Walmart discovers the virtue of small

Are the giant Walmart superstores a thing of the past?

Stung by slumping U.S. sales, the company is desperately hunting for a breakthrough. It's adding gas stations to its locations, hoping to give customers yet another reason to swing by. It's also trying to boost liquor sales, hoping to resonate with a broader swath of customers, The Wall Street Journal reports.

Most important, Walmart (WMT) is continuing to back away from the megastore format in favor of smaller convenience stores and neighborhood markets. For the first time ever, the retail giant will open more small stores this year than supercenters, The Journal reports.

There are several reasons for the shift. Walmart has largely saturated the country with its giant centers. There aren't many places left to build one and still capture enough sales and traffic to justify the cost.

The fast growth of dollar stores has also been a thorn in its side, particularly in recent years as the recession plodded along. The world's biggest discounter has even found it hard to compete on price with the stores, and simply can't offer $1 spray cleaners and sunglasses and make a profit.

Finally, the company's supercenters leave a lot to be desired when it comes to convenience. A trip to a massive Walmart can be a hassle, with long cashier lines, messy or empty shelves, and products spread across as much as 200,000 square feet.

The threats are coming from all sides. In one corner is Costco (COST), with its successful warehousing model and a formidable rival to Walmart's own Sam's Club chain. In another corner is Amazon.com (AMZN), which has built up a huge inventory that often beats Walmart on price.

Walmart is borrowing a bit of strategy from every rival. It wants to double alcohol sales by 2016, perhaps taking some business from Costco's dominance in the area. It has rejuvenated its online site, selling items that would never pass muster with many Walmart customers, such as a $900 kitchen island or a $1,600 king bed.

At the same time, it's delving deeper into the smaller Walmart Express and Neighborhood Market stores that range from just 10,000 to 40,000 square feet, The Journal reports. The smaller stores sell gas, groceries and some household items. Walmart can take those stores into smaller towns where a vast supercenter might not be a good fit.

The company has even opened a test concept called Walmart To Go in its home town of Bentonville, Ark. The store is just 2,500 square feet, and sells gasoline, groceries and traditional convenience store items.

Walmart is planning to add up to 300 small stores in its current fiscal year, double the company's initial forecast last October of 120 to 150 small-store openings. It already has 346 Neighborhood Markets and 20 Walmart Express stores open. It plans to open 115 new supercenters this year.

"Customers' needs and expectations are changing," Bill Simon, Walmart U.S. CEO, said earlier this year. "They want to shop when they want and how they want, and we are transforming our business to meet their expectations."

  • Kim Peterson

    Kim Peterson is a financial journalist covering business and the economy. She has written for several online and print publications, including MSN Money and The Seattle Times.