Data Suggests Walmart's Biggest Reason for Store Closures is Store Cannibalization

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ByAndrea
June 18,2019

Walmart (WMT), the grocery store, hypermarket, and discount department store giant, as well as America’s biggest employer, has started shutting down 17 stores in Canada and the U.S.

Recent data analytics firm Placer indicates that the true reason behind Walmart closing stores isn’t a reduction in traffic, brand value, or customer loyalty. Quite the opposite: the closures have to do with Walmart’s most prominent competitor - Walmart itself.

Currently, WMT operates more than 5,000 retail locations in the U.S. and seems to be its own main downsizing factor.

One example of the first closures announced is the supercenter in Dallas, Texas, located near two other huge WMT stores.  

The doomed Dallas supercenter is by no means underperforming, with over 450,000 visits in Q1 2019, from over 150,000 customers. The data indicates the Dallas supercenter is a popular destination for frequent repeat visits, showing superb customer loyalty. Furthermore, it ranked 86th percentile in Q1 2019 foot traffic, among all WMT supercenters. Their traffic surpasses the average WMT numbers by nearly 50%.

With regards to the supercenter's measurable success, Placer blames the announced closure on WMT putting nearby its stores in direct competition. The True Trade Area data for the same Dallas location shows an overlap with customers of the other two WMT supercenters.

Which Walmart to choose, that is the question. A similar situation is unfolding in Louisiana, Lafayette, where a WMT was shut down because visitors overlapped with a nearby store 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.

Can Walmart Avoid Cannibalization?

Is avoiding cannibalization even possible for corporations of WMT’s magnitude? Market planning optimization seems to be a viable solution, according to other top performers.

Currently, there are four IKEA locations surrounding LA, identical in product and service quality.  Even their Google ratings match, three of them with 4.4 stars and the remaining with 4.3. Still, IKEA managed to make a near-perfect store distance assessment, with regard to the particular audience they want to target.

From the perspective of IKEA visitors, there’s an ideal location near them, and then there’s the other three, less interesting solutions. This is how IKEA avoids traffic overlap altogether.

Proper region optimization could help Walmart maximize its reach, avoid cannibalization, and grow at a sustainable rate.

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