The Budding Wal-Mart Empire You Never Knew Existed

Source: The Motley Fool

If you think Wal-Mart is done stretching its tentacles throughout every city and town in America, then I have bad news for you: It's just getting started.

For much of the last few decades, the world's largest retailer focused on building out its now-omnipresent supercenters. The strategy was to cater to the so-called "stock-up" trip, the weekly or monthly visit in which customers purchased a large quantity of food, housing supplies, and general merchandise.

At last count, Wal-Mart's portfolio of supercenters exceeded 3,200 units, or 80% of its fleet of locations. The problem with such large stores, however, is that they can't be placed in near proximity to each other without cannibalizing sales. This left a vacuum that was soon filled by competitors like Dollar General and Family Dollar.

What to do? Should Wal-Mart just lay down and die? Or will it be able to get over the indignity of having a handful of deep-discount retailers feed on the scraps it absentmindedly left behind? Suffice it to say, neither of these options seem likely.

At a recent industry conference, Bill Simon, CEO of Wal-Mart's U.S. operations, laid bare (link opens PDF) the retailer's strategy for mopping up the slop, differentiating between three different types of Wal-Mart locations.

[O]ver 20 years ago, we . . . created the stock-up trip and we continue to deliver well against that. It's the largest of the trips. It's fundamentally served by supercenters and [Sam's Club].

Now increasingly, we're using our smaller stores to provide a convenient access to customer so the customers can access our assortment and our everyday low prices much closer to where they live. And the neighborhood store is well-positioned for that basic food trip, the traditional grocery trip,

And finally, there's this emerging trip that's immediate access. It used to be more of a convenient store driven trip but with the growth in dollar and drug channels and some of the hard discounters. This trip is one of the fastest growing trip sizes and the Wal-Mart express store has sort of uniquely found a way to participate in that and we can be larger in this segment and we're planning on doing that.

What does this look like from a geographic standpoint? Here's a depiction from the presentation slides (link opens PDF) that accompanied Simon's remarks:

The strategic objective is obviously to fill in the void between supercenters using the now-familiar neighborhood store and the up-and-coming express formats. Wal-Mart already has more than 300 of the former in operation, and it's just now beginning to delve into the latter (of which there are only 20) with earnestness.

As Simon noted in his presentation, "the customer response [to the express format] has been very, very good," delivering double-digit comps in the first half of the current fiscal year.

What should we take away from this?

In the first case, if Wal-Mart does indeed proceed with its plan to capture every last drop of commerce that settled in the gaps between its superstores, then it's probably smart to start saying your goodbyes to the likes of Dollar General and Family Dollar. Up against a behemoth like Wal-Mart, they aren't long for this world.

The better news, on the other hand, is for investors in Wal-Mart's stock who have worried where additional growth will come from. Suffice it to say, this appears to be the company's answer.

Could Wal-Mart fail at its goal?
Given the growth of e-commerce, absolutely. To learn about two retailers with especially good prospects of beating Wal-Mart at its own game, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

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John Maxfield has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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