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Wal-Mart is developing two new small-format store concepts that it plans to use to blunt the impact of Tesco’s entry into the US with its 10,000 square foot Fresh & easy Neighborhood Market stores, according to a story in this morning’s Wall Street Journal.

One of the plans calls for “urban convenience stores less than a tenth of the size of the company's supercenters and stocked with groceries geared to more affluent tastes,” and the other would be “stand-alone stores offering a variety of health services and products.” Either or both concept could be introduced in early 2008, sources tell the Journal, and are likely to be piloted in California – which happens to be one of the three states where Tesco will be opening stores later this year. (The others are Arizona and Nevada.) California also happens to be a state where Wal-Mart has run into cases of community resistance to the opening of its supercenters, and smaller formats could circumvent those problems.

The story reports that Wal-Mart has created a task force executives charged with coming up with the new formats, and has housed them in San Francisco – not Bentonville, Arkansas – in order to keep them away from short-term business pressures. While Wal-Mart is not commenting on the formats, a spokesman said the company “always looking for new and innovative ways to serve our customers.”

Wal-Mart reportedly sees the health services concept as bringing together a number of its traditional offerings – such as pharmacy and optometry services – with more recent developments, such as its in-store medical clinics. And, it would allow the company to develop other health-related products and services.

Of course, these new formats aren’t the only small store concepts that Wal-Mart has developed. The company introduced its Neighborhood Market concept in 1998, but only has opened 124 of them – reportedly because it could not develop a return-on-investment (ROI) model for the small stores that was equivalent to that of the supercenters. But the world has changed, there are new competitors, Wal-Mart has seen its fortunes wane to some extent, and new solutions seem to be called for.

However, as the Journal writes, “The company may have waited too long to develop successors to its big-box U.S. stores. Analysts now chopping their profit estimates for this and next year say Wal-Mart has seemed tone-deaf to consumer trends. Failed pushes in women's fashions and home decor continue to sap profits, and high gasoline prices are eating into supercenter visits. Recently, Wal-Mart has tried running ads promoting its low prices as worth the extra travel.”
KC's View:
I’m not surprised that Wal-Mart is developing new small formats, though I’m a little surprised that it has taken the company this long. I think it is smart to take this approach – using a kind of retail laboratory, separate from daily operations, to come up with formats that are really innovative.

Two quick notes, based on the Journal piece.

One is that if Wal-Mart is serious about the health services format, it makes me believe even more strongly that it probably will acquire a company that runs in-store medical clinics. This will give it more control, and probably make more sense than continued outsourcing to a variety of service providers.

The other is that the description of the other format as “urban convenience stores… stocked with groceries geared to more affluent tastes” doesn’t sound like a concept that will come easily to Wal-Mart. It does sound closer to what Tesco plans to do, and what Trader Joe’s already is doing … but that doesn’t mean that Wal-Mart can or should do it.

But I try never to underestimate Wal-Mart. With that kind of marketing muscle, anything is possible.