Walmart expanding small store fleet based on fresh- and pharmacy-driven growth

BENTONVILLE, Ark. — Fresh and pharmacy is the key to smaller-box retailing, Walmart reported Thursday as it announced plans to increase its capital investment in smaller formats from 120 to 150 new stores for the fiscal year to between 270 and 300.  

“Customers’ needs and expectations are changing. They want to shop when they want and how they want, and we are transforming our business to meet their expectations,” stated Bill Simon, Walmart U.S. president and CEO. “Customers appreciate the broad assortment of our supercenters for their stock-up trips as well as our small store formats for fill-in trips. By unlocking this growth opportunity and further combining our supercenters and small store formats with an unlimited selection available through ecommerce, we provide our customers with anytime, anywhere access to our brand.”

The small store fleet has continued to deliver positive comp sales and traffic increases each quarter. Comp sales for Neighborhood Market stores grew approximately 4% for fiscal year 2014, driven by fresh and pharmacy, the retailer reported. 

"Health and wellness continued its momentum, delivering a low single-digit positive comp," Simon told investors Thursday morning. "Our prescription business was particularly strong, with a mid-single-digit positive comp due in part to inflation. This helped offset pressure from a soft flu season, which also adversely impacted our over-the- counter business," he said.

“Neighborhood Market is performing comparable or favorable to leading grocers,” said Simon. “Our small store expansion, in addition to providing customers access to a wide variety of products, including fresh, pharmacy and fuel, will help us usher in the next generation of retail. This will combine thousands of points of physical access with digital retail experiences that include initiatives such as Site to Store and Pay with Cash.”

Walmart currently operates 346 Neighborhood Markets and 20 Walmart Express stores. The Express units have performed well and are being expanded beyond the initial three-market pilot. As a result of its more aggressive plan, Walmart U.S. projects to end fiscal year 2015 with net retail square footage growth of approximately 21 million to 23 million square feet across all formats, versus its original projection of approximately 19 million to 21 million square feet. The projected capital expenditures and square footage details exclude the impact of future acquisitions.

“In addition to providing best-in-class one-stop shopping at supercenters, we believe that accelerating our small store expansion will allow customers to choose where and when to shop based on their needs," Simon said. "Our small store expansion will also strengthen our market share and create greater efficiencies in our supply chain through a tethered approach that uses supercenters as a supply chain base, links our resources and provides a unique and connected customer experience.”

To fund this additional growth, the company is revising its capital expenditures forecast for the Walmart U.S. segment to $6.4 billion to $6.9 billion, up from an initial range of $5.8 billion to $6.3 billion. This reflects the increased small store growth and the current pipeline of supercenters, which remain an essential part of the company’s strategy. In total, across supercenter and small store formats, Walmart U.S. plans to open 385 to 415 units in fiscal 2015, adding to the more than 4,200 stores currently open.

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