Wal-Mart is drastically cutting back on the growth of new supercenter locations.
The company plans to open between 60 and 70 supercenters in fiscal 2016, down from 120 new locations in fiscal 2015, the company said Wednesday during a presentation to investors.
“It’s important for us to really think about these big boxes,” Wal-Mart US CEO Greg Foran said, referring to the supercenter stores.
He said Wal-Mart is putting a new emphasis on “quality not quantity” when it comes to their biggest stores.
“We know that we can do better with the [supercenters],” he said. “We’re going to lean in there, and we’re going to get that right. We’re being thoughtful.”
Wal-Mart’s supercenters suffered a .3% same-store sales decline in the second quarter compared with last year. During the same period, foot traffic for Wal-Mart’s U.S. stores fell by 1.1%.
By comparison, Wal-Mart’s smaller-format stores, or Neighbourhood Markets, generated same-store sales growth of 5.6% and traffic increased by 4.1%.
“I’m encouraged by the positive [same-store sales] I am seeing in the Neighbourhood Markets,” Foran said. “Customers love the convenience.”
As a result, Wal-Mart is accelerating the growth of its Neighbourhood Market stores from 105 new locations in fiscal 2014 to 170 new locations in fiscal 2015 and up to 200 additional stores the following year.
The Neighbourhood Markets are about one-fifth the size of Wal-Mart’s supercenters, and they are located in urban centres — where incomes tend to be higher — while supercenters are typically located on city outskirts.
The Markets are devoted to three of Wal-Mart’s strongest categories: groceries, pharmacy, and fuel.
Groceries account for 56% of Wal-Mart’s sales, and research shows that consumers no longer buy all their food and beverages at supersized retailers.
“In the 1990s and the beginning years of this century, the greatest threat to supermarkets and grocery stores came from supersized ‘one-stop shopping’ venues like supercenters and warehouse clubs,” the market research firm Packaged Facts wrote in its most recent annual report on emerging grocery trends. “Today the threat is spread out among all retail channels, including drugstores, dollar stores, limited assortment chains, and — the elephant in the room — e-commerce.”
On average, consumers shop at five different types of stores to fulfil their grocery needs, according to Deloitte’s 2013 American Pantry report.
Consumers are carrying this shopping behaviour over to other product categories, as well.
Instead of relying on a single retailer to give them the best value and assortment, “consumers appear more focused on some combination of value and convenience,” Goldman Sachs analysts wrote in a recent research note predicting the slow decline of big-box retailers like Wal-Mart and Target.
That doesn’t mean Wal-Mart is going to start shutting down its supercenters, however.
“Supercenters still have one of the highest returns of any [store] format in the company,” Wal-Mart CFO Charles Holley said on a call with reporters in August. “It would be silly to close a lot of stores with good returns.”
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