WAL-MART'S CONCENTRATED SOLUTION

ELLIOT ZWIEBACH

BENTONVILLE, Ark. -- At Wal-Mart Stores here, small may be preferable to large when it comes to supercenters. Wal-Mart plans to concentrate more on expanding its 136,000-square-foot supercenter prototype in 1997 and 1998 than on the 188,000- or

167,000-square-foot models that make up most of its existing 239 supercenters, according to Nick White, executive vice president for supercenters.

Only 25 of those stores fall into the 136,000-square-foot size. White said Wal-Mart executives like the smaller size "because it gives us flexibility for store placement, and we're happy with what we've seen so far." White discussed Wal-Mart's new approach to supercenters in comments to SN and in a speech at the Refrigerated Foods Association's annual meeting in Rancho Mirage, Calif. Among his other points: · Wal-Mart still is evaluating the potential of supercenters at both ends of the size spectrum: a 109,000-square-foot supercenter prototype at three locations in Arkansas and Missouri and a 220,000-square-foot store in Tennessee. All of those stores opened late last year. · This year the company plans to open two more supercenter distribution centers, in Mississippi and Illinois. Its existing facilities are in Arkansas, Texas and Kentucky. · Supercenter expansion this year will be limited to the 23 states where Wal-Mart already operates that format. The 136,000-square-foot prototype has all the same departments as a larger supercenter, but they are laid out in a smaller box and have a more compressed variety, Wal-Mart officials told SN. Regarding Wal-Mart's even smaller prototype, the 109,000-square-foot model that opened at three locations late last year, White said the company has not had enough time to assess its full potential. "Those [three supercenters] are less than six months old, and while we're pleased with what we see going on, it is certainly premature to make any decisions regarding expansion of stores in that size range," White told SN.

The 109,000-square-foot supercenters, each of which serves a population base of 30,000, are located in Cameron, Mo., east of St. Joseph, Mo., which opened in mid-August; Stuttgart, Ark., an hour outside Little Rock, which opened in October; and Union, Mo., a St. Louis suburb, which also opened in October, White said. Each of the smaller units carries a full-line general merchandise assortment, with about one-third of the space devoted to food, he noted. "They have the same physical appearance as larger supercenters but in a smaller configuration," he added. Those stores feature smaller produce fixtures, frozen food cases built into the walls and fewer facings for most items. They don't have specialty departments like video rental and eye care, though they do include a pharmacy and one-hour photo department. White said Wal-Mart has no plans to open any more 116,000-square-foot stores -- the small-store prototype in place at a handful of locations that has been eliminated in favor of the 136's. Commenting on Wal-Mart's largest supercenter, a 220,000-square-foot unit in Murfreesboro, Tenn., that opened late last year, White said, "We're still evaluating it. So far we like what we see, but we're not committing to any additional supercenters of that size at this time." That store, located south of Nashville, has 50 checkstands, expanded general merchandise and greeting cards sections, "and a slightly larger food section than other supercenters," White noted. Securities analysts contacted by SN said Wal-Mart's decision to hone in on the 136,000-square-foot prototype is a logical progression as the company becomes more comfortable with the supercenter format. "Wal-Mart is constantly reinventing itself," one analyst told SN. "That's just part of the process." The decision to grow with a smaller-sized prototype is a clear indication that Wal-Mart plans to expand supercenters into smaller towns of 10,000 to 12,000 people, "where there's less population density and less competition," he said.

