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Walmart Adapts to Undercut Dollar Stores

NEW YORK ( TheStreet) -- Walmart (WMT - Get Report) is attempting to get smaller and cheaper in order to bring down its dollar-store competitors.

Last week, the big-box retailer opened a small-format convenience store in Bentonville, Ark., the home of its corporate headquarters, selling groceries and snacks. The new store is a prototype of more stores to come, offering a mix of convenience-store products, as well as a deli and butcher.

The move comes on the heels of its earnings report in February that showed traffic at its U.S. supercenters was down 1.7% in the company's fiscal fourth quarter ended on Jan. 31. Meanwhile, sales at smaller Walmart stores, branded as express or neighborhood markets, reported sales growth of 4%.

That shifted the company's plan, laid out last fall, to open 115 new supercenters and 120 to 150 smaller shops in 2014. Walmart's new plan is to double the previous number of express locations to about 300 openings.

The company hopes to rebrand itself from a once-a-week trip to stock up at one of its supercenters to a routine drop-by spot at an express location around the corner. Dollar Tree (DLTR), Dollar General(DG) and Family Dollar Stores (FDO) have cornered the market of offering low prices at convenient locations.

Walmart also plans to regain its title as the "lowest cost" retailer by launching an online tool that undercuts competitors' prices.

Knowing that Americans already search for the lowest price on smartphones and tablets while they are shopping inside a store, Walmart hopes the tool will allow shoppers to compare its prices on 80,000 foods and products.

Analyzing retail ads of its competitors, the tool will automatically match the lowest price if Walmart's in-store price is higher. Savings are then issued through a Walmart gift card, which can be used immediately or allowed to accumulate over time.

Walmart's move to get smaller and cheaper is a direct shot at dollar-store competitors, proving to investors that the company is willing to change quickly to adapt to new market conditions.

The company hopes its ability to undercut competitors will lead to increased revenue and customer traffic, creating a catalyst for its stock.

WMT Chart
WMT data by YCharts

At the time of publication, the author had no position in any of the stocks mentioned.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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