Shrinking Walmart stores will impact suppliers

As Wal-Mart Stores continues to focus on a smaller footprint for some of its stores, suppliers will see less shelf space and analysts say there is no time to waste in planning a survival strategy.

The Bentonville-based retail giant recently announced it would build 125 new supercenters this year at a cost of $2 billion. Total square footage on the new supercenter prototype is 140,000, shrinking from 169,000 in 2010. That’s 17% smaller than supercenters built four years ago.

There are still plenty of 180,000 and even 200,000 square feet supercenters which were popular about 10 years ago. And though Wal-Mart had been updating and remodeling hundreds of stores across the country with a fresher look, over the past couple of years those remodels have become less flashy.
 
Wal-Mart Chief Financial Officer Charles Holley said in February that Wal-Mart had lowered the average cost of a remodel by 50% over the past two years and shifted more capital to new stores.

“The new supercenters will also look more bare boned, opting for concrete floors instead of wood laminate with plainer finishing both inside and out,” said Leon Nicholas, director of retail insight for Kantar Retail.

Nicholas said Wal-Mart has been more cognizant of the store space in recent years and suppliers need to be ready for package redesigns and other creative display options in the coming year or so.

Dr. Jim Tompkins, CEO of Tompkins International, said shrinking shelf space is in direct conflict with an explosion of new and varied products – branded and private label. He urges suppliers to consider direct marketing to consumers through a virtual store to help compensate for shrinking shelf space among the major big box retailers.

Tompkins, a supply chain expert, said suppliers and manufacturers will miss an important crossroad if they don’t begin readying themselves for direct-to-consumer possibilities in the omni-channel world.

Nicholas said as Wal-Mart continues to put more supercenters in its already core markets, there will be increased cannibalization of sales – another concern for suppliers.

He said some suppliers may not get in as many stores with a renewed emphasis on the localized sourcing that harkens back to Wal-Mart’s  “store of the community” initiative.

Lastly, he expects there will be more competition between brands and private label. This is based on a ramp up of private label hirings in the past six months at Wal-Mart. Last summer, Wal-Mart posted nine jobs for private brand, the largest hiring since the Great Value re-launch, according to Robin Sherk, senior analyst with Kantar Retail. She predicts ongoing private label refinements and expansions this year and next.

Nicholas said the shrinking store space, and other dynamics at work in essence means suppliers may need to revamp packaging and look for other ways to attract “favorite” status with Wal-Mart.

One idea tossed about by the Kantar analysts is looking for shared services or other partnership initiatives that fit into the five key pillars Wal-Mart has erected:
• Hiring veterans
• On-shore sourcing;
• Empowering women,
• Reducing overall carbon footprint, and,
• Providing healthier food options at affordable prices.

Nicholas said suppliers should anticipate increased complexity to serve Wal-Mart in the near term as the retailer seeks to cut its own costs, thereby shifting more of the burden toward product suppliers.