A Giant Fix

Here We Grow Again

Wal-Mart's return to positive comp territory will be related to a return to new store building, including a new small format (Walmart Express) and a revamped grocery store, rechristened Walmart Market, the company promised. At the same time, it has cut back on the Supercenter renovation program that marked Project Impact.

Simon said moderated Supercenter growth since 2007 has negatively affected comp sales since those stores tend to perform best in their second, third and fourth years. The company since fiscal 2007 reduced new square footage growth to 1.5% last year — from around 8% in past years — as it focused more on remodels. Net new supercenters opened in the same period fell from 277 in fiscal 2007 to 135 in fiscal 2010.

Wal-Mart is looking to build as many as 200 new stores next year — its most since 2007, which will invigorate comps after they join the base after one year of operation, Simon projected.

Around 180 Walmart Market grocery stores have been approved by the retailer's real estate committee, which could grow the current fleet from 185 stores (155 Neighborhood Market and 30 Amigo stores in Puerto Rico) to 300 stores by 2013. The pipeline also includes 15 to 20 new small stores known as Walmart Express. These 15,000-square-foot units promise a more convenient shopping option — and appear to be the company's answer to a call for such a vehicle voiced by observers at this time a year ago.

“The Express store to me looks like the kind of place that if I were Walgreens, CVS or Wawa, I'd be looking at pretty closely,” Richard George, a professor of food marketing at St. Josephs University, Philadelphia, told SN. “I think what they're trying to do is a convenience store without the convenience-store pricing, and that could be interesting.”

These options can support growth by being faster to develop and build than supercenters, and easier to move into denser urban markets where Wal-Mart has yet to penetrate. The Market format — grown only gradually since its founding in 1998 — is now also delivering the same kind of returns as the Supercenter, Simon said. It appears to some observers to be finally realized in full.

“The Neighborhood Market is the best I've seen it. It looks like a fully functioning supermarket. You look at that concept and say, ‘Yes, I could open 500 of them,’” Marcotte said. “It's not a concept store anymore, it's a working model. Is it an exciting store? Not particularly, but it works. It's perfectly adequate in terms of addressing people's needs. I see it being fully competitive with other supermarket chains.”

In the meantime, Simon said he has substantially scaled down the company's Supercenter remodel program, admitting the renovations under Project Impact were more expensive and disruptive than the struggling retailer could tolerate. With scheduled Project Impact renovations on hold, a new remodeling program reduces the duration of each renovation from 18 weeks for Project Impact to five weeks, mainly by “eliminating the massive adjacencies and macro space changes that were in Project Impact,” Simon said — primarily moving pharmacies and pet departments.

Funds saved by this approach will help pay for new builds, he added.

The company in the meantime is making a bet on technology becoming a growth vehicle. Simon noted that even Wal-Mart's Express stores will support the “site-to-store” initiative allowing shoppers to buy anything Wal-Mart sells online and pick the item up at a local store — a program that could serve to eliminate the downside of less room for general merchandise at the smaller vehicles. The company also this year made an estimated $300 million purchase of the Silicon Valley start-up Kosmix, with the idea of using its aggregation of social media data for e-commerce.

These and other efforts underway at Wal-Mart are to be supported by a new commitment to everyday low cost, Simon said, noting that Wal-Mart's massive size gives it opportunity to leverage sales like no competitor.

“Our numbers are so big that, for example, if we can remove just one second from a transaction through a process change at the register, that's $30 million,” Simon said. “And if you think about that, we have lots of seconds. We have lots of half-seconds. And we're working on those things every single day to be more productive.”

It's this kind of return to the basics that has some convinced that Wal-Mart can overcome its same-store sales woes even as its shoppers confront ever more skillful competitors and continued economic challenges. Simon said Wal-Mart could see positive comps again by year-end.

“I'm not ready to write off Wal-Mart,” said George. “Their mission has always been fix things and make them better. And I think they've got a strategy to do that.”