Whole Foods Slims Down Stores So They'll Age Better

Whole Foods (WFMI) has reversed its fortunes, the company claims, but it may have a long period of adjustment ahead of itself.

Last quarter, the word from the company was that its business had stabilized. Declines in comparable store sales — those in locations open for more than a year — were no longer increasing. Now, the company actually is talking about comparable store sales gains.

In announcing fourth quarter sales, founder and CEO John Mackey said:

We believe our sales have stabilized and officially turned the corner. Our comparable store and identical store sales trends improved for the second quarter in a row and, after five quarters of year-over-year declines, so far in the first quarter are up 1.6 percent and 0.4 percent, respectively.

Whole Foods has scaled back its store growth plans and has said it will concentrate on smaller stores going forward. It makes sense, but not because prospects for new stores aren’t as good right now. In fact, Whole Foods newer stores are the ones currently showing strongest comparable store sales growth. The challenges it faces go a little deeper, although one element of is obvious: After a year of getting beaten up by the economy, Whole Foods has less money to spend.

Comparable store sales for the quarter were down just under one percent – 0.9 percent to be exact – and a comp breakdown for those stores shows an interesting pattern. Stores open for less than two years, a category that includes the company’s biggest stores at over 54,000 square feet on average, actually enjoyed positive comp growth. In fact, they were up almost 14 percent. Yet, those are stores that still are establishing themselves in their respective markets and atypical operationally. Even the next newest – and next largest — get a lift from newness, something that supermarkets in general can count on when they first open or are just remodeled. Whole Foods opened from three to five years, which average about 51,000 square feet, were basically flat from the comp perspective. After that, something interesting happens.

Stores open for between five and eight years – well established and fully integrated into their markets – show a comp decline of almost five percent. They happen to represent another step down in size and an average of a little over 37,000 square feet. The following group, between eight and 11 years old and averaging 32,000 square feet, do better, with comps down a little over two percent at 2.2 percent. The best results are from the oldest and smallest stores, over 11 years in operation and averaging 27,000 square feet, as their comps decline only a hair over two percent at 2.1 percent.

Clearly, smaller Whole Foods stores are aging better.

Whole Foods walked away from some planned sites over the past year and will open 15 stores in the current fiscal year versus 20 in 2008. The stores it is opening this year are the largest, on average, it has opened at almost 54,000 square feet versus 53,000 square feet in the year earlier. In announcing fourth quarter sales, Whole Foods stated that it had reduced the size of two stores it has in development by an average of 16,200 square feet each. It recently signed three new leases, one each in Huntington Beach, Calif., Columbus, Ohio, and Pittsburgh, Pa., averaging 33,000 square feet or just about the size of the stores that have the second lowest comparable store sales loss, one that’s almost identical to the designation with the least comp drain. All three are scheduled to open after fiscal year 2010, the company noted.