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​Why Walmart Express hit a dead end

Less than two years ago, a top Walmart (WMT) executive hailed its relatively new Walmart Express stores as "the next generation of retail."

That generation now appears to have been a faulty evolutionary line. Walmart announced on Friday that it would shutter all 102 Express outlets, located in neighborhoods like Los Angeles' Chinatown and in small (and often poor) towns like Interlachen, Florida.

Walmart had an ambitious goal with the Express stores: to develop a format that would rival dollar stores and convince shoppers to abandon the lure of $1 items in favor of its own brand of low-price merchandising. On its face, the plan seems like it should have been home run because Walmart, love it or hate it, has years of experience in selling low-cost goods.

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A lot was at stake for Walmart, considering that it wasn't only trying to fend off the advancements of dollar stores but also the rise of online retailers like Amazon (AMZN), which is giving Walmart a run for its money when it comes to deals. And in some cities, more urbane stores like Trader Joe's were luring young consumers, thanks to their organic products and hipper appeal.

Making matters worse were the problems with Walmart's core customers in the post-recession years. The typical Walmart customer is a 50-year-old woman with average household income of about $53,000. That demographic has failed to see wage gains in the recovery, crimping their ability to spend more at Walmart or other retailers.

Walmart Express was designed to come to the rescue.

But early on, signs indicated not all was well with the new format.

Some Express locations sold Walmart Supercenter-size packages, such as 20-pound sacks of dog food, which weren't exactly the type of goods to attract urban shoppers who walked to the stores. Aside from too-big packaging, the stores couldn't to offer the same wide range of merchandise as the Supercenters, which ate into profitability.

Reviews on Yelp (YELP) were mixed, with some local shoppers complaining about poor customer service and produce that didn't meet their expectations, often because of lack of choice or freshness. Some shoppers clearly were fans of the Express format, mostly citing their low costs and locations as positives.

Given the competition from already established smaller rivals, it's not surprising that the stores failed to catch on. After all, in urban locations another grocery store is typically just down the street.

In a blog post to staff, Walmart CEO Doug McMillon described the decision as based on financial and strategic concerns. The company on Friday said it would shutter 269 of its roughly 11,000 stores, including all of its Express locations. About 16,000 workers will be affected.

"While we have learned a lot from this pilot, including a deeper understanding of the everyday needs of our customers, we have decided not to proceed with this offering," McMillon wrote. "We feel we can better serve our customers by focusing on Supercenters and Neighborhood Markets and by investing in e-commerce and services like Pickup."

For Walmart, staying big is apparently easier than going small.

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