Gary Giblen, managing director of Smith Barney, New York, said Wal-Mart may be pursuing smaller supercenters because of limited real estate availability. "You can't put a store of 188,000 square feet into that many places," he explained. "But with a smaller prototype, you can shoehorn supercenters into more locations." Just as many supermarket operators have decided that 45,000 square feet is the standard format of choice and anything over 65,000 square feet is too big, "supercenter operators face similar issues of store size," Giblen noted. Store size often is more of an inconvenience than a convenience, he explained, "and people won't come in for major stock-up trips if the store is too large. So the more user-friendly you can make it, the better off you are." Despite operating 239 supercenters, Wal-Mart is still constantly reviewing the format, Giblen said. "The company knows it has to do a better job on perishables and distribution, for example, but it's hard to talk about changes when you don't have a setup that works completely." According to Ed Comeau, an analyst with Donaldson, Lufkin & Jenrette, New York, "Wal-Mart is applying more critical analysis to making investments in supercenters than it did in the past to be sure it gets an adequate financial return. "In the past, Wal-Mart spent more effort on the general merchandise side than on the food side of its supercenters. However, its current growth strategy utilizes more demographic information to enhance the analysis of the potential food volume and financial return the company can expect from a given supercenter. "Essentially, Wal-Mart now seems to be doing a more precise analysis with respect to supercenters, and adjusting and refiguring store size and picking its store sites more carefully." According to industry estimates, Wal-Mart's 239 supercenters account for sales of about $13.5 billion, or about 14.5% of the company's 1995 sales of $93.6 billion. Those supercenters are spread over 23 states. In his talk, White said the company plans to open 100 to 110 additional units this year in the same states. Although most of that growth is targeted in areas in which it already has stores -- Texas, Missouri, Arkansas, Tennessee and Oklahoma -- "we're starting to branch out," White said, with plans to add two supercenters in New York (where it already operates four); two in Pennsylvania (where it operates four), and one in Colorado (two existing stores), plus a push farther north into Indiana (six existing stores) and Illinois (three existing stores).

Discussing the specifics of its expansion, White said Wal-Mart has no plans to expand supercenters into Ohio, "although there's nothing to preclude us from going there, even if it is the home of a major grocery chain [Kroger Co., based in Cincinnati]. "In fact, we compete in Ramrock, Texas, near the home base [in San Antonio] of H.E. Butt Grocery Co., which is one of the best grocers in the U.S., and we've probably learned more from them than from any other individual operator."

White said Wal-Mart operates three supercenter distribution facilities -- in Clarksville, Ark.; Tyler, Texas, and London, Ky. -- and has two more warehouses under construction: one in New Albany, Miss., set to open this fall, and the other in Olney, Ill., set to open in the summer of 1997, "with additional growth plans to be announced," he said. Each distribution center covers 800,000 square feet and supplies about 100 supercenters, White noted. Other comments in White's talk included the following: · Wal-Mart plans to continue offering two private-label lines -- Sam's American Choice and Great Value -- at its supercenters, "but we believe customers want name brands at an everyday low price," White said, "and that will remain our primary thrust. "We have no intention of moving to a Sainsbury type of operation," White said, referring to London-based J. Sainsbury, which places a strong emphasis on store brands. "Instead, we will use our private-label program to keep prices on branded lines very competitive." · Although Wal-Mart operates Sam's Club units and supercenters in the same shopping centers at about 12 locations, it has no plans to open additional adjacencies, White said. "There are some synergies to be gained when the two formats operate close together, and it creates a power center for us," he said. "But Sam's is not growing at the same rate as supercenters, and we probably won't have any more units next to each other as a result." · Despite negative press reports about the impact Wal-Mart has on a community when it opens a supercenter, White said the evidence indicates otherwise. "We attempt to contradict the negative publicity with facts from a variety of communities in small-town America that indicate that our presence facilitates opportunities for existing businesses," he said. "In northwest Arkansas, there's a grocer who's been in operation for 15 or 20 years who said we hurt his business during the first 90 to 120 days we were open, after which his business began coming back and is now stronger than ever. "The advantage of a Wal-Mart supercenter coming into town is that we bring more people into the community because we draw from a larger radius than a typical Wal-Mart or grocery store." · Wal-Mart is testing different fast-food formats in each of its three smallest supercenters, White noted: a complete McDonald's at one, a regular Wal-Mart snack bar at another and a smaller version of the snack bar that offers only popcorn and soft drinks at the third. "We're still not sure what we'll do in that [fast-foods] area," White said.