Walmart Kills Walmart Express: Are Neighborhood Market Stores More Productive?

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Recently, WalMart (NYSE:WMT) announced that it is exiting the Walmart Express pilot, closing all 102 stores of its smallest format, which was the result of a thorough review of the company’s 11,600 stores globally.  This review took into account financial performance, the  strategic alignment, and the long-term plans. [1] The company mentioned that the impacted stores represent less than 1% of its global square footage and revenue and active management of its portfolio of assets is essential to maintain a healthy business. We believe exiting Walmart Express is part of the company’s long-term strategy to focus on profitable alternatives as it plans to strengthen its supercenters, neighborhood markets, e-commerce and pick-up services for customers. Walmart Express appeared to be a misfit for the company, given its strategy be a price leader, which is largely dependent on scale and not suitable for smaller formats. The focus on other alternatives will benefit the company in the long term.

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Focus On Neighbourhood Markets, E-commerce

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Although it was expected that Walmart Express could be a growth driver for the company, it could not create a distinct identity for itself and analysts feel that the company could not get merchandising right for this kind of a format, leading to shoppers using it more like a neighborhood market. [2] The plan to deliver a supercenter experience in a smaller format led to several logistical issues for the retailer and did not fit into is pricing model designed for scale, leading to the failure of Walmart Express.

It appears that, apart from e-commerce, the company is now focusing on neighborhood markets for its growth, which have generated positive comps for 19 consecutive quarters. [3] Walmart has also accelerated the expansion of its online grocery pick-up, based on its observation that customers who start using online grocery spend nearly 50% more than similar customers who shop only in store. The company aims to target more such customers who access Walmart through several platforms. While the company’s global e-commerce sales and GMV (General Merchandise Value) growth in Q3 2015 was around 10%, primarily due to challenges in international markets, Walmart expects stronger growth as it progresses on key initiatives in the e-commerce retailing.  We expect Walmart’s US Revenue per square foot to increase from $442 in 2016 to around $488 by the end of our forecast period. While the success of Walmart Express could have led to higher revenue per square foot, the expansion of its productive neighborhood markets and growth of its online business should drive revenues.

While Walmart’s value proposition of lower pricing compared to competitors is being challenged in the current environment, the company appears to be focusing on digital initiatives and convenience options such as pick-up services to capture a higher market share.  We believe these omni-channel initiatives would be key revenue drivers for the company in the future.

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  1. Walmart Continues Sharpened Focus On Portfolio Management, Company Release, January 15, 2015 []
  2. Why did Walmart’s Express small store experiment end in failure, Food Navigator, January 18, 2016 []
  3. Walmart SEC Filings []