average size" as it has been in the past.

For example, in 2009 Walmart opened its first supercenter in Modesto, California, in what was a vacant big box building the retailer renovated. The supercenter is 98,000 square-feet total, with about 75,00-85,000 square-feet of selling space. The smaller supercenter has been doing extremely well since it opened last year.

Due in large part to the success of the Modesto smaller, "hybrid" supercenter, which offers a full selection of fresh foods and groceries and all the other general merchandise departments featured in the bigger supercenters in a edited fashion, Walmart acquired two vacant big box stores in Southern California early this year, which it's renovating into smaller supercenters (70,000-80,000 square-feet of selling space), modeled on the Modesto unit.

Walmart has also been building and proposing some built from-the-ground-up supercenters in the last two years, which are much smaller than traditionally has been the case.

For example, in Patterson, California, which is about 15 miles from Modesto, Walmart is proposing a below average-sized 158,000 square-foot new construction supercenter, at Sperry and Ward avenues, in the city of about 35,000. The location is an open-space area along busy Interstate 5, which connects Northern and Southern California The Patterson City Council votes to approve or deny the store on Tuesday night. The city's mayor, Becky Campo, says it's likely the majority of the council will vote in favor of the store's construction at tomorrow night's meeting. A new supercenter opening this month in Reno, Nevada is even smaller.

These two pieces, along with building new supercenters and the to be announced smaller-store strategy, are key to Walmart's U.S. food and grocery retailing strategy.

An additional key piece of the retailer's U.S. food and grocery retailing strategy is its ongoing expansion (square-footage) at many of its discount format stores, which Walmart essentially isn't building anymore, in which its adding fresh foods and groceries, converting the stores into a "hybrid" supercenter. (We call both the smaller supercenters in renovated vacant buildings and the discount store conversions "hybrid" because they are modifications on the basic supercenter format model.)

Since 2009 Walmart has added square-footage and the equivalent of a full-service supermarket inside numerous discount format stores in the U.S. And in a number of cases, where it either hasn't been able to add square-footage because none is available adjacent to a particular discount store, or it's unable to get governmental approval to do so, Walmart has been adding fresh foods and expanded grocery selections in the discount stores anyway, reducing other department sizes to make room. The discount format stores average about 100,000-130,000 square-feet, so there's plenty of space to do so. And it creates a store format similar to the Modesto hybrid.

A most recent example of this is the remodeled store in Oceanside, California near San Diego, where Walmart reduced the store's electronics department considerably in size, along with shrinking some other departments, in order to add the fresh food and grocery space. [See - September 21, 2010: Fresh & Easy Neighborhood Market and Walmart Create A September New Grocery Store Rain Storm in Oceanside, California]

[Read the seven stories linked below for background on: (1) the smaller super-center in vacant big big box program; (2) the flexible-size new design supercenter program; (3) the discount store conversions and adding of fresh foods and groceries; and (4) smaller-format, small-store strategy.]

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

>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

Walmart's plans and Tesco's Fresh & Easy

Walmart's smaller-store plans will strike directly at the heart of the two key market regions Tesco has laid out going forward for its Fresh & Easy Neighborhood Market chain, Southern California, where it has over half of its current 168 stores (soon to be 155 after it closes 13 units by November 2, 2010; see 13 Closing Fresh & Easy Stores List ), and Northern California, which it plans to enter in early 2011 and, along with Southern California, put the majority of its focus on for the next two years. [See - October 5, 2010: Philip Clarke's Early Welcome to America: Tesco Logs $151 Million Half-Year Loss For Fresh & Easy Neighborhood Market]

In Los Angeles and parts of Southern California, as well as in the San Francisco Bay Area, Walmart is looking at various versions of strategic plans similar to what it recently announced for Chicago. Below (in italics) is what Walmart USA CEO Simon said about the retailer's Chicago plans at the September 15, 2010 Golden Sachs conference:

"Many of you heard and read about our Chicago announcement a month or so back. After a lot of time and energy, much of it not successful in urban areas in the US, we took a different approach with Chicago, working very closely with Mayor Daley and his team. And I respect them greatly for this effort.

"We have been able to reach an agreement with the City, the City Council and all the constituents in Chicago. And there are a lot of them. (For any of you who know how that whole thing works, please explain it to me one day. I think that would be a big help.) We do believe there is an opportunity for us to grow in Chicago, and the announcement we made talked about several dozen stores over the next five years and after.

"[After] years and years of City Council votes of 64 to nothing against us, we've had three approvals in the last six weeks from the City Council, and we are very, very optimistic about Chicago, and particularly about our opportunities in urban markets.

"We will be adding at least 12,000 jobs in the City, and at a time when jobs are a premium, we offer this, in addition to the savings it will offer our customers in the City of Chicago. There will be about 10,000 Wal-Mart associates and about another 2000 construction trade jobs that this will generate [in Chicago].

