Tesco, Walmart losing out to online shopping in US, UK

London: With the rise in oil prices and a shift to online shopping, the love affair with the mega-store in massive out of town retail parks is coming to an end.  British retail giant Tesco saw 16%, some £4bn, wiped off its share price after dismal Christmas sales and its first profit warning in 20 years. While Tesco’s rival Sainsbury’s had strong results over the holiday, both are planning to bring to an end what the Financial Times called the ‘space race’, as grocery stores engaged in building billions of pounds worth of hypermarkets in attempt to better their competition. Retail sector analyst Dave McCarthy, of Evolution Securities, told The Independent, “Tesco is cutting back on the amount of new space devoted to non-food and will no longer be opening large, 100,000-square-foot stores.” [caption id=“attachment_181437” align=“alignleft” width=“380” caption=“Tesco and other retailers are shifting to smaller stores - Reuters”]  [/caption] The ‘space race’ couldn’t go on forever. The FT said that before Tesco’s shock results, the industry had planned to spend £5bn and open “space equivalent to the entire existing Sainsbury operation” over four years. With the British economy struggling and a fragile recovery in the US, the economies just couldn’t support that level of retail expansion. The trend isn’t just affecting grocery stores in the UK. Big box stores in the US are also under pressure, including mega-retailer Walmart and electronics mega-store Best Buy, which put a stop to its UK expansion last year and is closing all of its British-based stores. Best Buy had planned in its joint venture with British mobile retailer Carphone Warehouse to open up to 200 stores across Europe. Now, Best Buy Europe will focus on selling electronics in the almost 2,500 smaller Carphone and Phone House shops across the UK and Europe. Last year, Walmart announced plans to open 30 to 40 smaller ’express’ stores after sales had fallen at its signature ‘supercenter’ stores for several quarters. The retailer is also opening a number of mid-sized ‘Neighbourhood Market’ stores, but unlike in the past where retailers would simply build new stores, Walmart is expanding in part by buying up existing chains in the US and UK. For Tesco, it can take solace that misery loves company and Carrefour, the world’s second-largest retailer after Walmart, is also suffering. As The Economist says in covering Carrefour’s woes:

“In the past, Carrefour had three strengths: low prices, a vast range of food, clothes and white goods, and the convenience of having all those things in one place. Today shoppers can find low prices and infinite choice online, so fewer bother to drive to an out-of-town hypermarket.”

You only have to look at results in the UK to see how shoppers are shifting to the internet. British online grocer Ocado saw sales rise 16% over the holiday season. Of course, there is also a demographic shift in the West that is hurting the hypermarket. Families tend to buy in bulk, but singles, not just the young but the ageing, tend to buy less but more frequently. The battle of the hypermarkets seems to be coming to a close. In 2012, another retail battle is shaping up in the West, the battle of smaller convenience stores.