Cornering the Market

Plans to roll out more of Walmart’s Neighborhood Market stores have the industry buzzing

The recent announcement that retail giant Walmart plans to open more than 100 of the brand’s Neighborhood Market stores in 2013, and as many as 500 Neighborhood Market locations over the next few years, has industry analysts and observers talking. They have my attention, as well.

The announcement makes it clear that Walmart’s support for smaller-format concepts—and particularly the Neighborhood Market brand — is growing. Neighborhood Markets have actually been around for some time: the first one opened its doors in 1998. For a brand as large, dynamic and growth-oriented as Walmart, the fact that there are “only” around 200 stores 15 years later represents downright glacial growth. The new plan, for 500 by 2016, represents a big step forward — a sign that Walmart sees this segment of their business as one that’s time has come.

While this might seem to reinforce the ongoing retail shift toward “right-sizing,” I believe there are other factors behind the decision for Walmart. The chain most likely sees this as an opportunity to increase its market share in the grocery/supermarket sector. The typical Neighborhood Market location has a 42,000-square-foot layout and includes a pharmacy alongside traditional grocery offerings (but without the bells and whistles and large volume of prepared foods found at larger and more upscale grocers). Like all Walmart concepts, Neighborhood Market is all about value and convenience.

Anecdotally, Walmart seems to be positioning their Neighborhood Market stores roughly in between existing traditional Walmart locations. Considering the fact that there are still a significant number of those larger stores that are not true supercenters and lack the full grocery component, this makes sense if the brand is looking to capture additional grocery and convenience store business. Another reason to think that this is a proactive, market-oriented move is that Walmart shows no real signs of stopping its growth across all formats: the iconic value-oriented retail giant still plans to open 125 supercenter locations this year.

This begs the question: Why now? There are two primary issues in play. First, Walmart is looking for another growth vehicle, and has been experimenting with a range of smaller format concepts in recent years. With food sales in existing supercenters doing quite well, that may have inspired a more aggressive attempt to capture more supermarket market share. Secondly, from the standpoint of space, affordability and availability, this also seems like an opportune time for a mid-sized retail format to make a push. With the recently announced OfficeMax and Office Depot merger (as well as the uncertain futures of Best Buy and other national retailers), there are bound to be plenty of opportunities for stores of this size to acquire quality space at an affordable price point.

This approach also reflects the recognition that not everybody is a superstore shopper. Walmart may be calculating that the appeal and convenience of a smaller and less intimidating retail environment may bring in supermarket shoppers who were not previously Walmart regulars. At the moment, the Neighborhood Market rollout seems to be focused largely on major metropolitan areas and less on the suburban and more rural markets where larger formats have made inroads in recent years. In the next few years, there are more than three-dozen Neighborhood Market stores scheduled to open their doors in metro Atlanta alone! It may have taken a few years, but Walmart is finally betting big on going small.

Do you see the expansion plan as the right step for Walmart? Will it make a real difference for landlords by filling in empty storefronts? Comment below to join the conversation, or email me directly at jeff@jeffgreenpartners.com.


Click here for past columns by Jeff Green.

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