Walmart's Supercenters Are Becoming A Major Problem

Wal-Mart's supercenters are struggling as consumers increasingly choose convenience stores over one-stop shops.

The retail giant's mega-stores suffered a .3% same-store sales decline in the second quarter compared to last year. During the same period, foot traffic for Wal-Mart's U.S. stores fell by 1.1%.

By comparison, Wal-Mart's smaller-format stores, or Neighborhood Markets, generated same-store sales growth of 5.6% and traffic increased by 4.1%.

"I think convenience is where the consumers have been looking, [especially] if you look at the Baby Boomers," Wal-Mart CFO Charles Holley said on a call with reporters Thursday.

The Neighborhood Markets are about one-fifth the size of Wal-Mart's supercenters and they are located in urban centers - where incomes tend to be higher - while supercenters are typically located on city outskirts.

The Markets are devoted to three of Wal-Mart's strongest categories: Groceries, pharmacy and fuel.

Groceries account for 56% of Wal-Mart's sales and research shows consumers don't buy food and beverages at one-stop shops anymore.

"In the 1990s and the beginning years of this century, the greatest threat to supermarkets and grocery stores came from supersized 'one-stop shopping' venues like supercenters and warehouse clubs," the market research firm Packaged Facts wrote in its most recent annual report on emerging grocery trends. "Today the threat is spread out among all retail channels, including drugstores, dollar stores, limited assortment chains, and - the elephant in the room - e-commerce."

On average, consumers shop at five different types of stores to fulfill their grocery needs, according to Deloitte's 2013 American Pantry report.

In response to these trends, Wal-Mart is rapidly expanding its Neighborhood Market locations. But its fleet of 400 is still too small to offset the lackluster sales at its 3,300 supercenters.

That doesn't mean Wal-Mart is ready to start shutting down its supercenters, however.

"Supercenters still have one of the highest returns of any [store] format in the company," Holley said. "It would be silly to close a lot of stores with good returns."