Bentonville, Arkansas 2010: After years of hard work, the format development team of the world’s largest retailer has just made an important breakthrough in the top-secret Alice in Wonderland project. In Walmart’s quest to shrink its successful 180,000-square-foot Supercenter format into a 12,000-square-foot Express format, it has finally cracked the code: The aptly named Down the Rabbit Hole formula has finally been perfected! This formula enables the retailer to successfully emulate the Supercenter shopping experience and store efficiency using the current supply chain capabilities in a store a fifteenth the size.
The formula unlocked the next phase of growth for Walmart, and between 2012 and 2015 the retailer used it to roll out 102 Express stores.
Sound too good to be true? Well, perhaps it was. Turns out there never was an Alice in Wonderland project or a Down the Rabbit Hole formula. In 2016 the retailer announced that it planned to close all of the Express stores. So what happened? Why did Walmart open the Express stores? Why didn’t the move work? And what should the retailer have done?
First, the original plan was to deliver a Supercenter experience in a smaller format, but this was unsuccessful because Express shoppers are on a different shopping trip than Supercenter shoppers. Second, Walmart’s very efficient logistics operation had difficulty supplying this much smaller format. And finally, the retailer known for its price leadership failed to achieve a similar level of profitability from its Express stores because it didn’t adapt its pricing strategy to the smaller format. In short, the smaller format didn’t fit Walmart’s positioning or its capabilities, and the retailer was unable to adapt to make it a success.
With limited growth in most consumer goods categories, many other retailers are looking to find new sources of growth outside their traditional core business. Examples include format differentiation, international expansion, stocklot sales (e.g., DIY retailers selling shampoo), and offering services closely or remotely related to their products business. The drive to sell more is very much in the DNA of a retailer, resulting in brand extension after brand extension.
But there is now an increasing number of high-profile retailers reducing non-core activities (see Examples) in the face of growing market pressure. Why they are stopping with these non-core activities, and why they are focusing on the core?