Walmart Will Shrink Big-Box Stores to Chase Urban Shoppers

Wal-Mart Stores (WMT) is thinking outside the big box in an effort to reverse a decline in sales.

The world's largest retailer plans to increase the number of its smaller-format stores and cut the size of new SuperCenters to expand to new markets and boost sales, especially among the lower-income households it considers its base customers.

"Were we see a customer need, we're going to go," said Bill Simon the newly appointed president and CEO of Walmart U.S.

Speaking to a meeting with investors, Simon said Walmart plans to open 30 to 40 smaller-format stores across the country during the fiscal year, mostly in urban markets where the big-box retailer has had trouble fitting in before. The SuperCenters, normally around 195,000 square feet, will remain the company's mainstay, but new ones will shrink slightly to about 180,000 square feet, and Walmart will step up its plans to open midsize stores of about 150,000 square feet.

Overall, with attrition and closings, the company's square footage is expected to stay flat from this fiscal year to the next, even as it expands its number of stores.

Adapting With Online Expansion, Free Shipping

"We believe with this optimized assortment of three formats we will have access to parts of the country that we could not do before," Simon said. For example, he noted Walmart had faced a challenge when trying to set up stores in Chicago, but was able to gain community support when it presented a plan that included 25 stores of different sizes and focused on the jobs it would create in the city.

Walmart is also expanding its online functions to boost Internet sales, said Simon. He noted that a test with FedEx (FDX) offering free shipping to FedEx Office locations in Los Angeles and Boston will be expanded to New York, Chicago and Washington, D.C. Additionally, a service offering same-day in-store pickup on online orders that's being tested in Salt Lake City will expand to 750 other stores across the country in the coming months and should be available in most of those locations by the holidays.

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Walmart sees an opportunity to increase sales from new stores, especially in urban areas, but also in small towns that could not support a SuperCenter, said Simon. That will also help improve the company's relationships with some suppliers, which had reoriented themselves toward other retailers earlier this year after Walmart decided to reduce the number of items it carried in an effort to cut costs and boost profits.

Simon said the retailer's recent drop in comparable sales (for stores open at least a year) has been misinterpreted as a defection by high-income shoppers it gained during the recession. In reality, he said Walmart's sales to households with incomes over $70,000 have remained strong, but sales to middle-class customers with household incomes between $50,000 and $70,000 are slipping. The "paycheck cycle," where sales surge after the delivery of unemployment and assistance payments, continues to be noticeable, he said.

"In this environment, we should be thriving," said Simon. "And we're gearing up to do that."