Walmart’s Big Push to Go Small—and Destroy Your Neighborhood Dollar Store

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Daniel Acker / Bloomberg via Getty Images

After months of subpar sales, the prototypical big-box retailer is embracing the idea that one size does not fit all.

In the fourth quarter earnings report made public by Walmart last week, it was revealed that sales at U.S. stores during the all-important holiday shopping months dropped by 0.4%, while foot traffic was down 1.7%. Meanwhile, sales at Walmart’s smaller sized stores—those operating under the Express or Neighborhood Market format, which occupy a fraction of the space of the typical supercenter—were up 4% for the fiscal year.

Last fall, Walmart had stated plans to open 115 new supercenters and 120 to 150 smaller stores in 2014. But the recent performances by its various retail models have caused a change in plans. While issuing the underwhelming fourth-quarter report, Walmart simultaneously announced it would double small store growth in 2014, with an expectation that as many as 300 new Walmart Express and Walmart Neighborhood Market stores would be opened by year’s end.

Among other factors, Walmart blamed cuts in food stamp benefits, rising payroll taxes, and unemployment as reasons its core (low-income) customers were cutting back on their regular trips to Walmart supercenters and stock up on groceries, clothing, and other wants and needs. Instead of large, once-a-week shopping excursions, pinched consumers have been more inclined to periodically pick up just a few essentials in stores in their neighborhoods—supermarkets, drugstores, and, perhaps most importantly, dollar stores.

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Walmart’s fresh push into neighborhoods with smaller, more convenient stores is an overt ploy to win the quickie shopper’s business. The world’s largest retailer wants shoppers to think of Walmart not just for “stock-up trips” at supercenters but “fill-in trips” in neighborhood locations as well, Bill Simon, Walmart U.S. president and CEO, said in a press release announcing accelerated growth plans for its smaller stores. “Customers’ needs and expectations are changing. They want to shop when they want and how they want, and we are transforming our business to meet their expectations,” he said. “Customers appreciate the broad assortment of our supercenters for their stock-up trips as well as our small store formats for fill-in trips.”

Above all, Walmart’s small-box push represents a direct squaring off against its nemesis, the dollar store. Both compete primarily based on low prices, and the main way Family Dollar, Dollar General, and Dollar Tree have been able to steal business away from Walmart has been offering more convenient locations. Since most of the strip malls and downtowns in America that Walmart is presumably considering as locations for its smaller retail outlets already host dollar stores, competitive showdowns are inevitable in communities nationwide.

As the Motley Fool put it, Walmart’s small store expansion amounts to announcing its intention to “kill dollar stores.”

If, when, and how this death might come about is uncertain. Even before Walmart’s fourth quarter earnings were reported, Credit Suisse analyst Michael Exstein called upon the retailer to cut to the chase and seriously hike small store growth simply by buying Family Dollar, which has over 8,000 locations—including dozens in big cities like Boston and New York where Walmart has little or no presence.

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While it’s unclear exactly how—and how swiftly—Walmart’s small store initiative will grow, the consensus is that the push is absolutely essential. As Ken Perkins, president of Retail Metrics, explained to CNBC, “This is a key area for Wal-Mart and one of the few potential areas for growth.”