Wal-Mart: Thinking smaller in hope of bigger results

Wal-Mart Stores Inc. has made no secret of the its plans to open about 100 smaller format stores this year. Smaller format venues range from Neighborhood Markets to the new Express model seen in rural and densely populated areas such as downtown Chicago.

But Wednesday (Sept. 5) Bill Simon, CEO of Wal-Mart US, said the benefit of small store formats — 60,000 square-feet or less — are the big store economics that occur when they are merged with e-commerce and digital platforms engineered with @WalmartLabs.

“This is a great story for us and an opportunity to use our scale and offer our customers more convenience than ever before,” Simon said.

He said the site-to-store program has been a boon for some smaller venues who have seen their sales jump as much as 20% in certain weeks when customers order televisions or other large ticket items online and pick them up at the closest Neighborhood Market.

In the second quarter ending July 27, Simon said comparable sales rose 5% in Neighborhood Markets while traffic increased 3%.

Carol Spieckerman, CEO of New Market Builders, says site-to-store is major win-win for Wal-Mart because it allows them utilize their massive, yet efficient supply chain to get customers the products they want in record time.

Simon said the company uses local store inventory to fill online orders, which in many cases means same-day home delivery for online customers. He said customers could order a vacuum cleaner online and expect to get the merchandise shipped to their home the following day.

“Imagine their surprise when the doorbell rings in two hours and the order has arrived,” Simon said.

The pay with cash option with online ordering has also been warmly received by Wal-Mart customers according to Simon.

Brian Sozzi, an analyst with Wall Street Strategies, noted earlier this year that any move by Wal-Mart to seek smaller store venues was "wise and long overdue.”

Analysts say the smaller format overhead merged with seemingly endless aisles of merchandise that be accessed and delivered quickly at everyday low prices is something that sets Wal-Mart apart from all of its competitors.

Stewart Samuel, analyst with IGD says, “These stores have lower development and operating costs, and therefore have the potential to deliver strong returns for Wal-Mart when there is a large proportion of site-to-store sales. The higher level of general merchandise sales should also generate strong margin mix for the stores overall."

Like Spieckerman, Samuel applauds the way Wal-Mart is blending its expertise in traditional retailing into multiple channels with the help of @WalmartLabs.

“This is now translating into hard commercial benefits on the ground, with the new search platform — Polaris — helping to drive stronger conversion rates from browsing to purchase. The self-scanning app, for example, holds significant potential to improve the in-store shopping experience for shoppers. This includes targeted promotional offers and improved efficiency at the checkout,” Samuel said.

Spieckerman agrees Wal-Mart is out front in innovation with respect to multi-channel merchandising, thanks to @WalmartLabs.

“They aren’t benchmarking against Target, who has done a nice job with some exclusive labels online. They are measuring themselves against Amazon with a very aggressive delivery protocol. Convenience and delivery mechanisms are really the big words right now and they are the next game changer. The endless aisles aren’t enough, products need to reach the consumer in record time,” Spieckerman said.

She said online retailers and those hoping to grow online market share are constantly analyzing data and algorithm to try and determine the best delivery models possible for all item categories. The new Polaris search engine ties in nicely with Wal-Mart’s efforts to drive more sales through multiple channels, she added.

“When you have a search engine that is intuitive, and shows you items you didn’t even know you wanted, combined with an endless isle of merchandise and an incredibly fast delivery system utilizing local stores, then you can really begin to move the needle. I give Wal-Mart a lot of credit for going after that connection. Their physical scale really means very little if it’s limited to their physical space,” she said.

Spieckerman applauds Wal-Mart for allowing @WalmartLabs to innovate outside the traditional retailer mindset.

“Much of what the public sees at Wal-Mart is what’s happening inside the stores, but the majority of the innovation for them and other retailers is really behind the curtain or in the cloud,” she added.

Samuel said @WalmartLabs acts and behaves as a new business start-up, testing innovative concepts. This combined with the scale of Wal-Mart, and the opportunity to help create a seamless, continuous channel is attracting high caliber talent to the retailer’s e-commerce operations.