Why did Walmart’s Express small-store experiment end in failure?

Five years ago, Walmart unveiled “a pretty aggressive plan” to open more Express small stores, which gave it “access to places we aren’t in”. On Friday, it admitted the plan had failed, and said it would shutter all 102 Express stores. So what went wrong?

In a Q&A on the corporate website announcing the move – along with plans to close 52 other stores in the US and 115 in Brazil and other Latin American markets - Walmart’s CEO Doug McMillon merely observed that “While we have learned a lot from this pilot, including a deeper understanding of the everyday needs of our customers, we have decided not to proceed with this offering.”

Market watchers, however, said Walmart’s small-store offer (12,000-16,000sq ft) was just not distinctive enough to compete in a market dominated by players such as Trader Joe’s and ALDI, drugstore chains and dollar stores.

The merchandising wasn’t right

Laura Kennedy, director, retail insights at consultancy Kantar Retail, told FoodNavigator-USA: “It’s not a surprise in the sense that Walmart had already put a hold on expanding the Express format after new management came in and signaled that the Express offer was confused.

“Shoppers were basically using it in the same way they would use a Neighborhood Market (30,000-40,000st ft), and Walmart couldn’t seem to figure out how to get the merchandising right, so you’d see 40lb bags of dogfood and products that didn’t make sense for a format that is supposed to cater for a different kind of shopping trip.

“Maybe they could have devoted more time and resources to trying to fix it, but when you’re talking about 100 stores in a portfolio of 4,000+ where the bread and butter is those bigger box stores, it probably just didn’t make sense in terms of priorities.”

Is the Walmart brand as relevant as it once was?

Jim Hertel, managing partner at consultancy Willard Bishop, added that Walmart Express failed to provide a compelling offer either in terms of products or the shopping experience, particularly in fresh produce and perimeter items.

By contrast, other brands in this space had distinctive propositions: whether it be a limited assortment of high-quality private label such as Trader Joe’s and Aldi; a strong fresh, natural & organic foods range (Sprouts); or a budget ‘treasure hunt’ type experience offered by the dollar stores.

However, Walmart has also struggled to remain relevant in its other store formats, he added, despite recent improvements in same store sales growth in the US. “Historically, Walmart always had a very clear value proposition, with sharper pricing than traditional supermarkets, but the competitive set has really raised the bar.”

Has Walmart lost its way?

Dr Kurt Jetta, founder and CEO of CPG analytics firm TABS Analytics, meanwhile, said the failure to make Express work – at a time when the market is moving towards smaller store formats – provided further evidence that Walmart had “lost its way”.

He added: “They didn’t have a distinct position, it wasn’t clear what the Express stores were trying to be. You’d figure that they would have the money to retool the offer and get it right, but instead they have bailed.”

While one answer might appear to be to strengthen the produce offer, increase space allocation to fresh perimeter items, and woo more high-end shoppers, he said, “This only works when consumers see you as a destination store for fresh, and you can turn these products over very quickly, or you just get a ton of spoilage."

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The large majority of US stores closing are Walmart Express stores. While we have learned a lot from this pilot, including a deeper understanding of the everyday needs of our customers, we have decided not to proceed with this offering. We feel we can better serve our customers by focusing on Supercenters and Neighborhood Markets and by investing in e-commerce and services like Pickup.”

Walmart president & CEO, Doug McMillon

I think Walmart understands that it has lost relevance

Dr Jetta also queried whether Walmart’s long-standing EDLP (everyday low price) strategy was still delivering, although Kantar’s Kennedy said moving to a more promotionally-driven hi-low strategy was unlikely to happen any time soon.

She added: “I think Walmart understands that it has lost relevance, and it is trying to address this with investment in membership services, e-commerce, and initiatives such as online shopping with pick-up at the store, which utilizes its assets."

As for pricing and promotions, she said: "It's difficult to break from the EDLP orthodoxy, but they need to be more relevant to shoppers. I don't think they are going to go down the road of reward points and personalized offers, but they need to do something."

Meanwhile, Walmart’s private label ranges – which rivals are using as a clear point of difference, with unique distinctive products that do more than simply provide a cheaper alternative to national brands – are not proving a ‘draw’ to customers, she said.

If they are really going to turn Wild Oats [the organic label] into a distinctive proposition, for example, you’d expect unique and exclusive products, but they have not done that.”

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"We're particularly pleased with the results in fresh, where we brought in new products, developed strong price leadership through strategic buys and promoted locally sourced and organic products." 

Walmart president & CEO Doug McMillon, Q3 earnings call, Nov.17, 2015

Walmart’s store opening plans

Despite the store closures, Walmart CEO Doug McMillon stressed that Walmart is “continuing to grow”.

He added: “Walmart will continue to invest in its future, with plans to open more than 300 new stores worldwide over the coming year. In the U.S. Walmart intends to open 50 to 60 Supercenters, 85 to 95 Neighborhood Markets and seven to 10 Sam’s Clubs. We will also open 200 to 240 stores internationally.”

Speaking at the Q3 earnings call in November, he also stressed the company's commitment to e-commerce: "We've accelerated our expansion of online grocery pickup and we've seen that customers who start using online grocery spent nearly 50% more than similar customers who shop only in stores. This is the customer we're going after: the shopper in our sweet spot who accesses Wal-Mart in multiple ways.

"We also began the chain-wide use of a mobile service that can tell us when a customer is coming to pick up an online general merchandise order before they even walk into the store. We launched a new digital wish list that you can build at home or simply by scanning items in a store."