"We will have to be a little creative with formats, more so than we've been in the past. There is not a lot of big, empty lots that we can build 200,000 square-foot Supercenters in, nor do we want to anymore. So we will have a mix, a healthy mix, of Supercenters and small formats, including our grocery format, neighborhood market and smaller formats.

We have lots of learnings around the world from Wal-Mart in small formats. Our group in Mexico and Central America, Latin America operates small formats very well and very profitably, and we are going to beg, borrow, steal and learn from them as quickly as we can, because it is important for our urban strategy."

Fresh & Easy Buzz has learned Walmart representatives have had discussions of varying degrees with representatives of the cities (and mayors) of Los Angeles, San Diego, San Francisco, San Jose and a few others, in which the topic of discussion has been about the retailer's interest in opening numerous stores of different sizes, mostly smaller-format, in these cities and the surrounding suburban fringes.

The California cities, all historically previously pretty cool to Walmart in general, have a renewed interest in the retailer because of the agreement Walmart reached with the City of Chicago and the UFCW union, which agreed not to stand in the way of the stores opening. As an example, the mayors of Los Angeles and San Francisco, both Liberal Democrats, have friendships with Chicago Mayor Daley, a Democrat, as well as having strong respect for his governance of the city.
The fact Walmart is talking about smaller, urban-style stores has also peaked the interest of these California municipal officials and their representatives, as this is the first time Walmart representatives have approached them with such a conceptual idea. In the past it's been all about big box supercenters. We're calling it the Chicago model.

Additionally, there's the cold, hard economic facts: Like Chicago, these economically hard-pressed California cities and others are looking for private sector help to develop inner-city neighborhoods, new businesses to create jobs, and additional retail stores to bring in sales tax monies. The deal Walmart struck with the City of Chicago, where Walmart has so far had two new stores approved by the City Council (there's one Walmart discount store in he city) offers all these elements.

Walmart has already been acquiring, and continues to search for, retail space in California for these smaller-format stores, as we first reported back in July. [July 6, 2010: Walmart Looking for Store Sites in Northern California For 20,000 Sq-Ft Neighborhood Market by Walmart Prototype Store.] A number of the sites it's obtained and continues to look at are vacant retail buildings, along with from scratch sites.

This means once Walmart pulls the trigger on the smaller store strategy, it won't take it long to renovate and open the first batch of stores, which include the Northern and Southern California focus, where the small-format stores will go in both urban and suburban cities. And there's considerable rural opportunity in California, especially in the north, as well.

Based on our reporting, we also expect Walmart might eventually locate some of its smaller-format stores in metropolitan Las, Vegas, Nevada and the metro Reno region in northern Nevada, although the regions aren't at the top of its priority list right now.

Metro Las Vegas is one of Tesco's four regions with Fresh & Easy Neighborhood Market, along with Southern California, metro Phoenix, Arizona and California's Central Valley.

There are currently 27 Fresh & Easy stores in metro Las Vegas. After Tesco closes the six units by November 2, that will leave 21 stores in the region.

Tesco also has plans to open Fresh & Easy stores in the Reno area as part of its Northern California launch. The Reno-area stores won't likely open any sooner than late 2001 or early 2012, based on our information.

Walmart could also use some of the smaller-format stores as infill in the metro Phoenix, Arizona Market, including replacing some or all of its four 'marketside by Walmart' small-format fresh food and grocery stores. Those four stores are in the Phoenix suburbs of Mesa, Chandler, Gilbert, and Tempe.

Additionally, two sources, both in good positions to know, recently told us Walmart plans to remodel many of the existing 39,000-42,000 Neighborhood Market supermarkets in Arizona that aren't fairly new or weren't remodeled in the retailer's last cycle in the state. This makes sense in light of the about 20,000 square-foot 'Neighborhood Market by Walmart' prototype Walmart's been testing in Rogers Arkansas and the differences it has compared to the existing format. Some of Walmart's newer neighborhood market supermarkets in Arizona are named 'Neighborhood Market by Walmart," although they are in the 35,000-40,000 square-foot range.

Tesco currently has 34 small-format Fresh & Easy Neighborhood Market stores in metro Phoenix, Arizona. After the closure of the six, it will bring the total store-count down to 28. Walmart is the number one food and grocery market share leader in metro Phoenix and all of Arizona, followed by Kroger's Fry's, Safeway, Albertsons, and Basha's. Tesco's Fresh & Easy isn't in the top 10.

This means once Walmart pulls the trigger on the smaller store strategy, it won't take it long to renovate and open the first batch of stores, which include the Northern and Southern California focus, where the small-format stores will go in both urban and suburban cities. And there's rural opportunities in California, especially in the north, as well. For example, there are numerous smaller cities where a supercenter won't work but a smaller-format store will.

U.S. food and grocery is about to get even more interesting - and competitive - with Walmart's decision to expand its format portfolio and square-footage, and go after U.S. urban markets. Stay tuned to Wednesday.