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CHANGE IN PLANS: Walmart Abandons Plans to Grow Bigger by Getting Smaller

While Walmart Decided to Do Away With its Small-Store Format, Target Continues to Rollout Smaller Stores in Urban Locations
January 20, 2016
Wal Mart Stores Inc., the behemoth of suburban retail stores, last week ended its growth experiment to open mini-me clones of its large superstore concept in rural and suburban infill locations. The retailer will close all 102 of its Walmart Express outlets, which it launched in 2011 as a pilot program with much fanfare.

The Bentonville, AR-based retailer embraced the concept of growing bigger by going smaller in late 2013 when it aggressively began expanding its urban Neighborhood Market stores, which average 38,000 to 40,000 square feet -- a fraction the size of Wal-Mart's traditional 180,000-square-foot "Supercenters." And it gave the green light to an even smaller format called Walmart Express, with stores that range in size from 10,000 to 12,000 square feet designed for smaller rural communities.

The strategy was heralded as a way to follow millenniel shoppers as they increasingly shifted towards more urban areas. Target Corp. also began testing two similar smaller-format stores. However, Target proceeded more cautiously than Walmart, opening only a handful of stores under the new format in select urban areas.

Although the number of is smaller stores remains a tiny fraction of its 1,805 U.S. locations, Target remains committed to the smaller-scale stores for now, with all but one of its planned new stores slated to be the small format. The retailer dropped the CityTarget and TargetExpress names and now refers to all its stores as simply Targets, regardless of store size.

The Minneapolis retailer has announced plans to open 11 stores in 2016 and four in 2017, nearly all of them smaller-sized stores in urban locations. According to a list of new stores planned for 2016 posted on its website, all but one of the stores Target is planning to open this year will be 45,000 square feet or less: including two in Philadelphia, three in New York City, two in Los Angeles and two in Chicago.

Rethinking Smaller Store Strategy

Some analysts questioned how Walmart planned to shrink a large format store for wide population into a small footprint for a small neighborhood or community. The retailer acknowledged as much last April when it dropped the Walmart Express name and started calling both types of its small store platforms Neighborhood Market.

“One of the most important things that makes a retailer work well is getting the assortment right,” Greg Foran, the CEO of Walmart U.S., said last April. “It's not something that you just walk in and do… You’ve got to understand how to do this, there is a process that you go through, you begin first of all by understanding the customer... you need to analyze the market, you need to understand opening price point, you will need to understand the role of private label will play, you need to understand what products are substitutable and which ones customers are loyalty, you need to make decisions on which ones are deleted, what roll seasonal plays. It’s like a 10-step process.”

If done right, a small Walmart can compete with either a Dollar Store or Costco, Foran said.

“I like large Neighborhood Market,” Foran said. “Most Neighborhood Markets that we roll out are what we call a Product 41, which means the 41,000 square feet in selling area… Once you start getting sort of under 30,000 square feet, it becomes a little bit more different for us in terms of how we operate those stores, particularly when we take into account supply chain.”

Part of the giant retailer's plan for the smaller formats (Express) stores was to make them part of a multichannel strategy to deliver products purchased online more quickly. The smaller stores were to be “tethered” to larger nearby Walmart stores, which would act as warehouses. More than 95% of the stores marked for closure in the U.S. are located within an average of 10 miles of another larger Walmart store.

Walmart’s decision to abandon its smallest store concept follows an internal review of its 11,600-store portfolio that began last October. The review took into account a number of factors, including financial performance as well as strategic alignment with long-term plans.

“Actively managing our portfolio of assets is essential to maintaining a healthy business,” said Doug McMillon, president and CEO, Wal-Mart Stores. “Closing stores is never an easy decision, but it is necessary to keep the company strong and positioned for the future. It’s important to remember that we’ll open well more than 300 stores around the world next year. So we are committed to growing, but we are being disciplined about it.”

“While we have learned a lot from this pilot, including a deeper understanding of the everyday needs of our customers, we have decided not to proceed with this offering,” McMillon said.

Also covered in the closures are 23 Neighborhood Markets, 12 Supercenters, seven stores in Puerto Rico, six discount centers, and four Sam’s Clubs.

McMillon said Walmart instead will focus on strengthening its biggest format Wal-Mart Supercenters, as well as its Neighborhood Markets format, growing its e-commerce business and expanding in-store pickup services for customers.

Domestically, Walmart intends to open 50 to 60 Supercenters and 85 to 95 Neighborhood Markets beginning Feb. 1. In the same period, Sam’s Club plans to open in seven to 10 new locations.

Target Taking Different Approach

Whereas Walmart rolled out as many as 200 stores over a three-year test period, Target rolled out just a handful. Last spring, Target rolled its two small-store concepts into one trying to “redeem the size and enhance the flexibility of this format.”

The change, Brian Cornell, chairman and CEO of Target said at the time, didn’t “reflect a change in our desire to open stores in urban areas. It simply reflects our goal to become flexible and how we fit into every community with an ability to open up a variety of stores, different sizes and layouts, offer a locally relevant assortment and provide guests with easy access to items from our entire digital assortment through in store pickup.”

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