Inside This Issue - News
Walmart bullish on small formats
September 24th, 2012
NEW YORK – Walmart is finally getting comfortable with small-box retailing, and the implications for chain drug stores could be ominous.
Speaking at the recent Goldman Sachs Global Retailing Conference here, Bill Simon, president and chief executive officer of Walmart U.S., painted an enthusiastic picture of the potential for Walmart’s smaller formats, which it defines as stores measuring less than 60,000 square feet.
The description encompasses the Neighborhood Market format, of which Walmart operated 219 units at the end of July, and Walmart Express, which is still in test.
Simon told investors that the two formats perform similarly and are able to compete against other trade classes in versatile ways.
Not only do they compete effectively against dollar stores and supermarkets, he said, they also stack up well against drug stores. “They compete very, very well against the drug channel,” Simon asserted. “They have a price advantage on the drug channel, a substantial price advantage and, oh, by the way, fresh food that the drug channel is trying to get, but isn’t quite there.”
Simon emphasized that the Neighborhood Market, which now measures about 35,000 square feet, is not simply a grocery store, and customers are responding positively to the extensive offering.
“The customer reaction is terrific; they love the format; they love the access to the pharmacy; and [the stores] all have a whole lot more digital capability than any of their competitors,” he said. “Pharmacy has been particularly robust in these stores because of our ability to deliver low prices closer to the customer, and that’s been driving traffic.”
He added that during the second quarter Neighborhood Markets achieved comparable-store sales growth of 5%, driven by a 3% increase in customer traffic, which suggests that the stores are taking market share.
Simon added that Walmart’s smaller boxes also compete well against food stores — primarily on price at present — but the versatility he referred to is the result of Walmart’s aggressive moves to couple its e-commerce activity with its entire store base. In particular a program dubbed “site to store” enables Walmart customers to order online from hundreds of thousands of products, particularly general merchandise, for in-store pickup.
“So if you want a 60-inch TV or a vacuum cleaner, you can make that happen on your grocery shopping trip,” he said. “That’s very powerful and what we’re seeing in some of our stores in certain weeks of the year is that can be up to 20% of the sales for a store. It’s very exciting and very encouraging.”
In addition to site to store, Walmart is steadily introducing enhancements to more tightly integrate its stores and e-commerce. It now fulfills some online orders from a group of stores located around the country, a move that reduces shipping cost and fulfillment time and improves efficiency.
In response to Amazon.com’s no charge for standard shipping on orders of $25 or more, Walmart last year introduced a program called Home Free, which eliminates the shipping charge on many items if the order is more than $45. It has also launched a mobile app called In-Store Mode, which helps customers navigate stores, make shopping lists, and scan and compare products through QR codes.
Finally, Simon noted that the company is now introducing, without fanfare, same-day delivery in certain markets. “You can only imagine the delight and surprise of customers when, just a few hours after clicking, the doorbell rings and their package is there,” he said. “It is a huge opportunity for us.”
As his remarks about the Neighborhood Market indicate, pharmacy is an increasingly important part of the competitive equation for Walmart. Simon referred to a prescription drug program piloted with Caterpillar Inc. in 2008 whereby the retailer filled prescriptions for certain generic drugs for free. By contracting directly with Walmart, Caterpillar was able to save enough money that eligible employees could obtain approximately 2,500 generic drugs for no co-pay.
“That program has expanded into a significant portion of our growth with many major companies and many state and local government affiliates,” Simon remarked. “People save money when they get their prescriptions filled at Walmart: It’s a fact. Employers know that, and they are now signing up with us to encourage their employees to come and get their prescriptions filled at Walmart and Sam’s Club.”
Walmart also recently expanded beyond offering flu shots to include other immunizations, and the retailer now has one of the most aggressive and innovative diabetes treatment programs in the country, according to Simon.
“Customers can save a substantial amount of money when they treat their needs at our stores,” he said. “Those are the same products they can get anywhere else, but at a much better price. We are lowering the cost of health care.”