• by Sarah Mahoney  @mahoney_sarah, March 27, 2007

Wal-Mart is opening two of its newest Neighborhood Market concept stores--less than 50,000 square feet--in the next few weeks. And Home Depot, which has tried and failed with small-store concepts in the past, is reportedly testing a smaller format, too.

"For the last several months we have studied our customers, seeking to understand their preferences about our store's convenience and products," Wal-Mart says in a release announcing the new prototype for its 112-unit Neighborhood Market chain, adding that the smaller format both simplifies things for shoppers, but also better addresses her needs.

"The new design package is a great example of what we know customers are seeking in this type of store," the company adds. Aimed at women, the store has a "warm ambiance," lots of fresh and organic foods, a bakery, sushi bar and "a uniquely designed health and beauty department."

The first prototype opened in Tulsa, Okla. in January, and the company says it plans to introduce between 15 and 20 of the new stores this year. Both the Plano, Texas store (about 40,000 sq. ft.) and the Naples, Fla., store (50,000 sq. ft.) are scheduled to open this week.

Meanwhile, the Atlanta Journal-Constitution reports that Home Depot, hedging its bets, is also experimenting with store sizes, opening both its biggest ever store in New Jersey (a 225,000 sq. ft. superstore) as well as testing a smaller-store concept, which would range from 35,000 to 50,000 sq. ft.--about half the size of its normal format. The store will reportedly debut in the San Francisco Bay area in late 2007.

Some observers are skeptical that small can work for big-boxers. "This isn't the first time Home Depot has tried this," says George Whalin of Retail Management Consultants. "Its Villager's Hardware concept in New Jersey years ago didn't work out. It's very hard for big companies like this to be neighborhood-y. They're global marketers, and that's how they think."

In fact, while both Home Depot and Lowe's have struggled, citing softness in the real estate market as a reason for the decline in home improvement sales, chains of smaller stores have been thriving. Ace Hardware, for example, recently reported record results.

And Chicago-based True Value last week said it plans to add over 1.5 million square feet of retail and $225 million of retail sales by 2009--a 154% increase.

The softness in real estate is less likely to affect small neighborhood stores, says Whalin. "People have not stopped fixing their homes and repairing broken toilets and buying new lawnmowers," he says. "That neighborhood retailer is well-positioned, they're convenient, you're in and out quick--unlike Home Depot, where you know it's going to take you some time to find and buy whatever it is you need."