WAL-MART'S NEW WEAPON: SUPERCENTER VERSATILITY

ELLIOT ZWIEBACH

BENTONVILLE, Ark. -- When it comes to Wal-Mart's supercenter expansion, flexibility is the key.

The company said last week it plans to open 240 to 250 new supercenters in the fiscal year beginning Feb. 1, 2005, and it is adapting the stores to individual locations in more ways than ever before.

"Flexibility pays off," Mike Duke, president and chief executive officer of the company's Wal-Mart Stores division, said here last week at Wal-Mart's 11th annual analysts' meeting. "We can be flexible in store size and design so we can work with each community and build a store that matches that community, at the same time we can serve customers inside the store with the right merchandise for that community."

Analysts said the expansion plans do not bode well for conventional supermarkets.

"The company is happy with its food retail business, and expansion plans call for more of the same in the future," said Stephen Chick, analyst, JP Morgan Securities, New York, in a report. "This remains discouraging for traditional food retailers."

Wal-Mart also said it expects to open 25 to 30 new Neighborhood Markets next year to add to the 72 locations it currently operates. In other expansion plans for next year, Wal-Mart said it expects to open 40 to 45 new discount stores; 30 to 40 new Sam's Club locations, of which 20 will be relocations or expansions of existing units; and 155 to 165 units overseas, of which approximately 30 will be relocations or expansions. Of the 240 to 250 new supercenters planned for next year, about 160 will be conversions of discount stores.

Duke said the company's more flexible approach to supercenter development is illustrated in two of Wal-Mart's newest supercenter prototypes: a 195,000-square-foot prototype that opened in August in Muskogee, Okla., and the 99,000-square-foot urban supercenter that opened in Tampa, Fla., in January.

The Muskogee store "is not a dramatically new prototype," Duke said, but it takes the best of of the company's existing supercenter models and incorporates some new ideas as well "because we're always looking to improve, and we're never satisfied."

The changes introduced at that store, Duke said, include the following:

An exterior designed to blend into the community, and a center arch with the words "Food Center" flanked by signs on opposite sides of the arch with the words "Pharmacy" and "Deli."

The store's exterior also uses earth tones "that make it easier to overcome obstacles to getting more stores approved," Duke said.

A more efficient flow of merchandise from the back room to the sales floor.

New flooring, including stained concrete in the food section instead of white tile.

An enlarged garden center entrance, to give customers a third entrance.

At the other end of the size spectrum is the urban prototype in Tampa, the company's smallest superstore footprint. "Clearly that store has exceeded our expectations," Duke said.

"What we learned there is that we can take design aspects from the Neighborhood Market and fit them into a supercenter, and vice versa. For example, we incorporated the layout of the fresh area from the Neighborhood Market into the 99 prototype, with many of the same fixtures and lighting."

Analysts said Wal-Mart's willingness to be flexible stems in part from the success of the Tampa store.

"They've had better-than-expected success with that store, and it's led them to develop what they call 'flex-supercenters,' which encompasses supercenters between 100,000 square feet and 150,000 square feet," Mark Wiltamuth, an analyst with Morgan Stanley, New York, told SN. "As a result, Wal-Mart can now take existing discount stores in the 100,000- to 120,000-square-feet range and use adjacencies at those locations to convert them into supercenters rather than relocating those sites for supercenters."

Mark Miller, analyst, William Blair & Co., Chicago, said Wal-Mart is willing to be flexible on supercenter size "because they've found they've gotten good investment returns on many different-sized supercenters."