Wal-Mart (WMT) will be discussing its business plans in the annual investors' meeting today. It is highly likely that Wal-Mart will offer more details on its small stores expansion plan. The stock is already up by almost 25% YTD. The successful implementation by Wal-Mart of its small 'Express Stores' is a threat to small grocery stores, and will further improve WMT's stock's performance.
Wal-Mart has a strong business model, and is one of the largest, most successful businesses in the world. It has a market cap of almost $250 billion. The company is committed to attracting and retaining customers by offering them a wide range of products at a discount. Growth in the company's top line is slowing down with every passing year. To grow its top line and expand its presence, the company is working on opening small express stores. The concept of small express stores is getting popular among larger retailers, as they have realized the nature of competition from smaller stores. The two large retailers responded to the need of small stores by introducing Wal-Mart Express and City Target (TGT).
Adapting to the concept of smaller stores has been a slow process for Wal-Mart. Earlier this year, Wal-Mart faced bribery issues with regards to opening new stores in Mexico. The company is in the process of opening small-scale stores. Today, at its annual investors meeting, the company is expected to share details regarding the expansion of its small scale stores. By the first half of this year, Wal-Mart had 10 express stores. According to analysts, it is expected that the company will increase this to 217 locations. Wal-Mart Express stores are much smaller in size, almost one-tenth the size of a Wal-Mart supercenter. The initial 10 express stores by Wal-Mart showed positive and profitable results in their very first year. Smaller stores offer customers with greater flexibility and easy access, especially in those areas where large stores are not present. Wal-Mart Express will offer 11,000-to-13,000 items, as compared to more than 100,000 items offered in a supercentre.
As the growth potential for larger retail stores is limited, express stores could be key drivers of the company's success in the future. Wal-Mart needs to speed up the process of opening express stores so that it can tap into the growth opportunity provided by the concept of smaller stores.
Small neighborhood grocers will face an increase in competition from this move by large retailers like Wal-Mart. Supermarket chains like Supervalu Inc (SVU), Safeway Inc (SWY) and Roundy's Inc (RNDY) are likely to be hurt by Wal-Mart's express stores. As these small grocery stores are much smaller in size than Wal-Mart, it will have greater resources and the ability to offer better services at higher discounts in order to grab a larger market share from their competitors. The resources that Wal-Mart holds, along with the growth opportunity of express stores, can drive revenues and profitability up.
Wal-Mart needs to engage and attract customers through its supercenter and express stores before the holiday season, so that it can improve its financial performance. The next holiday season will be a test for these express stores and will most likely reflect the potential of the small store concept for Wal-Mart.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.