Small is In

After two years of declining domestic same store sales, Walmart (WMT) is finally getting it. However, it might be too late. What they finally ‘got’ is a small store strategy, that they now understand they must accelerate. The stores will be called Walmart Express, in a 15,000 square foot format, 15% of its average store size. But, it isn’t just the ‘smallness’ idea. The really big idea is what I rail about constantly: it’s really about preemptive distribution. To put it in laymen’s terms, if a retailer wants to win a consumer away from a competitor, it’s imperative that they provide the consumer with convenient and instantaneous access (including the physical store). They must get to the consumer first, faster and more often than the hundreds of equally compelling competitors.

A big part of Walmart’s share loss was to the rapidly expanding dollar stores, such as those operated by Dollar General, Family Dollar and others, now numbering about 15,000 across the U.S. (vs. about 4,300 Walmart and Sam’s Clubs). Another 1,000 (10 -20,000 square foot) dollar stores are projected to open this year, vs. 30-40 small Walmart stores. Primarily competing in paper products, detergents, household cleaners, health and beauty aids, packaged foods and beverages, the dollar stores stole many of Walmart’s core consumers who, particularly during the recession, did not want to spend gas dollars or time to drive to Walmart. Furthermore, living from paycheck to paycheck, consumers opted to buy small quantities more frequently, also enabled by the proximity of a neighborhood dollar store.

A big question for Walmart is: are they too late? Is bigness so ingrained in their strategic ‘mindset’ that they cannot execute a ‘small’ strategy? More importantly, do they really understand the necessity of a preemptive distribution strategy, which, along with small neighborhood stores, also includes a superior integration of all online and offline distribution platforms as well as the use of information and logistics technologies to ‘localize’ product mix (which is a must for small store success)?

Adding to Walmart’s declining sales were the share of Target (TGT) customers who, after trading down to Walmart during the recession, are now returning ‘home,’ so to speak, and the revenue loss attributed to a now highly criticized merchandising overhaul (including elimination of brands, narrowing of lines and a “rollback” pricing strategy). The resulting wider aisles and trimmer looking stores were not enough to offset consumers leaving due to lack of selection.

Anyway, Walmart better put the pedal to the metal on its small store and preemptive distribution initiatives. If not, they risk preemption (no pun intended) by more of their competitors who are also ‘getting it.’

Just the Beginning

Other “big box” retailers who have been in the pursuit of ‘small’: Home Depot (HD)launched its ‘lite’ urban store in the ‘90’s; Best Buy (BBY) is opening 150 small Best Buy Mobile stores, focusing on smartphones; Staples (SPLS) is planning on accelerating the rollout of a 4,000 square foot model; Target has a small suburban and urban neighborhood model; Office Depot is repositioning itself with a 5,000 square foot store and touting itself as a convenience retailer; and, of course CVS (CVS) and Walgreen’s (WAG) are now fighting for every corner of every block in America. And, there are many others.

Also, as predicted in my co-authored book with Michael Dart, The New Rules of Retail, the major department stores will also launch small, off-mall, neighborhood stores, such as JCPenney (JCP) did a few years ago and will likely accelerate as the recovery continues. Further, we predict the department stores will eventually roll out branded specialty chains carrying their private label nameplates such as INC, Arizona, Stafford, and so forth.

Finally, and another Walmart nightmare, we believe Amazon (AMZN) will develop and launch small neighborhood shops as showrooms, featuring localized merchandise based on consumer preferences in finitely defined neighborhoods, as mined from their Pentagon-sized consumer data base. In fact, one former Walmart executive admitted this scenario was one of Walmart’s greatest fears.

But Goliaths Beware: The Specialists Own Their Turf

So, the ‘share war’ battles among the Goliaths are now going to spread like guerilla warfare into the small towns and suburbs across the country. Well, not so fast, big guys! You think with your smaller units, you can march into these neighborhoods and summarily dismiss all of the independent or small chain specialists who have, over the years, won the hearts and minds of their local customers? Remember David slaying Goliath? So, think long and hard about it.

Here are their advantages, why they own their turf, and why they will not easily be dislodged (again, right out of our book):

• They are solid brands in their own right, although local ones – intimate boutiques or small shops with their own personas that, over time, have developed an emotional connection with their neighbors.
• They carry all of the things their ‘friends’ love, which they learned over time through friendly chats in the store or cheering for local sports teams with them vs. mined from a database.
• The word ‘service’ means nothing in a happy family. Do you treat a member of your family with ‘good service’? No. You treat them with love.
• The shopping experience, including the ‘family’ feeling, will have been created just as product selection evolved (through living with their customer), all of it neurologically connecting with their neighbors.
• And, finally, they have total control over their business and its ‘value chain,’ without which they could not have achieved all of the above.

So, the final most important lesson for all you ‘big boxers’ is that simply developing preemptive distribution strategies, making your big box small, and moving it into a neighborhood, will not win. If you don’t strategize how to do all of the above, or at least a modicum of it, the ‘Davids’ out there will kill you.