Wal-Mart Stores, Inc. Takes Its Small Store Format South of the Border

By Markets Fool.com

Wal-Mart shares may be near all-time highs with a market cap approaching $300 billion, but not all is well in Bentonville. The company has been forced to reduce its EPS guidance for the fiscal year ending this month, and comparable sales at U.S. stores are essentially flat, up just 0.1% through the first three quarters of 2014.

Continue Reading Below

The company's U.S. stores are its most important category, making up 59% of total sales, but Wal-Mart has found growth opportunities in segments such as online sales and its small-footprint Neighborhood Market stores. E-commerce sales grew 21% in its most recent quarter, while comparable sales jumped 5.5% at Neighborhood Market locations.

Wal-Mart has not only found success at home with the Neighborhood Market but is also seeing positive results in Mexico, its second-biggest category. In fact, though the retail giant had just 407 small-format stores in the U.S. at this time last year, it now has nearly 900 small stores open south of border under the banner, Bodega Aurrera.

Source: Wikipedia

Bienvenidos a Wal-Mart
Wal-Mart may be even more dominant in Mexico than it is in the U.S. as the company controls over a fifth of the country's grocery sales.However, the retailer seems to have run into the same problem in Mexico as it has at home -- maximized potential of its big-box stores.

Continue Reading Below

To alleviate that problem and grab a piece of the small-store market that receives half of Mexico's grocery spending, Wal-Mart acquired Bodega Aurrera in 2008, and now, like the Neighborhood Market stores, the chain appears to be finding its groove as same-store sales jumped 12% this year.The Bodega Aurreras, which average a 2,690 square footprint, are actually much smaller than the Neighborhood Markets, which tend to be about 40,000 square feet.By comparison, Wal-Mart Supercenters are close to 200,000 square feet. Though that means sales are lower at individual Bodega Aurreras, it also means it's much easier to add new locations.

Other initiatives in Latin America
Like the expansion of Bodega Aurrera, Wal-Mart's other growth plans in Latin America mirror its U.S. strategies. Scot Rank, former CEO of WalMex, the subsidiary that oversees Mexico and Central America, said at a conference in September that the sales growth was 4.1% in Mexico and 7.6% in Central America for 2014. WalMex plans to increase revenue by growing same-store sales, expanding square footage, and building its e-commerce platform. While its aspirations to add a financial arm in the U.S. have often been stymied, the company has had more success in Mexico with Banco Walmart as sales grew 50% in 2014. The bank now has more than 635,000 credit card holders.

Wal-Mart's playbook is bigger than you think
The success of Bodega Aurrera, and to a lesser extent Banco Walmart, show that Wal-Mart is more flexible than many analysts believe, and the company still has growth options available despite the maturity of U.S. superstores.

Like the growth Neighborhood Market and e-commerce channels have seen at home, Bodega Aurrera has promising prospects as the recent same-store sales growth and popularity of the small-store format in Mexico indicate. Finding space to open the Bodega Aurreras is easy as well, compared to the larger superstores.

This success could also serve as a model for Wal-Mart in other countries, such as Brazil, where it has struggled. In 2013, Wal-Mart saw its store traffic in Latin America's biggest country fall 3.4%, so there is definitely an opportunity there.In fact, rivals such as Grupo Pao de Acucar and Carrefour have made headway in Brazil with formats similar to Bodega Aurreraas the bodegas offer a degree of convenience and accessibility that the big-box stores simply cannot.

Whether or not Wal-Mart can find a Bodega Aurrera for the Brazilian market remains to be seen, but one thing is clear: Even if comparable sales in the U.S have flatlined, Wal-Mart will find new ways to grow.

The article Wal-Mart Stores, Inc. Takes Its Small Store Format South of the Border originally appeared on Fool.com.

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.