The world’s largest retailer embarked on its small-store strategy in the US last week by opening its first Walmart Express in Gentry, Arkansas.

Unveiled at the glitzy Walmart Shareholders event – which sees Walmarts from across the world visit Bentonville for a company update and social event with major stars – the grocer revealed it is shifting gears in an attempt to tap into new urban markets, as well as regain share lost to dollar and drugstores after two years of negative like-for-likes at its core Walmart US division.

Planet Retail had the opportunity to visit the Gentry store before its launch. The 15,000 sq ft shop features between 11,000 and 12,000 SKUs, of which 70% are grocery items. While there are similarities to Tesco’s Fresh & Easy (minimal store environment with no counter service), Walmart Express feels more like a traditional US grocer. The offer is  more brand-led than Fresh & Easy and, with an assortment roughly three times the size, it will be easier for shoppers to complete a full basket at Walmart Express. In fact, the store caters to three unique trips: quick, fill-in and stock-up.

Walmart will also leverage its site-to-store initiative, enabling shoppers to order non-food items online and have them delivered to a local Express. This strategy is also being pursued in the UK with its new Asda Supermarket format. In the US it will be a differentiator from the limited assortment discount and dollar stores that have cut into Walmart’s share.

Inspired by the company’s small formats in Latin America, Walmart Express’ prices are comparable to those in its Supercenters. Although necessary to maintain its EDLP image, this could impact on profit margins – particularly in urban markets where property and operating costs will be greater.

Although Planet Retail is very impressed with the format, there is a question over profitability. Supercenters are Walmart’s bread and butter, but organic expansion in this format will run out within the next decade. In the future, US bricks-and-mortar growth will have to come through small stores, supported by ecommerce and international expansion.

However, operating smaller stores requires frequent replenishment and merchandising must be precise and relevant. This could be hard for Walmart without access to loyalty card data. So, we at Planet Retail wonder whether an acquisition of an existing small retailer could expedite the expansion and enable Walmart to obtain the skills it needs to make small-box a success in the US.

Natalie Berg, research director, Planet Retail

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