Small format countdown begins

The retail industry is abuzz these days with talk of small format stores; whether it is Best Buy Mobile, CityTarget or now Walmart Express. Bill Simon, president and CEO of Walmart U.S., added more fuel to the fire this week with comments about several 15,000-sq.-ft. test stores that would open during the second quarter in rural and urban locations. Simon also introduced the prospect of rapid organic growth and potential acquisitions even though the first stores have yet to open.

“The aim here folks is to get the right model so that we can rapidly roll these things out,” Simon said during a presentation at the Bank of America Merrill Lynch Consumer Conference. “At our peak, we built about 350 supercenters in a year, so when we get this thing right, these are going to come real fast and we’re real excited about this format.”

It is not a stretch to believe Walmart will get “this thing” right, as the company has a lengthy track record of operating highly-productive small stores in multiple international markets. What’s less clear is whether Walmart would ever be able to open enough of the small format stores to have a meaningful impact on its sales results.

Assume the stores enjoy an exceptionally high level of sales productivity, and just to keep the math simple go with $1,000 a square foot, which is roughly double that of a high volume supercenter. That would put annual sales of a 15,000-sq.-ft. at $15 million. Next, assume Walmart already has 1,000 such units operating, and their total annual sales are $15 billion. Even though that’s a big number, it would represent less than 6% of the $260 billion in sales the U.S. stores division generated last year.