Could Walmart's Big-Box Stores Disappear in Our Lifetime?
byJun 7th 2012 9:30AM
"In our lifetime we will see the last Walmart (WMT) discount store disappear," says John Rand, director of retail insights for Kantar Research in Massachusetts.
It's a bold forecast -- and one that may even seem far-fetched given the behemoth retailer's 50 years of history and more than 50% market share in many parts of the United States.
But what he's actually predicting is that smaller Walmart stores and even non-retail businesses will replace the big discount stores we're familiar with.
And there are already signs that the big-box store, while perhaps not headed for extinction, will indeed morph into something very different than we're familiar with.
Walmart's Dilemma: Radical Change or Gradual Demise
It will be tough, for sure. After all, it's not easy for a $220 billion company to completely re-envision the way it does business.
Gary Giblen, an independent retail analyst, admits that Walmart could "lose some of its luster over the next few years." He also points out that Walmart has become sloppy in executing big changes, which is "inevitable for an organization... after so many years of such explosive growth." Case in point is Walmart's slowness to develop a strong presence online.
Despite these fears, Walmart's leaders are optimistic that they can shift the business and position the retailer for long-term success. They are already testing a radical new concept -- downsizing stores, literally, by dramatically shrinking the square footage of new stores.
Smaller Is Better
The first 10 Walmart Express test stores opened last year, and more test stores will open later this year. One-tenth the size of the typical Walmart discount store, these Express stores are a combination of food, pharmacy, and convenience stores -- targeting customers more inclined to visit a smaller bargain store like Dollar General (DG), Family Dollar (FDO), or Dollar Tree (DLTR).
These Express stores are cheaper to build, less expensive to run on an absolute basis, and make it easier for customers to quickly find the items they're looking for.
And they're profitable.
Yet despite this being a viable way to reinvigorate domestic growth, Walmart's leadership team is hesitant to fully embrace the new concept.
Charles Grom, an analyst at Deutsche Bank, says Walmart is "the only retailer out there continuing to open up big box stores, which leads me to think they're not paying enough attention to what the consumer needs."
One explanation for the slowness may have been Walmart's recent focus on international growth. But, necessarily, it looks like the company is now going to set its sights back on its more profitable domestic market.
Turns Out the Grass Isn't Any Greener Abroad
Walmart's Mexican business has long been held up as one of the superstars of its international segment (last year Mexico generated roughly 21% of its foreign sales growth).
In fact, Walmart's international business is struggling even beyond Mexico. According to Bloomberg, "Walmart is losing market share in Brazil and China. It has no retail stores in India. And in Canada Walmart is about to clash with Target (TGT)."
Brian Sozzi, chief equity analyst at NBG in New York, bluntly remarks, "The international business has not lived up to expectations. It's not what it needs to be to offset what's happening in the U.S."
Walmart's Future Rides on This
Walmart has two strikes already -- it can't compete online and is struggling globally. Now the only real opportunity for the retailer to continue to grow is through its Express stores.
It's up to Walmart's leadership team to step up to the plate. If they whiff on accepting the Express store model as the main driver of growth, John Rand's prediction might be even more prophetic -- and Walmart will disappear altogether.
For more information on the death of Walmart, click here for a free copy of The Motley Fool's research report on this trend. Motley Fool analyst Adam J. Wiederman owns no shares of the stocks mentioned above. Motley Fool newsletter services have recommended creating a diagonal call position in Walmart Stores.