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Wal-Mart, the world's largest retailer, is thinking small

Wal-Mart (WMT), which has been looking for a spark to ignite its moribund U.S. sales for a long time, is testing a convenience store concept dubbed "Walmart to Go" in its hometown of Bentonville, Ark.


The 5,000-square foot Walmart to Go, which recently opened, sells gasoline along with an assortment of prepared foods including Krispy Kreme (KKD) donuts and groceries much like other convenience stores. Wal-Mart executives have been quoted in the press as saying that their stores will have a wider selection at lower prices than its rivals. The chain told trade publication CSPNet.com that there were "no current plans" to build other Walmart to Gos. Wal-Mart knows the convenience store market well. It sold McLane, which supplies groceries to these stores, to Warren Buffet's Berkshire Hathaway (BRK.A), for $1.5 billion in 2003. A Walmart spokesperson couldn't immediately be reached for comment.

Shares of Wal-Mart have risen about 3 percent over the past year as the company's downbeat outlook on the economy has weighed on the company's stock price. Some of Wal-Mart's wounds, however, were self-inflicted. The chain has been dogged by complaints of poor customer service and store shelves left barren because there weren't enough employees to keep them stocked.

Wal-Mart, whose cavernous stores are part of modern life, reported a 0.4 percent decrease in U.S. sales during the fourth quarter, critical for retailers since it includes the December holidays, as traffic fell 1.7 percent. Same-store sales, a key retail metric of stores opened at least a year, have fallen for four straight quarters. Chief Executive Douglas McMillon has vowed to "invest aggressively" in small store formats, adding between 270 and 300 during the current fiscal year along with about 115 new super centers. It currently operates 346 Neighborhood Markets and 20 Walmart Express stores.

"In addition to providing best-in-class one-stop shopping at supercenters, we believe that accelerating our small store expansion will allow customers to choose where and when to shop based on their needs," said William Simon, the head of Walmart USA, in press release

Unlike other retailers, convenience stores are a fractured industry with lots of mom-and-pop operators. Throughout its history, Wal-Mart has been blamed for driving independent shop owners out of business by offering the lowest prices. Whether the company can crack this market has yet to be seen.

Wal-Mart is one of the retailers being pressured by a coalition of state attorneys general who also operate pharmacies to quit selling cigarettes, following the lead of CVS Caremark (CVS). A Wal-Mart spokeswoman said the retailer was preparing a response to the officials, who have no legal authority to force the company to end cigarette sales since the product is legal.
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