Monday, March 14, 2011

Can someone explain the Walmart small store strategy, please?

I don't get it.  I guess I am not just not as smart as the folks in Bentonville.  Walmart was originally a dumpy box of a store with the interior feel of a warehouse.  It wasn't a great place to shop, although it sure was the place to buy American and cheaply, at that.  Now the stores look nicer and the products are all from China but the media says Target, which I still enjoy way, way more than a Walmart, may be cheaper.  (My wife prefers Walmart locally because of size, perceived value and the fact that our Target isn't a super store.)

But that isn't the main thrust of this piece.  Rather, it is about the small store format that the company is pursing.  I really don't get that.  So Walmart is going to open a 10,000 sf store in Chatham, a south side Chicago area known as a solid middle class minority neighborhood.  (Yes, I have driven through it and driven by this site many times.  It is not a particularly pedestrian friendly location, though not an awful one either.)  Okay, that is bigger than a 7/11 or convenience store but smaller than a Walgreen's and certainly small than the Jewel-Osco almost next door, where you can get a whole lot more selection.  The only thing I guess they figure is price will win.

But then there is a different issue: cannibalization. The company is building a SuperCenter right in the neighborhood.  One store will not siphon off the other?  The one saving grace of the small format store is fewer employees, perhaps meaning less overhead.  I can see a store like this in central business districts, but in a urban area next to a Lowe's and a Home Depot, not to mention a Marshall's and a Best Buy?  Not getting this one at all.

Walmart was at its best when it followed the tenets of Mr. Sam.  This is away from that, in my opinion.  As this post from a couple of weeks ago says, "As retired executives at A & P and Sears could tell Wal-Mart executives, the middle is a very bad place for retailers to be."  In my eyes, at least, Walmart is better off going back to 1978 than in this direction.

Full disclosure: we do own a very -- indeed, laughably -- small amount of Walmart stock.

PS: Many thanks to my friend Duke Long for encouraging me to write this.


Brad said...

I think they are trying to backfill all spaces in the market with smaller stores where they can't fit a larger store or already have a couple of large stores and just want to fill a few small corridors. They will start to compete for commercial real estate sites with CVS and Walmart. It may also give them an easier start in a city where they don't think they can get a large store approved, but they could get a small store approved to start to win over the support of the community.