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RetailNet Group on Walmart's Urban 90 format


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RetailNet Group insights and observations on Walmart's Urban 90 Supercenter format

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RetailNet Group on Walmart's Urban 90 format

  1. 1. CONFIDENTIAL & ©RetailNet Group, Page 1New Walmart Urban 90 Supercenter FormatRetailNet Group recently visited a new Walmart Urban 90 store in Toronto, Canada, whichopened in late January, to see the adaptations in this smaller format supercenter prototype. Asindicated by its name, the Urban 90 store is 90,000 square feet, dramatically smaller than the200,000 square foot box of a traditional North American Walmart Supercenter. The smallerformat supercenter takes only 34 weeks to build and launch, roughly 2/3 of a traditionalsupercenter. This store is located on the second floor of the building, with Walmart rentingspace to other businesses, such as fast food chains, on the first floor. For subscribers, clickhere to access the full store tour on Points to ConsiderFull Assortment, Limited SpaceShelf-Ready PackagingDedication to FreshSeasonal SpaceCommitment to EDLP
  2. 2. CONFIDENTIAL & ©RetailNet Group, Page 2Full Assortment, Limited SpaceThe Urban 90 format offers allcategories that a traditional200,000 square footsupercenter does, soWalmart has addressed thespace restriction issue withsome reduced options in thecategory and limited shelfspace dedicated to eachproduct. Throughout thestore, it is evident thatWalmart has significantlyreduced the shelf facings thatSKUs receive acrosscategories. For example, inthe refrigerated orange juicesection, some brands andvarieties receive only sixfacings, and that small refrigeration unit holds a total of ten unique SKU’s.At left, an end cap that might typicallyhighlight a single item instead featuressix distinct products.
  3. 3. CONFIDENTIAL & ©RetailNet Group, Page 3Shelf-Ready PackagingLimited facings equate to fewerproducts on the shelves and in ahigh-traffic environment, can alsoincrease the chances of emptyshelves and stock outs very quickly.This increases the pressure on thestore personnel to ensure thatproducts are on shelves at all times.Shelf-ready packaging is a majorhelp for this. Shelf-ready packaginghas frequently been used to allowstores to stock shelves easily andreduce labor costs, but in the Urban90 format, speed to shelf can beeven more critical for employees torestock the shelves.Dedication to FreshRoughly 30% of store space is dedicated to fresh, indicating that Walmart’s urban formatsupercenter will compete aggressively in this category. This is in line with Walmart pushing intourban areas – a proximitystore is inherently moreconvenient and can moreeasily serve higher frequencyshopping trips. Walmart hasto compete in this space towin the trips that fresh andperishables generate.
  4. 4. CONFIDENTIAL & ©RetailNet Group, Page 4The commitment to freshprovides an interestinginsight into some ofWalmart’s goals with thisnew format. Evidenced bytheir commitment to thefull assortment, they areunwilling to sacrifice theirrole as the one-stop shop.However, they aresimultaneously making apush toward capturing thefrequency and fill-in tripwith the focus on fresh andthe urban location.Seasonal SpaceTo accommodate a fullassortment in a smallerbox, some departmentsand spaces have beenreduced. For example,action alleys are noticeablysmaller as there is notsufficient space for thetypical amount of pallets.However, the Urban 90format still sets asidesignificant space for aseasonal department.
  5. 5. CONFIDENTIAL & ©RetailNet Group, Page 5Seasonal events are an important tripoccasion. It is a high impulse trip andone that retailers can reliably counton. Walmart’s focus on fresh whilealso offering the full assortmenthighlights the challenge they arefacing; finding the balance betweencapturing more frequent trips andbeing the one-stop shop and stock-up retailer. Seasonal helps serveboth the frequency and stock-up trip.Commitment to EDLPOne of the clear marketing initiatives highlighted by Walmart in the new format is the pricematch guarantee as seen below. Signage promoting the ad match can be seen everywhere inthe store. The new format may confuse shoppers who are unsure how this smaller boxcompares to the traditional supercenter with which they are familiar, so Walmart has clearlymade a focused effort to reinforce their low prices to consumers shopping the new store. Theretailer goes to great lengths to ensure that customers are aware that this store offers the sameEvery Day Low Prices to which they are accustomed.
  6. 6. CONFIDENTIAL & ©RetailNet Group, Page 6Implications for Retailers and SuppliersWalmart’s Urban 90 format aims to bring the one stop shop of the big box supercenter to a farsmaller footprint and more urbanized area, and RNG believes, that is ultimately an effort toachieve greater space productivity. This concept is not unique, as other big box retailers aretesting similar small formats, including Target’s “City Target”, set to launch five stores this year.(Click here to see RNG’s analysis of City Target) Walmart however, has made some interestingadaptations from its traditional supercenter including limited facing in order to maintain a fullassortment and the high focus on fresh, as it appears to be trying to find a balance between astock-up big box retailer and capturing higher frequency trips as well. The limited productfacings present an inventory and labor challenge, and consistent and efficient execution ofthese issues will be critical to making the smaller store economics work.RetailersWalmart’s trial of the Urban 90 format, if successful, may prove to be a blueprint forother big box retailers launching small formats and entering urban areas. Thisprototype’s success or failure will also have an impact on other retailers’ interest in thesmall format concept.Walmart’s entrance to more proximity-based, urban areas brings increased competitionto retailers competing in this space. With the success of this format, Canadian retailerssuch as Sobeys, Metro, and Loblaws may find themselves with additional competition,especially with this format’s commitment to fresh.If Walmart can find the balance between being a traditional big box store and serving theconvenience and proximity trip, how will other retailers adjust to compete against onethat seemingly can compete on both ends of the trip spectrum?SuppliersWalmart’s decision to keep a full assortment with limited facings severely reduces theshelf visibility of each SKU. For shoppers, this means brands on the shelf will be harderto find and easier to overlook. How will brands stand out in the store and how willsuppliers balance product depth vs. product width with such limited shelf space?For suppliers looking to get their products onto the shelf of this Urban 90 format or any ofthe smaller formats being rolled out by big box retailers, thought should be given todeveloping pack sizes to address the limited shelf facing issue and help alleviate theinventory management concerns.Because of the space restrictions, Walmart will have to manage inventory differently as itsimply will not have backroom space to hold the inventory of a traditional supercenter.Inventory will turn more quickly, so suppliers will need to be more innovative and flexiblewith inventory replenishment and optimization ideas.As always, we appreciate your comments and feedback. Let us know what you think!Doug KoontzResearch AnalystRetailNet