Wal-Mart gets small to break into big cities

Published on 09/22/2010 06:01PM by Bruce Blythe

Wal-Mart Stores Inc. plans to step up expansion efforts in large U.S. cities, adding smaller-format neighborhood stores offering fresh foods to prop up sagging sales.

Bill Simon, chief executive officer of Wal-Mart's U.S. operations, said the retailer must be more creative with its store formats as the company expands beyond rural and suburban areas into denser urban markets.

"There are not a lot of big, empty lots that we can build 200,000-square-foot supercenters in, nor do we want to anymore," Simon said during a Sept. 15 investor conference.

Wal-Mart will have "a healthy mix" of supercenters and smaller stores, including grocery and neighborhood market formats, he said.

Bentonville, Ark.-based Wal-Mart has posted five consecutive quarterly comparable-store sales declines as the weak economy squeezes the retailerís core, lower- to middle-income customers. Earlier this year, Wal-Mart said it planned to build several dozen stores in Chicago over the next five years.

"Wal-Mart is trying to reach people in the busier cities," said Jeremy Diamond, a consultant with the Diamond Group, a Baltimore-based firm. Wal-Martís typical store "needs so much room that it has been unable to focus on urban areas," he said.

Amid fierce competition, Wal-Mart is trying a new avenue, Diamond said.

A Wal-Mart spokesman declined to specify cities where the company might build or what types of stores are planned. But Wal-Mart over the summer scouted locations in New York City, San Francisco and other cities, The Associated Press reported this week, citing real estate sources.

"You will see us taking the Chicago approach with other cities," Simon said Sept. 15.

Fruits, vegetables and other fresh foods are expected to be a key part of the urban expansion.

"The majority of our stores today include a full grocery offering," Wal-Mart spokesman Steven Restivo said in an e-mail Sept 22. "Itís an area that customers have come to expect from Wal-Mart, and itís an area where we can save customers a lot of money. In cities across the country, residents want more options for affordable, healthy food, and we want to be part of the solution in as many cases as we can."

Wal-Mart plans to provide more details at an analyst meeting scheduled for Oct. 13, the company said.

Over the past five years, Wal-Mart accelerated openings of its Neighborhood Market stores, which feature fresh foods as well as pharmacy and beauty products. The company has 181 Neighborhood Market stores in the U.S. that average about 41,500 square feet each.

Also, Wal-Mart in 2008 launched Marketside stores, which feature fresh produce. The company has four Marketside stores, averaging about 15,000 square feet, all in the Phoenix area.