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Moving beyond the supercenter

BY Mike Troy

Change has come fast and furious at Walmart over the past three years as the company sought to reinvent itself. New leadership and new strategies predictably took the company in unfamiliar directions and brought disruptive change to the organization’s traditions, its relationships with suppliers and its impact on the marketplace overall, and health-and-wellness in particular. Nowhere has this been more evident than with the ongoing shift in how the company defines growth and the strategies being pursued to achieve it.

“Walmart continues to have aggressive growth plans,” president and CEO Mike Duke said recently at the company’s annual investment conference. “Let there be no doubt, there is no retail competitor here in the United States, or anywhere in the world for that matter, that can deliver the kind of growth that Walmart can over the next few years.”

The kind of growth Duke is talking about isn’t of the large supercenter variety that the market grew accustomed to over the past decade. Walmart eased off the accelerator in terms of construction activity a few years back, and now it pretty much has its foot on the brake in terms of domestic expansion. Only 11 million sq. ft. of new selling space is due to be added in the coming year—down from 13 million this year, less than half the 26 million added in 2008, and well below the 41.8 million added in 2007 when the company opened a record 279 new supercenters.

Beyond disclosing that it would expand domestic selling space by 11 million sq. ft., Walmart hasn’t said how many stores it plans to open next year or the format type. It currently operates 2,737 supercenters, and opportunities for new construction of large-format stores that average 187,000 sq. ft. have become limited. The greater opportunity going forward lies with the conversion of the company’s remaining 810 discount stores to smaller, high-efficiency prototypes combined with the development of smaller-format stores. Small formats already dominate Walmart’s international presence with roughly half of the international division’s 3,800 stores at less than 50,000 sq. ft.

“There’s a trend around the world toward small stores, and we’re already operating them, and operating them profitably, at a level that is driving nice returns,” said Walmart International president and CEO Doug McMillon.

Walmart’s current roster of domestic small-format stores is limited. The Neighborhood Market format numbers only 151 units, despite its introduction 11 years ago, while the visibility for the small-format Marketside concept with its emphasis on food, launched in Phoenix more than a year ago, is unclear. A Hispanic variant of Neighborhood Market, known as SuperMercado de Walmart, appears to hold promise if only for demographic reasons and the high level of appeal Walmart already enjoys with Hispanic customers.

While the development of new concepts offers long-term potential, more immediate growth is expected to come from the ongoing pursuit of a broad slate of initiatives referred to collectively as Project Impact. Walmart has discovered that it can drive higher rates of return by increasing the efficiency of its existing operations, and in the past year, it dramatically reduced inventory levels and product assortments while simultaneously cleaning up stores and improving the customer experience by reducing checkout times. Walmart also decided to seek a larger share of growth in expanding categories, while concerning itself less with slower-growing or declining ones.

Walmart’s chief merchandising officer John Fleming referred to the strategy as “win, play, show,” and contended it is all about prioritizing growth opportunities. “The faster path to growth is taking market share in a growth category, rather than market share in a declining category. Now you could do both, but you get a lot more growth if you could drive the market share in the growth category, and so that’s the purpose of win, play, show,” Fleming said.

Along with rethinking its approach to merchandising, Project Impact also has involved improving the store experience for customers. Accordingly, the company embarked on an ambitious remodeling program with one-third of Walmart’s stores planned to be completed by the end of the current fiscal year, and the entire chain completed within three years.

“In the Project Impact stores that we’ve opened this year, the customer experience scores have two times the growth rate of the rest of the chain,” Fleming said. “Sales are 125 to 150 basis points above control group. Margins are flat, but the inventories are down 8% to 9%. Customers love it, the top line bears that out, and actually the returns are better.”

A major reason for the improvement is that Walmart eliminated aisle-cluttering displays, which were a central element of its merchandising strategy. The elimination of features has proven so popular with customers that Walmart is accelerating the change in advance of the Project Impact remodeling timetable, and by the end of next year has indicated its aisles will be free of feature displays.

Walmart is on track to finish its current fiscal year with total flat sales of roughly $410 billion and profits of slightly more than $14 billion, up 1%. Next year, sales growth is expected to accelerate to 5.7%.

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Hy-Vee names new president

BY Alaric DeArment

WEST DES MOINES, Iowa A 28-year employee of Hy-Vee has become its new president, according to published reports.

The company appointed Randall Edeker as president of the supermarket chain Thursday at the company’s annual meeting, succeeding Ric Jurgens, who had served as president since 2001 and will maintain his position as chairman and CEO.

Edeker had previously served as EVP and COO.

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Tricare expands vaccination coverage to pharmacies, clinics

BY DSN STAFF

NEW YORK Convenience and value. That’s what community pharmacy and their retail clinic partners deliver to their patients. And that’s what the Department of Defense is counting on in covering immunizations at local pharmacies and identifying convenient care clinics as network providers — two separate pieces of news issued within the past month that really underscore the importance of pharmacies and retail clinics in the delivery of health care today.

Prior to these announcements, military personnel interested in getting their flu shots had to schedule an appointment with their doctor, as Tricare only covered the cost of shots delivered in a doctor’s office.

“As a convenient and accessible healthcare provider, pharmacy is uniquely positioned to offer services for patients, such as vaccinations,” stated Steve Anderson, president and CEO for the National Association of Chain Drug Stores. Anderson noted that as of earlier this year, pharmacists have the ability to immunize patients in all 50 states. “[This] presents an important opportunity for pharmacists to counsel patients during their visit, and an additional healthcare provider from which to obtain these vaccinations.”

It’s also quite a bit of opportunity for pharmacy — Tricare provides healthcare coverage for 9.5 million eligible beneficiaries. Those beneficiaries pick up almost 2.3 million prescriptions every week, and 1.2 million of those at retail pharmacies, according to Tricare .

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