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Wal-Mart moves to shrink the ’hood


GLENDALE, ARIZ. —The eyes of the world were on the Phoenix area last week for Super Bowl XLII, but now the city takes center stage in the retail world as global titans Wal-Mart and Tesco are set to square off later this year with competing small-format stores.

It is a matchup that has all the drama associated with a Super Bowl. Wal-Mart and Tesco are heated rivals in the United Kingdom where Tesco dominates, and now it is looking to crack the U.S. market with an unproven concept launched in the fall called Fresh & Easy Neighborhood Market. Tesco opened the 10,000-square-foot food stores in Phoenix, Las Vegas and Southern California, and already operates more than 30 locations.

Wal-Mart is the entrenched competitor and it reportedly has plans to launch a small format, 20,000-square-foot store in Phoenix later this year that is squarely positioned as an alternative to Tesco’s concept. Wal-Mart has said little about its new format, which will reportedly be named Marketside, according to the Financial Times, which also reported that locations for four stores have been secured in close proximity to Fresh & Easy stores.

Wal-Mart already operates 10 Neighborhood Markets in the Phoenix area, including one in Glendale, Ariz., that opened last month. Those units average about 40,000 square feet, but it is easy to see how Wal-Mart could shrink the concept in half. In fact, some space-saving steps have already been taken, in part to reflect changing market conditions and space productivity issues. For example, space dedicated to the in-store photo lab has been virtually eliminated and replaced by a customer service counter at the front of the store and a few kiosks for making digital prints. Also eliminated from store is the Grab ‘n’ Go concept, which occupied prime real estate near entrances and was introduced early on as a convenience initiative.

Beyond the space-saving benefits associated with the elimination of these departments, Wal-Mart has ample opportunity to shrink the size of Neighborhood Market by eliminating or significantly reducing space dedicated to general merchandise categories and by employing merchandising strategies more in line with a smaller store experience. Neighborhood Market devotes entire end-caps to single manufacturer’s brands, much in the way large supercenters do where display space is more abundant. The philosophy also is evident in the produce section where bulk displays of fruit are attractive, but could easily be reduced in size while still communicating a strong value message.

A major reduction in space devoted to health and beauty care would also enable Wal-Mart to shrink the Neighborhood Market format. Stores currently offer an assortment of HBC products that appears comparable to that found in a supercenter, but products are merchandised on space-consuming, low-profile fixtures.

Without making too many hard decisions, Wal-Mart will be able to offer residents of the Phoenix area a pure food retailing concept within the size range of Tesco’s concept and perhaps move closer to realizing the unfulfilled expectations that surfaced 10 years ago. At that time, Neighborhood Market created a stir among food and drug retailers concerned about the speed at which Wal-Mart, a company capable of opening hundreds of large format stores annually, could open a store measuring only 40,000 square feet.

Today, the supermarket industry is experiencing a similar degree of anxiety over the impact Tesco’s Fresh & Easy will have. The widespread assumption is that a global retailer with the expertise of Tesco will be successful with its foray into the U.S. market and it will quickly expand. Of course, that same thinking was applied to Wal-Mart 10 years ago and it proved incorrect. Wal-Mart pursued growth with its larger-format stores and slowly added to its Neighborhood Market tally over the years. It ended last year with 134 Neighborhood Market stores and plans to add 25 units this year and next, according to capital expansion plans revealed in October 2007.

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