Smaller Stores Just A Necessary Adjustment
The Wal-Mart corporation is like the guy who buys a huge SUV and drives it proudly into his driveway -- only to find that the damn thing won't fit into his garage. Instead of trying to build a new garage, he goes back to the dealership to trade in his SUV for a compact model.
This week the media was driving stories about Wal-Mart's "aggressive push" towards smaller stores that would fit into tight urban markets that don't have 30 acre parcels of land lying around anymore. The traditional 185,000 square foot superstore just won't squeeze into that urban garage.
For Wal-Mart, this is a back to the future script. Sam Walton wrote proudly of his 35,000 square foot store in Springdale, Arkansas, which opened in 1964 and "quickly became our number one store in sales." When David Glass, former Wal-Mart CEO, first went to visit a Wal-Mart in Harrison, Arkansas, the store he visited was 12,000 square feet.
If Wal-Mart had stayed with 35,000 square foot stores, they would not have become the most reviled retailer in America today. Walton wrote years later, "It turned out that the first big lesson we learned was that there was much, much more business out there in small-town America than anybody, including me, had ever dreamed of." But Walton himself was also afraid of getting too big. He once wrote: "Being big also poses dangers. It has ruined many a fine company -- including some giant retailers -- who started out strong and got bloated or out of touch or were slow to react to the needs of their customers."
But Walton's small town dream is over. Same store sales are on the skids, domestic sales in the U.S. are harder and harder to mine, and the giant retailer is betting its dividend on foreign markets like China and India. In the U.S., the urban market is the new frontier for Wal-Mart, and that means shifting the paradigm from big stores in small towns, to small stores in big towns, like Chicago, Manhattan, and San Francisco.
Next month Wal-Mart is going to spell out its small plans at its annual retail analyst's meeting at the company's headquarters in Bentonville. The store size being bandied about is a 20,000 square foot grocery store---about half the size of Wal-Mart's Neighborhood Markets, of which there were only 181 units at the start of the corporation's 2011 fiscal year. Hardly a successful roll out.
But small boxes are not a new story. Last year at this time, Eduardo Castro-Wright, who was then Wal-Mart's Vice Chairman of American stores, told the media, "The writing is on the wall, we are going to smaller stores." Six years ago, Forbes carried a story about Wal-Mart's 99,000 square foot superstore prototype, called the "Urban 99" store. The article quoted Merrill Lynch as projecting that by 2013, 90% of Wal-Mart's 200 new supercenters would be some variation of that Urban 99 model. Of course Merrill Lynch had no way of forecasting the coming recession, and the sharp drop in new store growth in American Wal-Mart units.
In 2008, a real estate planner at Wal-Mart admitted, "We can generate as much sales, as much profit, from a smaller" store. And CFO Tom Schoewe told the retail analyst conference two years ago that Wal-Mart would be "migrating to a smaller footprint for the stores that we're adding, more efficient, smaller stores."
So this latest media stir about 15,000 square foot "Marketside" grocery stores is not new news -- but its still good news for Wal-Mart opponents. Wal-Mart will find much less opposition to 15,000 square foot stores than to 150,000 square foot stores, and the reasons are self-evident: residents want Wal-Mart to build outside of the box -- to scale down their over-sized superstores. In urban areas, Wal-Mart has no choice: they have to scale down or sit it out.
But the fight over scale is far from over. There are currently several dozen Wal-Mart big box battles raging across the country -- all of them provoked by the large scale of stores being proposed. Despite what you are reading this week about smaller footprints -- Wal-Mart is still shutting down 135,000 square foot stores to open up 200,000 square foot superstores. This suburban/rural strategy has not been abandoned.
My own town of Greenfield, Massachusetts is now battling a Wal-Mart, having defeated them once 17 years ago. The 2010 version of Wal-Mart in Greenfield began at 160,000 square feet. After three years of spinning wheels, the project has been reduced to 135,000 square feet. But residents want to trim it down to 80,000 square feet -- which is still nearly one and a half times bigger than a football field. Roughly 20 miles away, Wal-Mart is building a 200,000+ square foot store in the tiny town of Hinsdale, New Hampshire. It's leaving a 100,000 square foot dead store just minutes away.
Wal-Mart's unsustainable policy of abandoning stores to build larger ones across the street has led to one of the most wasteful cast-off policies of any company in American retailing. The 'dark stores' that Wal-Mart has left -- like a snake crawls out of its skin -- are always orphaned because the company wanted bigger footprints. The scale-mania at Wal-Mart rages on.
The truth is that the Small Mart movement is simply the latest strategy for busting into the urban markets that will not accept the classic over-the-top superstore. In rural America, Wal-Mart is still pursing a Big Mart strategy, proposing stores in the 160,000 to 203,000 square foot range. Mercifully, the recession has kicked a big hole in Wal-Mart's rural growth plans -- so the urban areas are now the focus of attention.
Big stores or small, Wal-Mart remains one of the most profligate corporations in history, blanketing hundreds of thousands of acres with asphalt and concrete, and then leaving their dead stores for Wal-Mart Realty to sell.
Public officials in urban markets should not be fooled by Wal-Mart's "smaller is beautiful" change of heart. Wal-Mart will always be big at heart, and the damage it does to the local economy is anything but 'small.' Wal-Mart has become the bloated, out of touch company that dogged the dreams of Sam Walton.
Al Norman is the founder of sprawl-busters.com, and the author of "The Case Against Wal-Mart. The Wall Street Journal called him a 'one man anti-Wal-Mart cottage industry."
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