The Budding Wal-Mart Empire You Never Knew Existed

Source: The Motley Fool

If you think Wal-Mart (NYSE: WMT  ) is done stretching its tentacles throughout every city and town in America, then I have bad news for you: It's just getting started.

For much of the last few decades, the world's largest retailer focused on building out its now-omnipresent supercenters. The strategy was to cater to the so-called "stock-up" trip, the weekly or monthly visit in which customers purchased a large quantity of food, housing supplies, and general merchandise.

At last count, Wal-Mart's portfolio of supercenters exceeded 3,200 units, or 80% of its fleet of locations. The problem with such large stores, however, is that they can't be placed in near proximity to each other without cannibalizing sales. This left a vacuum that was soon filled by competitors like Dollar General and Family Dollar.

What to do? Should Wal-Mart just lay down and die? Or will it be able to get over the indignity of having a handful of deep-discount retailers feed on the scraps it absentmindedly left behind? Suffice it to say, neither of these options seem likely.

At a recent industry conference, Bill Simon, CEO of Wal-Mart's U.S. operations, laid bare (link opens PDF) the retailer's strategy for mopping up the slop, differentiating between three different types of Wal-Mart locations.

[O]ver 20 years ago, we . . . created the stock-up trip and we continue to deliver well against that. It's the largest of the trips. It's fundamentally served by supercenters and [Sam's Club].

Now increasingly, we're using our smaller stores to provide a convenient access to customer so the customers can access our assortment and our everyday low prices much closer to where they live. And the neighborhood store is well-positioned for that basic food trip, the traditional grocery trip,

And finally, there's this emerging trip that's immediate access. It used to be more of a convenient store driven trip but with the growth in dollar and drug channels and some of the hard discounters. This trip is one of the fastest growing trip sizes and the Wal-Mart express store has sort of uniquely found a way to participate in that and we can be larger in this segment and we're planning on doing that.

What does this look like from a geographic standpoint? Here's a depiction from the presentation slides (link opens PDF) that accompanied Simon's remarks:

The strategic objective is obviously to fill in the void between supercenters using the now-familiar neighborhood store and the up-and-coming express formats. Wal-Mart already has more than 300 of the former in operation, and it's just now beginning to delve into the latter (of which there are only 20) with earnestness.

As Simon noted in his presentation, "the customer response [to the express format] has been very, very good," delivering double-digit comps in the first half of the current fiscal year.

What should we take away from this?

In the first case, if Wal-Mart does indeed proceed with its plan to capture every last drop of commerce that settled in the gaps between its superstores, then it's probably smart to start saying your goodbyes to the likes of Dollar General and Family Dollar. Up against a behemoth like Wal-Mart, they aren't long for this world.

The better news, on the other hand, is for investors in Wal-Mart's stock who have worried where additional growth will come from. Suffice it to say, this appears to be the company's answer.

Could Wal-Mart fail at its goal?
Given the growth of e-commerce, absolutely. To learn about two retailers with especially good prospects of beating Wal-Mart at its own game, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

Read/Post Comments (2) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 08, 2013, at 8:51 AM, Dadw5boys wrote:

    And I thought that Billionaire what's his name owns the Variety Wholesale chain of stores with names like Roses, Fred's, and 20 other names was filling that gap. With a few basic items and tons of Chinese Imports.

  • Report this Comment On December 09, 2013, at 2:50 PM, samboney wrote:

    Really. Wow!! Mr. Maxwell must be one of the key WMT Haters! Dude, if you detest capitalistic free market economics so much, what in the world are you doing in investments at all?

    I’ve never heard customers or market segments referred to as "Scraps". By anyone but you. I take it your intention is to stir up additional hatred for WMT by insinuating this is how WMT perceives its customers.

    Let's see...investors and analysts grousing because WMT isn't having another 30%+ year. Everyone knows the market place is becoming saturated with WMT's, TGT's, Meijer’s, etc. That leaves few available frontiers - primarily international and urban/express or neighborhood markets. WMT has been actively developing in these for several years. And gaining share with each year.

    In the process of expanding, it is a fact of free market economics that the playing field is not level and there will be businesses that do not survive. Success supplies funds to expand and better ones business base - buying power, distribution, marketing, etc.

    Sorry, but like life, the marketplace is a competition - there are no ties. If you are not the winner, then you are one of the many losers. DG, FDO, FIVE, DLTR ... any of them and many others could fail. It's called the risk of being in business.

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