Can Wal-Mart Be Nimble?

Who's afraid of the British invasion represented by retail giant Tesco? Maybe Wal-Mart (NYSE: WMT) is, judging by its plan to test out some smaller-format stores in Arizona.

Wal-Mart plans to open up four stores dubbed "Marketside," which will be about 20,000 square feet -- about half the size of the regular Wal-Mart "Neighborhood Market" model. The Financial Times originally reported the story early this week, connecting Wal-Mart's Arizona experiment to Tesco's opening of small stores called "Fresh & Easy" here in the States.

The Fresh & Easy stores' entry into the U.S. market has been high-profile; Fresh & Easy will focus on small numbers of items in a format that's more geared toward fresh foods and convenience. (OK, so Tesco's expansion into other lucrative markets hasn't escaped notice, either -- last April, we covered Tesco's expansion in Japan, and Wal-Mart's decision not to retreat from that market in October.)

Wal-Mart's not the only grocery retailer exploring smaller formats, either. In August, Whole Foods Market (Nasdaq: WFMI) said it was testing a concept called Whole Foods Market Express, which will offer value-priced, on-the-go foods.   

Is smaller actually better? Not always, but it seems clear that many companies are willing to give it a whirl. (A Whole Foods offshoot with a "value" price emphasis probably seems as odd as a Wal-Mart model trying to focus on "small.")

It should be interesting to see how big a deal Tesco's small-format entry will be. Will it hurt other big grocers like Safeway (NYSE: SWY) and Kroger (NYSE: KR), or quick-stop standbys like 7-Eleven? What about McDonald's (NYSE: MCD) quick dollar deals, or Chipotle's (NYSE: CMG) (NYSE: CMG-B) fast food with an organic, natural flair?

Most interesting of all, perhaps, we'll see whether Wal-Mart's "Marketside" experiment will end up a keeper for the retail behemoth. If so, a retailer with a giant-sized reputation for may become a more nimble competitor -- a trend its shareholders will definitely want to track.