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Wal-Mart’s ‘test lab’ a sign of the digital times for bricks-and-mortar retailer

The Ancaster Ontario Walmart was renovated last year becoming one of the company's new prototype stores. They lowered the shelving, widened isles, added colourful signage and expanded their grocery and toy departments while removing some items from the store shelves opting to sell them online.

Glenn Lowson

An affluent suburb of Hamilton, Ont. is ground zero for Lee Tappenden's discount store of the future.

The chief executive officer of Wal-Mart Canada Corp. is touring a supercentre in Ancaster that is designed for the digital age. It makes big bets on some of the retailer's top categories, such as groceries, toys, children's clothing and health and wellness items, and scales back on others, including furniture, cribs and strollers – items that customers are often buying online.

At the store's entrance, Mr. Tappenden reaches for one of the mobile scanning guns available for shoppers as a test here. Customers can scan each of their purchases as they move through the aisles, with the bill already tallied by the time they get to the checkout. The CEO makes a beeline for the refrigerated (8 degrees) walk-in fruits-and-vegetables room – another first for Wal-Mart Canada – and admires the rows of lettuce, strawberries and other wilt-prone produce.

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Mr. Tappenden, a 21-year Wal-Mart veteran who took the top job in Canada in August, is overseeing the reinvention of its supercentre, adapting it to an e-commerce landscape that is forcing it to rethink its operations. He is considering not adding any new stores this year, which would be the first time since Wal-Mart arrived in Canada in 1994 that it would not open a new outlet. Instead, the company will focus on revamping some of its 400-plus existing ones, he said.

"Our supercentres look quite tired – quite old – this is more modern, more contemporary," said the CEO, clad in jeans and a brown pullover, his name tag with his photograph clipped to it. "We just have to iron out some of the issues."

At a time when consumers are heading less often to bricks-and-mortar stores, Wal-Mart is looking for ways to lure back shoppers by trying to speed up the checkout process (with the mobile scanners, which it will later this year replace with scanning apps on customers' own smartphones); widening grocery aisles (by one foot to up to seven feet for easier navigation with bulky shopping carts); and focusing more on its leading products, such as toys and diapers, while directing customers to Walmart.ca for their other needs.

The efforts come as Amazon.com Inc. experiments with a high-tech physical store in the United States, featuring digital scanning and checkouts, while luring cybershoppers to its low-cost online shopping with its Prime loyalty program, which includes free shipping.

Wal-Mart's prototype store in Canada is so important to U.S. parent Wal-Mart Stores Inc. that David Cheesewright, who heads its international division (and at one time led its Canadian division) recently called out the Ancaster prototype as a "test lab" for the world's largest retailer.

Hugh Latif of management consultancy Hugh Latif & Associates said Wal-Mart's store in Ancaster reflects the big changes sweeping through the retail sector. "The key, strategically, will be how they use both online and stores to combat companies like Amazon."

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Wal-Mart's mobile-scanner test, along with its growing number of self-checkouts, will eventually help it reduce labour costs, he said. (A Wal-Mart spokesman said the retailer has made no staff cuts as a result of the technology.)

Huw Thomas, CEO of Smart Real Estate Investment Trust, which is Wal-Mart's largest landlord, said it's pleased that Wal-Mart continues to invest in its stores, even as its pace of expansion slows.

"They're doing, I think, what all large retailers are doing: They're trying to figure out how to do 'bricks and clicks,'" Mr. Thomas said. "The store in Ancaster is an evolution."

Faced with Amazon's digital threat, Wal-Mart has "got to be really smart about what they're doing. …They have no choice."

Wal-Mart Canada is counting on its "refresh" store strategy to give it a lift. Its same-store sales at outlets open a year or more – an important retail metric – rose just 1.1 per cent in each of its second and third quarters of 2016, lower than a year earlier, when it benefited from the demise of rival Target Canada.

Even so, Wal-Mart keeps stealing market share from competitors in food, consumer products and health and wellness items: They now make up more than 50 per cent of its total annual sales here, estimated at more than $25.4-billion, up from 43 per cent in 2013, Mr. Tappenden said.

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At the Ancaster store, the retailer has shrunk the space it devotes to some departments, such as large furniture, hardware, paint, strollers, car seats and adult clothing, and expanded its space for other sections in which Wal-Mart has a top ranking, including toys and children's apparel.

As he arrives in the toy section, which is about 30-per-cent larger than the one in other super centres, he bends down to peer at the Lego sets on one of the top shelves, whose height has been cut in half to ensure children can get a clear eye-level view of the enticing products being showcased.

"On a Saturday morning, the dream would be that the kids say: 'I want to go to Wal-Mart,'" Mr. Tappenden said.

The store has stopped carrying cribs, although Walmart.ca stocks about 200 of them. Mr. Tappenden said the retailer has to learn how to use better signs to steer shoppers to Wal-Mart's e-commerce site for those types of products, to discourage them from purchasing from Amazon or other e-tailers.

In the all-important grocery section, which brings shoppers to stores more frequently than general merchandise, Wal-Mart has rearranged the aisles so that the fresh-food departments are more prominent and closer together, he said. "We've been in fresh [food] for 10 years but we don't have the credibility yet," he said. "A lot of people haven't shopped us for fresh yet."

The new walk-in refrigerated room with sliding doors is aimed at boosting its "credibility" in fresh produce by helping ensure the food lasts longer, he said. It borrows a leaf from Costco stores, which also have "cooler" rooms, he noted. "We were worried customers wouldn't find their way in here and they'd think it is just part of the back room."

The mobile scanners are another way that he wants to make Wal-Mart supercentres more appealing. His research found customers are keen to get their shopping done faster.

The "Scan & Go" test is designed to let shoppers tally up their own purchases with the scanner and bag them in their shopping carts so that by the time they get to the checkout all they have to do is pay, he said. Wal-Mart's research has found that customers buy more items with the scanners – on average 18 compared with 13 on regular shopping trips. The retailer plans to equip 20 more stores with scanners this year and move to scanning with customers' own mobile devices by the end of 2017.

About 5 per cent of shoppers' purchases at Ancaster are made with Scan & Go, which was introduced in November, he said. Brenda Melnichuk, a 51-year-old homemaker, was one of the customers who was keen to try out a scanner for her $202.36 shopping trip early this month. "It takes a bit of getting used to," she said as she got staff to help her weigh and scan some apples. "It's nice to see the prices. It's kind of fun."

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