Today, Walmart’s influence across America’s heartland is unmatched, and now it is looking to prove its competitors wrong once again by reaching out to a new, unconventional consumer: the city dweller.

Thirty years ago, Little Rock, Arkansas, and Joplin, Missouri were among Walmart’s largest metropolitan areas. At that time, Walmart was still focused on its small-town strategy, targeting the rural areas of America that its competitors had originally considered too small to support a store of Walmart’s size. How wrong they were. Today, its influence across America’s heartland is unmatched, and now Walmart is looking to prove its competitors wrong once again by reaching out to a new, unconventional consumer: the city dweller.

Despite hurdles in the form of zoning restrictions and union opposition, Walmart won another city victory last week when it received the green light to open its first stores in Washington, DC. Debuting in late 2012, the first four stores will bring fresh groceries, a full-service pharmacy and general merchandise to areas traditionally under-represented by chain retailers. Once again, Walmart has been the primary beneficiary of a weak US economy. With high levels of unemployment and many urban consumers lacking access to fresh, low-priced groceries, the same local governments that shunned Walmart are now having a change of heart. In Washington DC, Walmart will create 1,200 jobs. In Chicago, where Walmart has faced severe public opposition for six years, it recently won approval to open a second store by 2012. Expansion in New York and Los Angeles is also likely. Improvements in food quality, labour relations and green initiatives have helped to improve its reputation among consumers and city councils.

However, getting approval from city councils is only the beginning. Operating urban stores requires a massive shift in strategy for Walmart, primarily in terms of merchandising and distribution. Despite its mammoth buying power, even Walmart will find it more expensive to buffer its profit margins in an urban setting due to higher property costs and more frequent replenishment. At the same time, pricing needs to be fairly consistent with its larger stores so Walmart can stick with its rule of selling national brands cheaper than competitors do.

However, change is needed for continued growth. Sales at its core big-box stores declined 0.1% last quarter. Walmart will now look to shift gears by opening 30 to 40 smaller stores next year. The retailer has had unparalleled success with big-box in small towns. Can it replicate that success with small-box in big towns?

Natalie Berg, global research director, Planet Retail. For more information contact us on:

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