Data suggests Walmart’s biggest reason for store closures could be itself

By Donovan Russo | Yahoo Finance

Walmart (WMT), America’s largest employer, has started the process of shutting down 17 stores in the US and Canada.

But recent data suggests the retail giant’s main reason for downsizing isn’t another competitor — but Walmart itself, which operates over 5,000 combined retail locations in the U.S. alone.

That finding was made by data analytics firm Placer, which used location analytics to examine where Walmart was closing stores. The firm found that, rather than being the latest victim of retail’s ugly store closure trend, Walmart was largely cannibalizing its own traffic.

For example, Placer data found that a supercenter in Dallas — among the first closures announced — had solid foot traffic in the first quarter, but was competing directly with two other Walmart stores.

“In a normal situation, one would expect to see under-performing stores suffer from a significant drop in foot traffic. Yet, the Dallas location was actually operating at fairly normal levels,” Placer said.

Similarly in Louisiana, a Walmart supercenter in Lafayette that was shut down saw its audience overlap with a Walmart supercenter close by in Carenco.

“Walmart’s strength has led to a rapid expansion of stores throughout the country, that in some cases, ended up putting stores into direct competition,” Pacer’s analysts wrote.

“In short, Walmart is not undergoing some shocking reduction in brand value or customer loyalty, but customers are being served by multiple locations,” according to the firm. “The result is that a specific Walmart Supercenter’s biggest competitor turns out to be another Walmart Supercenter.”

An Ikea model?

The report suggested that Walmart look to a model similar to Ikea’s as a way to minimize store cannibalization. For example, the build-it-yourself home retailer has four stores in the greater Los Angeles area, and all of them grow at a sustainable pace.

“Even when accounting for 80% of overall visits over a 6 month period from late 2018 to mid-2019, the cannibalization between stores is almost non-existent,” Placer said.

Donovan Russo is a writer for Yahoo Finance. Follow him @Donovanxrusso.

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