Wal-Mart Plans 500 U.S. 'Neighborhood Market' Stores

NEW YORK ( TheStreet) - Wal-Mart ( WMT) plans to increase the number of so-called "Neighborhood Market" stores, its smaller concept store, by nearly 75% over the next 18 months.

Bill Simon, Wal-Mart's president and CEO of its U.S. operations, said on Wednesday that the world's largest retailer plans to have 500 of the smaller stores open within the next 18 months, up from a current 290. Simon spoke at a luncheon presentation at the Goldman Sachs Annual Global Retailing Conference.

In an effort to reach more customers in urban settings and geographies that can't support a traditional "Supercenter", the Bentonville, Ark.-based company is focusing on two small-store concepts: its "Neighborhood Market" and "Walmart Express," that are meant to compete directly with grocery stores, discount/dollar stores and drug stores.

Wal-Mart's Neighborhood Market stores are sized on average at 38,000 square feet, considerably smaller than its traditional "Supercenter," which average around 182,000 square feet. The number of Wal-Mart U.S. stores, including "Supercenters," Sam's Clubs and others total 4,713, according to the company's web site. (Including international stores, the number of stores climbs to 10,955.)

Additionally, "Walmart Express," its smallest concept with store sizes, on average, around 15,000 square feet, has 19 units. Simon says the pilot phase for Walmart Express is "performing very well" with double-digit comparable sales.

However, as Wal-Mart builds more small stores, it's learning that large-store efficiency isn't necessarily compatible with a small store.

Simon said the returns from its "Neighborhood Market" stores are approaching 'Supercenter' returns, however he acknowledged the company had to refine its business model for the smaller stores to create operating efficiency. That included smaller assortments, changes to delivery frequency, even changes to its point-of-sale system and adding a district supervisor specifically for the smaller stores, among other things, he noted.

We're "learning a lot about servicing and constructing smaller stores to become more efficient," he said. "The capital now -- as we start to roll these out -- has now started to come down."

Simon noted that the company plans to give further details on their small-store concepts at the annual investor conference next month.

Wal-Mart shares are up roughly 8% for the year as compared to the S&P 500, which has advanced 18% year-to-date. Shares were little changed on Wednesday to $74.

Wal-Mart's revenue is being challenged this year by the hard hit low-end consumer, grappling with paycheck declines from the expiration of the payroll tax cut, higher gas prices and some companies already preparing for next year's health care reform enactment by cutting work hours. The company posted disappointing second-quarter comparable U.S. sales, down 0.3% for the July-ending period.

Simon said that Wal-Mart expects U.S. sales to improve in the second half of the year, particularly as it gears up for the all-important holiday shopping season.

-- Written by Laurie Kulikowski in New York.

To contact Laurie Kulikowski, send an email to: Laurie.Kulikowski@thestreet.com.

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