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Why Walmart plans to close 269 stores

Jan 19, 2016

Walmart Store Exterior

Walmart’s decision to scale back its store numbers in the US underlines how much the retail landscape has changed over the past few years.

The blunt truth is that while stores remain a vital part of the retail mix, they are not quite as relevant as they used to be.

Walmart announced Friday it was closing 154 stores in the US, including the entire network of Express format stores. Details have yet to be revealed about the overseas store closures, but a large number are likely to be in Brazil and seven will close in Puerto Rico.

In some areas of the US there was a time when a local Walmart would be the go-to destination for certain products, mainly because of an absence of alternatives. The growth of online, and especially of Amazon, has undermined that advantage and has given almost all consumers easy access to a comprehensive and relatively cheap assortment of products.

Against this backdrop, the economics of Walmart’s extensive estate – which was specifically developed with the acceptance that some stores would cannibalize the sales of others – has changed. That change necessitates review and ultimately for the weaker, less profitable stores to be curtailed.

It is notable that Walmart plans to shutter all 102 of what was once called its Express format stores. While this store type is aligned with the trend of shopping more locally, it has faced stiff competition from the rise and rapid growth of dollar stores. The return on these smaller stores is not sufficient to persuade Walmart that it should persevere with the tough battle against discount focused rivals in an attempt to grow this part of the business.

Although the extent of the store closures, which amount to fewer than 1 per cent of Walmart’s global store footprint, should not be overplayed, they represent a change in focus for the world’s largest retailer.

The current and future priority is on creating a seamless multichannel proposition. This requires extensive investment that necessitates very tight cost discipline elsewhere, especially on the store front. Ultimately it also means that supporting existing sales will require fewer and fewer stores.

Walmart’s decision is part of a larger shift that will be played out across all parts of the retail sector over the coming year and beyond.

Source: insideretail.asia

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