Simon telegraphs expansion plans

Look for a big number out of Walmart come early October when it discloses 2012 expansion plans for smaller formats in conjunction with the company’s fall analysts’ meeting. Here’s how you can tell. Reading between the lines on the company’s second quarter earnings call transcript Walmart U.S. president and CEO Bill Simon touted the fact that the return on investment for Neighborhood Market stores is now the same as Walmart supercenters. Recall, in the past the rationale for the slow expansion pace of the 40,000-sq.-ft. Market concept was the lower rate of profitability and ample growth opportunities for supercenters.

Greenfield supercenters expansion isn’t what it once was and these days most new supercenters are conversion of existing discount stores. At the end of the second quarter the number of discount stores had shrunk to 689 units and supercenters now total 2,939 units. Simon contends the company’s growth priority remains supercenters, but he also disclosed that Neighborhood Market stores have produced positive comps for 15 consecutive months and produced a 3% increase in the second quarter.

“Our Neighborhood Market format is delivering a return at the same level as our supercenters, which have the best (return on investment) in the company,” Simon said. “These results have encouraged us to move faster on expanding our grocery format. Our multi-year development pipeline has approved 180 Neighborhood Markets through our real estate committee, and we’ll announce more details on these growth plans in October.”

With the ROI issue no longer an impediment to expansion and smaller stores attracting new customers as evident by the comp increase hard to see why Walmart wouldn’t get more ambitious about expanding the concept. The same is true of the even smaller Express stores, the first of which opened earlier this year and are said to be performing well.

“We’re very pleased with the opening of the first four Walmart Express units, and the initial results are positive. Let me remind you that these are still pilot stores, and we’re testing different formats,” Simon said.