Monday, August 18, 2014

Walmart's Neighborhood Markets are thriving, but at what price?

Walmart reported its second quarter earnings, and despite the company's seventh straight quarter without sales growth at stores open at least one year, as well as a downgraded full-year profit outlook, Walmart reported that its small-scale Neighborhood Market locations are thriving.

Neighborhood Market same-store sales grew by 5.6% compared to the previous quarter, and traffic grew by 4.1%.

Walmart opened 22 Neighborhood Market stores in the last quarter and is scheduled to open 180-200 more this year. (There are no stores in the Greater Philadelphia Market so far.) Still, the small-format grocery concept represents only a small fraction of the company's total business.

The earnings report comes a few weeks after a report by BMO Capital, which claims that Walmart is losing aggregate share in roughly one-third of the markets in which it operates Neighborhood Market stores. The report suggests that "Neighborhood Markets may be less of a threat than expected" to conventional grocers like Kroger, and that the concept in some cases may be cannibalizing sales from larger Supercenters in the same market.

Walmart's U.S. CEO Bill Simon acknowledged a "slight" cannibalization effect in some markets, but said it was not significant.

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