How Walmart can grow

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Walmart always low prices - exteriorThere's a lot of chatter about Walmart's growth plans, with a special focus on the chain's small store formats and urban initiatives. But where will it find the space?

One possibility is through acquisition. Real estate is more of a premium in the denser areas Walmart has designs on, particularly, cities such as New York. Walmart looks to be making a more aggressive push into urban markets, shopping for locations. But in spite of a high commercial vacancy rate, thanks to the recession, getting a large number of 20,000 to 50,000-square-foot stores open in big cities could require something more dramatic.

Drugstores are about that size and the name Rite Aid is being bandied about as a possible acquisition target. There's been speculation about Rite Aid's future before (the chain lost nearly $74 million in its second quarter this year) and that it could be bought. But usually, that speculation swirls around a rival drugstore chain, not Walmart.

Walmart has made very few acquisitions in the past, and then it buys other retail brands only to grow internationally. It's the rare retailer that can absorb another, usually competitive, company and make it work, for a variety of reasons.

First, acquisitions are expensive and with them come lots of unnecessary things, like a second corporate headquarters and multiple distribution centers. Eliminating the duplications are even more expensive. Closing down facilities, relocating key personnel, and paying severance packages for the ones let go, all cost big bucks. Remodeling stores changing over pretty everything inside from the merchandise to the signage to the systems, costs too. And the payoff is rarely worth it. Absorbing and retraining people from a different corporate culture rarely ever works.

Rite Aid is attractive thanks to its real estate. just for its real estate, particularly in New York. But there's one more thing that isn't being discussed: Rite Aid is a pharmacy, and should it be bought, its pharmacy list is acquired too, and a pharmacy list can be almost as valuable real estate.
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