Small formats gain momentum, grab attention

The coming year will see the most aggressive expansion of Neighborhood Market since the concept was introduced in October 1998.

BENTONVILLE, Ark. — Walmart’s Neighborhood Market concept finally is getting its due more than 12 years after the first unit opened in late 1998. Next year, the company expected to open between 30 and 40 small stores, the majority of which will be Neighborhood Market units, in addition to a handful of pilot stores measuring less than 30,000 sq. ft. that the company views as a potential growth vehicle for either urban or rural markets.

The uptick in interest in smaller-format development comes as the Walmart supercenter is close to saturation. At the end of the third quarter, there were 2,882 supercenters in operation, and with next year’s plan to add between 155 and 165 supercenters, the company easily should surpass the 3,000-unit market. By comparison, there were only 181 Neighborhood Markets, four Marketside stores and two Supermercado stores. Overall, the level of capital expenditures and square footage expansion next year will remain the same as this year, with plans calling for between $7.5 billion and $8 billion spent on adding roughly 11 million sq. ft. of space.

The upshot for the coming year and beyond is that urban markets, and to a much lesser extent rural areas, represent the single greatest domestic growth opportunity available to the company, which is why there is an increased, albeit modest, amount of capital being devoted to smaller stores. However, aside from indicating that the majority of next year’s small- and medium-format stores will be Neighborhood Markets, the company has not disclosed the size or location of its experimental stores, or indicated whether they would carry a different name.

What’s clear is that there is intense interest in Walmart’s small-format plans and that the product mix is likely to include food, consumables and health and wellness due to the high-velocity nature of those categories. Plenty of retailers have experimented with or indicated they plan to open smaller stores in the years ahead, but they don’t attract the interest of Walmart due to the company’s deep pockets and the ability to expand rapidly a retail concept that meets financial 
performance targets.

In addition to the means and motive to pursue small-format growth, several things have changed since the first Neighborhood Markets stores opened in the late ’90s and fueled speculation about growth. Today, Walmart has the distinct advantage to leverage its abundant international experience as it operates thousands of small-format stores in multiple formats across multiple markets. In addition, the company has improved its sullied reputation to the point where elected officials in urban markets now are more likely to green light growth plans as evidenced by recent wins in Chicago and Washington, D.C.

That said, Walmart’s small format will remain a work in progress throughout the coming year, with any type of meaningful expansion unlikely to occur until 2012 and beyond.

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