Wal-Mart Announces Plan to Kill Dollar Stores. Will It Succeed?

If Wal-Mart (NYSE: WMT  ) has its way, the days of the dollar store are numbered.

In a press release issued on Thursday, the retail giant signaled its intent to aggressively go after the smaller store format that's the bread and butter of dollar stores, including Family Dollar (NYSE: FDO  ) , Dollar General (NYSE: DG  ) , and Dollar Tree (NASDAQ: DLTR  ) .

According to the announcement, Wal-Mart is accelerating its plan to blanket the country with miniature versions of its now ubiquitous Supercenters. It expects to open between 270 and 300 small stores throughout 2014. That's more than double its initial forecast of 120 to 150 stores which it publicized last October.

Of particular concern to dollar stores is Wal-Mart's most recent concept, the Walmart Express. "They are really kind of a hybrid little store, with about 10,000 to 12,000 square feet," explained a Wal-Mart executive last year. Most recently, the company opened a Walmart Express in Benson, N.C.

"The new Walmart Express store will be a place for Benson residents to fulfill their everyday grocery and pharmacy needs in a clean, friendly, convenient location," said Benson store manager Dale Ennis. "It also means residents can get fuel without having to drive out of town."

The advantage of the format was highlighted by William Simon, chief executive officer of Wal-Mart U.S., who noted that the stores "deliver really, really well against three competitive sets." Most notably, "against a dollar store, they have fresh food, pharmacy, and gas," not to mention a "pricing advantage" over companies like Family Dollar, Dollar General, and Dollar Tree.

Wal-Mart's strategy is to essentially use the Express format to plug the gaps between its Supercenters and Neighborhood Markets -- which is where the dollar stores have carved out a niche for themselves. You can see this in the following image, which I pulled from a recent Wal-Mart presentation.

This is a map of an actual, though undisclosed, metropolitan area showing the current locations of (1) its existing Supercenters, (2) its dollar and grocery store competitors, and (3) where Wal-Mart plans to fill in the gaps with its Neighborhood and Express formats.

"Customers appreciate the broad assortment of our Supercenters for their stock-up trips as well as our small store formats for fill-in trips," said Simon. "By unlocking this growth opportunity and further combining our supercenters and small store formats with an unlimited selection available through e-commerce, we provide our customers with anytime, anywhere access to our brand."

Suffice it to say, if you're a dollar store operator -- or, for that matter, a shareholder in Family Dollar, Dollar General, or Dollar Tree -- this doesn't look promising.

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  • Report this Comment On February 23, 2014, at 10:32 PM, neamakri wrote:

    Holy cow! Great Value gasoline?

    If this succeeds, 7-11 will have both hands full of competition. And CVS too, besides the dollar stores.

    Next step lumber and nails, maybe. It's just scary the power and reach of Walmart. They are truly too big to fail.

  • Report this Comment On February 23, 2014, at 10:36 PM, neamakri wrote:

    Oops I forgot. Every pharmacy must have a pharmacist to operate (say $75,000 annual expense).

    So look for Walmart to have laws passed whereby they will not need a pharmacist at every location. Any comment Fools?

  • Report this Comment On February 24, 2014, at 11:06 AM, FoolishLonghorn wrote:

    "look for Walmart to have laws passed whereby they will not need a pharmacist at every location"

    My wife is a pharmacy tech at a major drugstore chain. There must be a licensed pharmacist present to dispense any prescription medication. So unless you only dispense prescription medication 40 hours per week, a given store will need more than one pharmacist.

    I would be shocked to see this change. This is life-and-death stuff. The wrong drug, the wrong dose, and someone can die.

  • Report this Comment On April 28, 2014, at 1:31 PM, xtleye8 wrote:

    Walmart once had hammer and nails and a pretty good hardware division - gone - and now Lowe's seems to be pretty much in bed with them, side by side - hardly any way for walmart to take it back.

    the ONLY way to have a 24 hour pharmacy is to have a 24 hour pharmacist - with walmart - all things are possible - like hiring another pharmacist (yeah right).

    Walmart's bread and butter is the grocery (bread and butter) and few groceries can match it - although "I" don't buy their meat - except for the "name brand" pre packaged. Hardly any grocery chain can match their bulk purchase which lowers the cost of the dry goods - and now that perhaps 1/3 or more is stocked by vendors - hey - they got it made in the shade.

    In this area/region of the 48 - the biggest threat to Walmart is DG - now 8 locations ready to serve up more Chinese export. Once the walmart moneymaker in the region - we had a supercenter before two much larger cities that are within reach - the last store manager came close to ruining the store - shelves empty - employees disgruntled and scared constantly of being fired - the saving grace was a couple of young department managers that went out of their way in customer service and smiles.

    There already is "great value" gasoline - it's called Murphy USA - available at most Walmart Supercenters

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John Maxfield

John is The Motley Fool's senior banking specialist. If you're interested in banking and/or finance, you should follow him on Twitter.

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