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Wal-Mart Goes Stealth with Small-Box Stores


New Marketside chain coming soon.

Wal-Mart (WMT), king of big-box retailing, will test small format neighborhood food stores in Phoenix, Arizona, and may soon take the idea national.

The smaller stores, called Marketside, will offer fresh as well as prepared food.

At only 15,000 square feet each, the stores will look very different from Wal-Mart's superstores and its Sam's Club warehouse stores.

Marketside's design includes wood around the store entrance and deep purple awnings, the same color as the aprons worn by staff. The Marketside name appears in lowercase green letters and bear no reference to the parent company, the Financial Times reports.

Call it stealth Wal-Mart.

Marketside is Wal-Mart's first new format since it launched supermarket-sized Wal-Mart Neighborhood Market stores in 1998. It's also the first new store not branded Wal-Mart since the company launched Sam's Club in 1983.

Wal-Mart, the world's number-one retailer, operates about 7,250 stores, including 975 discount stores, 2,800 combination discount and grocery stores and 590 Sam's Club stores. About 55% of Wal-Mart's stores are in the United States, but the company is also the top retailer in Canada and Mexico. It holds about a 95% stake in Seiyu, a Japanese retailer.

Wal-Mart's pilot project in Arizona will include about 10 stores in the Phoenix area. If successful, the project could develop 1,000 to 1,500 stores nationwide, generating about $10 billion in annual sales.

Marketside stores follow British supermarket rival Tesco's (TSCDY) decision to enter the US market with its Fresh & Easy Neighborhood Markets in Arizona, California and Nevada. Safeway (SWY) and Supervalu (SVU) are also testing small format grocery stores.

Tesco has opened about 20 Fresh & Easy small format stores in the Phoenix area in less than a year and plans to open about 16 more. Fresh & Easy is a discount store with little store decoration.

The move away from massive big-box stores suggests many customers prefer to shop in more intimate surroundings closer to home, especially in view of rising gas prices.

What's interesting is their attempt to re-create the look and feel of a neighborhood store. The food retailers are betting that a significant number of people are willing to trade rock-bottom prices for good service and artfully displayed merchandise.

Tesco and almost certainly Wal-Mart, Safeway and Supervalu, are likely to follow Starbucks (SBUX) "critical mass" store location strategy. The idea: Develop stores within a few miles of each other in an effort to become the de facto neighborhood retailer. Cross-referencing census data on income and family size allows the food retailers to select promising sites.

Starbucks often places several stores within several blocks of each other, creating what some marketers have called "critical mass squared." However, the coffee giant recently announced the closure of about 600 stores nationwide.

Tesco appears to locate its Fresh & Easy stores within 2 miles or so of its other stores. This builds name recognition and is intended to make shopping easy.
No positions in stocks mentioned.
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