By David Henry
Walmart Stores Inc. put its new small-store Walmart Express format to the test recently by opening its first urban location at the edge of the Chatham Market shopping center on Chicago's South Side.
Targeting underserved small towns and urban areas — the so-called food deserts — the location occupies 10,000 square feet, roughly one-tenth the size of a Walmart Supercenter, and offers fresh groceries, pharmacy and health and beauty items to neighborhood shoppers.
Analysts at Janney Capital Markets said in a report this week that express stores and neighborhood markets could be just the right ingredient to reverse Walmart's two-year slide in U.S. sales. "We believe the concept has substantial opportunity to drive incremental sales. The key is finding a model with acceptable returns."
"Part of our DNA is always about lowering costs," said Anthony Hucker, vice president of strategy and business development who is overseeing the new format. Speaking at the Chatham Market location's opening on Wednesday, Hucker said, "If you look around, this is very much a low-cost environment. It's frugal, but it's respectful."
Natalie Berg, global research director at consultancy Planet Retail concurs. "I'm far more confident in an Express-style concept over (Tesco's) Fresh & Easy which, although they are tweaking their model, the stores are still far too clinical for American shoppers. Express ticks a lot of boxes — low prices, national brands and a justifiable number of SKUs for the size of the box. However, the biggest challenge will be balancing efficiencies versus customer experience."
"It's really important that we get a blend of fresh product," Hucker said. "We have ready-meals, food to go, and then we also have an organic range as well as locally sourced product."
Along with its commitment to stocking locally grown fresh foods, R. Paul Herman, founder and CEO of HIP Investor and author of "The HIP Investor: Make Bigger Profits by Building a Better World," praises Walmart for its embrace of clean/green brands, such as Seventh Generation and Burt's Bees, which did not previously have access to large chain exposure.
While Herman sees the Express stores as an excellent strategy, it remains to be seen how customers — and communities — will respond, especially in this climate of economic uncertainty.
Although it's a virtual certainty that the Walmart brand will trigger opposition from competing grocers, convenience store operators and neighborhood groups, Herman believes resistance can be offset by the resulting infusion of local jobs — both in construction and operations — as well as the retailer's commitment to purchasing from local food producers, investing in communities, giving a boost to local tax bases, and providing the citizenry with better and healthier choices, especially in underserved areas in need of revitalization.
Herman cites the example of Walgreen's strategy of going into lower income areas and establishing itself as an anchor that draws in other businesses and thereby increasing the value of their own stores' real estate.
"It's still too early to say if Express is the right format," Berg said. "But, early signs are promising. This is a huge opportunity for Walmart and will help them to differentiate from the dollar stores."
As the world's largest retailer, Walmart is in a position to increasingly leverage its scale, according to Berg, "particularly in terms of sourcing, so they can get differentiated, low-cost products on shelves. Inflation, particularly in the food sector, is very much here to stay." Although "food-flation" will fluctuate, the long-term trend is upward "due to the rising global population and consequent pressure of food resources, among other factors. This means that the gap between Walmart and its competitors will widen once again, particularly among those smaller chains who will find it difficult to absorb inflationary pressures."
On the face of it, the downsized format represents a bold foray into new markets. Yet, as Herman points out, the move is very much in keeping with the company's original large format mission, to be the low-cost, all-in-one shopping destination for local populations.
Take a closer look, though, and the new format starts to resemble a return to the roots for the world's largest retailer. The small-box fresh-food-and-grocery-dollar-store-modern-era-drug-store hybrid isn't all that different from the vintage five-and-dime or variety store format Sam Walton started out with over six decades ago.