Understanding the Strategies behind Wal-Mart ‘Neighborhood’ Market—How It Is Used and Why

Abstract

In this paper we study the factors underlying the pattern of store openings for Wal-Mart Neighborhood Market(or Wal-Mart Market), Wal-Mart’s newest store format. The previous literature has identified three major groups of variables that affect the openings of retail establishments: demographics, competitive conditions(including from both K-Mart’s and Wal-Mart’s stores), and transportation costs via the distance distribution centers. We estimate the effects of these variables on the openings of Wal-Mart discount stores, Supercenters, and Markets and thereby gain insight into strategic uses of different store formats by Wal-Mart. We found that not all store formats are created equal—a certain demographics prefer Wal-Mart discount stores(e.g., Hispanics), while others prefer Wal-Mart Supercenters(e.g., whites, Hispanics); younger population and females also prefer these store formats. But we did not find any strong evidence that Wal-Mart Markets are favored by any subgroup of population. While a Wal-Mart discount store and a Supercenter compete with each other to a large extent, a Wal-Mart Market complements(and is complemented by) Wal-Mart discount stores and Supercenters. The findings suggest that Wal-Mart might have different strategic uses for its store formats and are consistent with the statement made by one Wal-Mart CEO on the positioning of Wal-Mart Market in the market: While Wal-Mart is aggressively expanding its discount-store and Supercenter format nationwide, it seems to deploy Wal-Mart Markets format sparingly to selective areas to complement its discount stores and Supercenters and fulfill consumer needs left by the other two formats. The findings also suggest the following policy implications regarding the Korean retailing: Super Supermarkets(SMM) might benefit from both agglomeration economies(e.g., from sharing local market knowledge among the same chain’s stores in nearby markets) and economies of density(i.e., from cost savings in distribution or operation spread across the same chain’s stores); the results depict a dire situation for traditional markets, which simply put together many independent and different varieties of stores in one location; the stores in traditional markets are less likely share local market knowledge due to idiosyncratic consumer needs across their product categories, and they are also unlikely to benefit from savings in common costs; hence SSMs are likely to expand their reach and influence over the traditional markets.