Wal-Mart's Little Piggy in the Marketplace

Will the king of megaretailing strike gold again by going small?

Wal-Mart (NYSE:WMT), which championed the large-format superstore with its namesake locations and Sam's Club membership chain, is rolling out a small-format grocery store. Think of the new Marketplace stores as if pointillist artist Georges Seurat -- who used to paint thousands upon thousands of tiny dots on a canvas to form a picture -- decided to go minimalist.

A typical Wal-Mart Supercenter averages 187,000 square feet; its discount stores average 108,000 square feet. The Marketplace stores will average just 15,000 square feet, smaller than even its Neighborhood Markets concept, at 42,000 square feet. You can almost feel the claustrophobia.

The first pilot stores are set to open in Arizona in the next few weeks. While the initial run will include 10 such locations, the discount king let slip that it plans to grow them to a chain of some 1,500 units, with more than $10 billion in revenue. The Financial Times reported that Wal-Mart took down those grandiose plans from its website, stressing that the stores were just a pilot program, after the Times contacted the company. But you don't invest large sums of money in a pilot program without have grand schemes in mind, right?

Still, I'm not convinced Wal-Mart will find success here. The concept sounds intriguing, since both Safeway (NYSE:SWY) and SUPERVALU (NYSE:SVU) are also experimenting with small-format stores, while European-based Tesco has opened a number of similarly formatted stores in Arizona. Wal-Mart will be going mano-a-mano with them.

Yet other big box-stores have reached for a cozy, neighborhood feel and fallen short. Shoe retailer DSW, OfficeMax (NYSE:OMX), and Lowe's (NYSE:LOW) have all opened new stores with significantly smaller footprints, but these locations are still the same concept, just in a smaller size

Home Depot (NYSE:HD) tried to slim down with its Villager's Hardware chain, after drawing criticism for squeezing local mom-and-pop hardware stores out of business with its gigantic superstores. Still, a smaller footprint and friendlier branding didn't seem to help Villager's Hardware; the concept was eventually killed.

Wal-Mart has been able to offer low prices because it uses its massive size to muscle discounts out of suppliers. That might not work so well in the field of fresh produce, where high turnover might not be possible. The Marketplace move also reminds me of Wal-Mart's ill-fated decision to start offering high-fashion clothing. The company learned the hard way that its customers weren't interested in designer duds if they also came at higher prices. If Wal-Mart can't deliver on price when it comes to produce, it might find the Marketplace concept wilting just as quickly.

A tactic like this might work better for SUPERVALU, Safeway, or Kroger (NYSE:KR); customers aren't shopping there for the absolute lowest prices possible. But since Wal-Mart's customers are far more price-sensitive, the market may end up rejecting this particular Marketplace.

Fill your cart with further Foolishness:

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