Format Diversity Seen as Key to Wal-Mart Growth

NEW YORK — Although the eventual fate of its small-format Walmart Express stores remains in question, Wal-Mart Stores is likely to continue to press forward with formats in a whole range of sizes in the U.S., according to Bryan Gildenberg, chief knowledge officer, Kantar Retail.

“I think eventually you are going to see Wal-Mart operate a whole portfolio of stores that range in size from the very small up to the very large, without as many distinct ‘breaks’ in between them,” Gildenberg said in a videotaped interview.

As the company runs out of opportunity for its traditional supercenters — which remain its most profitable investments — he said he expects to see the company opening more and more variations on the supercenter concept in different sizes, such as the smaller supercenters it has opened in Canada. In addition, it could soon decide to more quickly expand its Neighborhood Market format, which measures about 40,000 square feet and is similar to a traditional supermarket.

“As they start to run out of supercenter opportunity, our suspicion is that over the next few years Neighborhood Market will become a major ramp-up play for them,” Gildenberg explained. “I think eventually they will have 500 to 1,000 Neighborhood Markets in the U.S., which would place them  — if it was just a supermarket operator — as one of the top 10 or 15 supermarket operators in the country.”

He noted that while the Neighborhood Market format is profitable, it has not yet been able to generate the same returns as the supercenters.

“One thing I would watch, if I was a supermarket operator, is the way they operate that format — in particular the simplicity with which they can operate it,” Gildenberg said.

That simplicity, he said, is important for two reasons: The first is that greater simplicity allows for lower pricing, and the second is that it could allow the company to more easily manage the stores.

“We believe it is complexity, not ROI, that has been the biggest barrier to Neighborhood Market,” Gildenberg said. “Great store managers are Wal-Mart’s scarcest resource. To get a store manager who, all other things being equal, could be running an $80 million supercenter and put them in a $25 million Neighborhood Market is a tough call.

“I think what Wal-Mart is going to do is make that store easier to run, so that the managers who are maybe the next tier down, who are maybe an assistant manager in a supercenter, can take that store and really drive it.”

As for the Walmart Express format, which the company has been testing in both urban and rural environments, Gildenberg said it remains to be seen if the company can turn a profit at a store with few SKUs and low price points.

“There’s a lot they need to learn about exactly how to construct a value proposition that works in that type of environment,” he said.