18 Feb

Why Small-Format Stores Are Positive For Walmart

WRITTEN BY Phalguni Soni

Tweaking store strategies

For Walmart, between 1Q10 and 3Q15, there was a net decline of 409 in the mid-sized discount store count in the US. The retailer (XRT) (RTH) concentrated on the larger supercenter format and smaller Neighborhood Market stores in the US.

The number of Neighborhood Market and small format stores rose by 315 over the same period. The retailer also reported comps growth in smaller formats for several consecutive quarters.

Why Small-Format Stores Are Positive For Walmart

Revenue targets

Walmart’s smaller-sized Neighborhood Market stores average ~40,000 square feet in size. The stores are located predominantly in locations with a higher population density—like urban areas. Due to their small size, they take less time to get off the ground. However, the smaller stores generate significant sales volumes.

Walmart opened 105 smaller stores in fiscal year 2014. It plans to open another 170 stores in fiscal year 2015. Another 180–200 new stores are scheduled to open in fiscal year 2016. Through this format, Walmart is targeting revenue of $17 billion by fiscal year 2017.

Walmart also increased Neighborhood Market’s speed to market by ~50 days. This improved the revenue and project return metrics—like the net present value, or NPV, and the internal rate of return, or IRR. We’ll discuss the improvement in return measures more in Part 21 and 22 in this series.

Combined, Walmart and other major US retailers—Target (TGT), Dollar General (DG), and Family Dollar Stores (FDO)—account for ~3.9% of the portfolio holdings of the SPDR S&P Retail ETF (XRT).

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