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The Financial Times reports that Walmart has decided to put new emphasis on its Neighborhood Market format, “recruiting a new team of managers and buyers that will focus exclusively on the smaller stores, which, with just more than 150 locations, currently represent only a fraction of Walmart’s total US sales. It is also recruiting managers to develop staff training and store planning and performance systems that will ‘meet the unique needs of all small formats’,” which would include both the Neighborhood Market and the even smaller Marketside format that it started testing in Arizona earlier this year.

While the Neighborhood Market format was opened more than a decade ago, it has never grown to the extent that many expected, with insiders saying that it was because the return on investment (ROI) for the concept simply was not sufficient, especially in comparison to the supercenter format. However, a number of circumstances may have created an environment in which it makes sense for the world’s biggest retailer to start thinking small.

For one thing, there remain a number of communities big and small that have resisted Walmart’s desire to expand, and the Neighborhood Market format could break down some of those barriers. For another, as FT notes, while “Walmart’s low price model has made it one of the leading beneficiaries of the current frugal mood of US shoppers ... it has been slowing its rate of US store expansion, as cannibalization of its existing store network started to reduce the return on invested capital on new stores;” a Neighborhood Market expansion could serve as a new engine for growth.

At the same time, since the industry at large seems to be embracing the small store, with retailers that include Tesco and Safeway opening their own versions, it makes sense for Walmart to ramp up its commitment to this area of the business.
KC's View:
This makes perfect sense, especially in the context of all the ramping up that Walmart seems to be doing right the hardball competition with Amazon on best-sellers that we reported on last week.

I keep thinking that one of the things that Walmart is likely to do is develop stores - under the Neighborhood Market banner, the Marketside name, or some other brand - that will be specifically designed to provide a range of choices, including healthy foods, to inner city areas poorly served by the mainstream grocery industry. It would be a PR bonanza, and potentially a great source of sales.

They’re going to make this work.