BUSINESS

Wal-Mart plans to accelerate small store growth to compete with dollar stores, drugstores

10/10/2012 12:27 EDT | Updated 12/10/2012 05:12 EST
NEW YORK, N.Y. - Wal-Mart Stores Inc. is accelerating the expansion of small stores, particularly its Neighborhood Market stores, as it looks to compete with a variety of rivals from dollar stores to drug chains.

"This gives us the opportunity to build more stores for less money," Bill Simon, president of Wal-Mart's U.S. division told Wall Street analysts gathered at a meeting near its headquarters in Bentonville, Ark.

Simon said it plans to have 500 Neighborhood Market stores and 12 Express stores by fiscal 2016.

As of the end of July, Wal-Mart had 10 Express stores and had ramped up its Neighborhood Market concept to 217 locations.

Investors cheered the news, sending Wal-Mart's stock up $2.16, or 2.9 per cent, to $76.30 in midday trading.

Simon said Wal-Mart's small stores, which range from 10,000 square feet to about 55,000 square feet, have become a hybrid and compete well with a broad variety of merchants.

Neighbourhood Market store have generated a 5 per cent increase in revenue at stores open at least a year for the first half of this year. That's more than double the growth rate of the Wal-Mart's average store.

Express stores are less than one-tenth the size of Wal-Mart supercenters and offer groceries, general merchandise like tools, and pharmacies. Neighborhood Markets are more than twice the size of Express stores and offer perishable food, household supplies and beauty aids as well as a pharmacy.

The news comes as Wal-Mart's shares are up more than 24 per cent since early this year. That's been fueled by a turnaround of its namesake business in the U.S., which accounts for about 60 per cent of its total sales.

Wal-Mart last year began adding back 10,000 products and refocused on keeping prices low throughout the store, backing the strategy with TV campaigns. It has done that by cutting expenses and passing some of the savings on to customers. As a result, starting late last year, it's been able to turn around a more than two-year slump in revenue at stores opened at least a year. The metric is considered a key indicator of a retailer's health.

Company officials told investors Wednesday that it is preparing to win this holiday season. The company is focusing on initiatives to help its low-income shoppers finance their holiday purchases.

Wal-Mart officials said that launching layaway 30 days earlier than last year has helped boost the business. It already has $400 million worth of layaway merchandise, half of last year's total, and the season has barely started.