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Little Boxes

Can Walmart get bigger by going smaller?

Author Kevin Gray Illustration Tim Vienckowski

By Kevin Gray

IN THE BEGINNING, Walmart spread across the land. It erected 185,000-square-foot megastores that devoured mom-and-pop shops and vacuumed bargain-hunters into its sliding doors by the millions. It became the world’s biggest and most feared retailer. But it was stopped at the gates of cities—by labor unions and community activists who railed against its size and its might— and made to bide its time in the countryside. Until it came upon a plan: to make itself very small, no bigger than a McMansion, and slip on in.

This is Walmart’s Trojan Horse moment. The globe-straddling giant that changed the way we shop has hit on a plan to crack the dense and lucrative urban markets that have long shut it out. “We have been hard at work on this roughly 15,000-square- foot model,” Bill Simon, the president and CEO of Walmart U.S., told a banking conference in March. It’s part of a wider go-small strategy for the retail behemoth that includes mini-box stores for cities, suburbs and even college campuses. Within the year, Walmart plans to build 30 to 40 such “Express” stores. “We are going to be adding hundreds of these in the coming years and maybe even more depending on how they work out,” Simon said. So secretive are Walmart’s new plans that Simon joked that a “secret handshake” was needed to learn the details: “There are also a couple of prototypes that have been built in super secret locations that I can’t tell anybody about.”

Why all the secrecy? Even the smallest move the company makes draws intense scrutiny, and the stakes for this one are high. The juggernaut has faltered stateside, and Simon needs to find a way to quickly turn around seven straight quarters of same-store sales declines, the worst slump Walmart has suffered in the U.S. The recession and its aftermath have eaten into the company’s boom line, and the decision two years ago to abandon its policy of offering the lowest prices on everything across the board in favor of reduced inventory and select price “rollbacks” has made it vulnerable to competition from big grocers like Kroger and discounters like Dollar Tree. At its height, Walmart built 350 stores in a year in the U.S., “because the economics of the Supercenter were so compelling,” says Ken Harris, CEO of Kantar Retail Americas Consulting. Now economic woes combined with Walmart’s difficulties in breaking into new markets suggest the retail giant has finally reached big-box saturation in the country that comprises about 64 percent of its annual revenue. The reputation of CEO Simon, a former Navy officer who was put in charge of the struggling U.S. division last June, is riding on the rollout. (When contacted, Walmart declined to comment.)

The new Express locations, which will offer food, a pharmacy in many cases, and health and beauty products, will start going online soon. The first will debut in Chicago’s South Side this summer, and Simon—who has also restored the company’s everyday low-price policy—hopes to move quickly once the plan gets off the ground. “The aim here, folks, is to get the right model so that we can rapidly roll these things out,” Simon told the banking conference. “When we get this thing right, these are going to come real fast.”

Nevertheless, it won’t be an easy entry. Walmart finally reached a compromise with local labor unions in Chicago to raise wages last June, the first time it had ever done so, and is now planning to build six small stores there. In New York, Walmart has had an even tougher time. It reached a deal with a construction workers union in February to work on any store it builds in the city in the next five years, but it still faces resistance from retail labor unions over wages. “Walmart has a record of devastating small businesses in the immediate surrounding area just because of its sheer market size and capacity,” says Christine Quinn, the city council speaker and a vocal opponent of Walmart. Asked if she would object to small- footprint versions moving in, Quinn took a shoulder-shrugging stance, saying if the company’s small stores fit in with existing zoning regulations, there’s not much she could do to stop them. But because of Walmart’s abiding anti-union stance, what critics decry as its low wages, and the long-simmering class-action sexual discrimination suit against the company, she wouldn’t be happy about it. “It’s not like I’m gonna say, ‘Hey come on in,’” says Quinn. “My position changes when their policies and activities change.”

Nevertheless, John Bocuzzi Jr., a retail analyst who has visited Walmart’s Bentonville, Ark., headquarters some 15 times on research trips and admires the company’s strategy, feels the plans have the ring of inevitability to them. “Any small urban retailer who doesn’t take this move seriously,” he says, “is going to be in for a moment of shock and awe when these guys hit town.”

KEVIN GRAY is a business writer whose favorite song happens to be The Clash’s “Lost in the Supermarket.”

SIZING IT UP

Walmart is known for its big boxes—“landscrapers,” as some call them—but the company has dabbled in smaller stores in the past. “They are always experimenting,” says Maggie Gilliam, president of New York–based retail consulting firm Gilliam & Co., just never at this level. Here’s a look at how the giant’s more than 4,300 U.S. stores break down by brand.

Walmart Discount Stores
The original Wal-Marts
Launched: 1962
Average size: About 108,000 square feet
Number: 709

Sam’s Club
Members-only bulk superstores
Launched: 1983
Average size: 132,000 square feet
Number: 608

Walmart Supercenters
The Big Boxes
Launched: 1988
Average size: 185,000 square feet
Number: 2,097

Neighborhood Market
Grocery stores
Launched: 1998
Average size: 42,000 square feet
Number: 183

Marketside
Small supermarkets
Launched: 2008
Average size: 15,000 square feet
Number: 4

Supermercado de Walmart
Markets aimed at Hispanics
Launched: 2009
Average size: 39,000 square feet
Number: 2

One Response to “Little Boxes”

  1. Jackie O Says:
    July 20th, 2011 at 10:03 pm

    Will be interesting to see them go smaller. Walmart carries so much. I’m not sure it will be the same type of shopping experience. That’s like Home Depot going smaller, what do you leave out?

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